nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒01‒10
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. Profitability in Cournot and Bertrand Mixed Markets under Endogenous Objectives By Scrimitore, Marcella
  2. Selection effects with heterogeneous firms By Monika Mrazova; J. Peter Neary
  3. Firms' organizational modes with productivity heterogeneity, demand uncertainty and production capacity By Sun, Churen; Tian, Guoqiang
  4. Pricing behavior of firms when consumers have an Imperfect Recall By Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber; Mehar, Ayub
  5. A battle between branded and me too brands (unbranded) products By Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
  6. Access Regulation and Welfare By Romain Lestage; David Flacher
  7. The Google Book search settlement: A law and economics analysis By Müller-Langer, Frank
  8. Consumer credit and payment cards By Wilko Bolt; Elizabeth Foote; Heiko Schmiedel
  9. Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards By Wilko Bolt; Sujit Chakravorti
  10. Termination Charges in the International Parcel Market: Competition and Regulation By Andreas Haller; Christian Jaag; Urs Trinkner
  11. The market for real estate brokerage services in low- and high-income neighborhoods: A 6 city study By Yelowitz, Aaron; Scott, Frank; Beck, Jason

  1. By: Scrimitore, Marcella
    Abstract: We examine both quantity and price competition between a number of profit-maximizing firms and a state-controlled enterprise (SCE). The objective function of the latter is strategically defined by a welfare-maximizing government which weighs the SCE’s profits relative to consumer surplus and private profits. Different motives drive the government‘s optimal behavior in the two competitive settings and lead all firms in oligopoly to gain higher profits in Cournot than in Bertrand. The profit ordering is reverted, and social welfare is enhanced, with respect to the purely-mixed market examined by Ghosh and Mitra (2010). In duopoly, aggregate profits are equivalent in Cournot and Bertrand.
    Keywords: Cournot; Bertrand; endogenous objectives; partial privatization
    JEL: L32 L13 D43
    Date: 2011–10–24
  2. By: Monika Mrazova; J. Peter Neary
    Abstract: We provide a general characterization of which firms will select alternative ways of serving a market. If and only if firms’ maximum profits are supermodular in production and market-access costs, more efficient firms will select into the activity with lower market-access costs. Our result applies in a range of models and under a variety of assumptions about market structure. We show that supermodularity holds in many cases but not in all. Exceptions include FDI (both horizontal and vertical) when demands are “sub-convex” (i.e., less convex than CES), fixed costs that vary with access mode, and R&D with threshold effects.
    Keywords: Foreign direct investment (FDI), Heterogeneous firms, Proximity-concentration trade-off, R&D with threshold effects, Super- and Sub-convexity, Supermodularity
    JEL: F23 F15 F12
    Date: 2011
  3. By: Sun, Churen; Tian, Guoqiang
    Abstract: This paper investigates how firms' demand uncertainty with capacity constraints and their productivity heterogeneity affect their making-or-buying organizational choices in a general equilibrium framework with incomplete contracts. It shows that a final-good producer may adopt integrating a part of the production of its intermediate input in-house and outsource it at arm's length domestically or abroad simultaneously. Moreover, Five organizational modes, exiting the market, outsourcing in the North, outsourcing in the South, integrating and outsourcing in the North simultaneously, and integrating in the North and outsourcing in the South simultaneously, in turn occur with increase of firm-level productivity, as well as its demand uncertainty. Influences of uncertainty and productivity on prevalence of various organizational modes are also explored.
    Keywords: Uncertainty; organizational mode; productivity heterogeneity; incomplete contract; outsourcing; integration
    JEL: D23 F23 F12
    Date: 2011–06–22
  4. By: Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber; Mehar, Ayub
    Abstract: Operating in markets which include the characteristics of both the perfect and imperfect competitions has never been so easy for a firm, while setting an acceptable price. Various firms show various pricing behavior to generate and maximize revenues. This paper is an attempt to encompass pricing behaviors of firms when consumers have imperfect recall for the past prices of the products, while giving a thought to ponder that which of the behaviors has an optimal rationale when a firm sets market price for a commodity. The findings concludes that firms set prices as similar as monopolist when the consumers of their products have imperfect recall for price they offered already in yore.
    Keywords: Imperfect recall; pricing behavior; monopolist; hotelling tradeoff
    JEL: M0 D11
    Date: 2012
  5. By: Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
    Abstract: Consumers have numerous options to select and buy various kinds of products. A retail outlet offers branded and me too (unbranded) items to the customers to buy from. The consumption pattern of both forms of products has which sort of variations, requires an accurate estimation and findings. For the outlined stated manifesto, personal survey technique was employed for grabbing the first hand data. Co- integration was used to understand and judge the co-variation between branded and me too (unbranded) products. Exclusive insights were revealed between the two different classes of product that an increase in consumer’s income level urges consumers to increase their consumption of branded products. Similarly, consumers opt to purchase branded product as there is a strong perception that branded items have good quality. While, it is also found that if there is an increase in the prices of branded and unbranded products than none of the products clearly win the battle and they have the same pattern for being consumed which is the co-movement of their consumption patterns.
    Keywords: branded products; me too brands; Co-movements; Consumption patterns
    JEL: M3
    Date: 2012
  6. By: Romain Lestage (TEMEP, College of Engineering, Seoul National University); David Flacher (Centre d'Economie de l'universite Paris Nord (CEPN))
    Abstract: Abstract In a 2006 paper, Graeme Guthrie underlined that “[T]he impact of access price level on investment is not yet fully understood” and that “even less is known about the overall impact on welfare” (Guthrie 2006, p. 965). Although important progress has been made on the former issue, the latter remains largely underinvestigated. This paper contributes to addressing this question by analyzing the optimal access price in different investment games. Our main findings are as follows: 1. When only one firm can invest and when only service-based competition is feasible, the optimal access price is such as the flat part is as high as possible and the variable part equals the marginal cost. 2. The optimal variable part is lower when only service-based competition is possible than when several firms can invest, although there is too much duplication in the latter case. 3. When several firms can invest, the optimal access price is such as the flat part is as high as possible and the variable part is higher than the marginal cost. These results arise because the variable part determines both private incentives to invest and to duplicate and the extent to which investment and duplication are socially desirable.
    Keywords: Access regulation, infrastructure investment, welfare.
    JEL: L13 L43 L51
    Date: 2011–12
  7. By: Müller-Langer, Frank
    Abstract: Beginning in December 2004 Google has pursued a new project to create a book search engine (Google Book Search). The project has released a storm of controversy around the globe. While the supporters of Google Book Search conceive the project as a first reasonable step towards unlimited access to knowledge in the information age, its opponents fear profound negative effects due to an erosion of copyright law. Our law and economics analysis of the Book Search Project suggests that – from a copyright perspective – the proposed settlement may be beneficial to right holders, consumers, and Google. For instance, it may provide a solution to the still unsolved dilemma of orphan works. From a competition policy perspective, we stress the important aspect that Google’s pricing algorithm for orphan and unclaimed works effectively replicates a competitive Nash-Bertrand market outcome under post-settlement, third-party oversight.
    Keywords: Book Rights Registry; Competition Policy; Copyright; Fair Use; Google Book Search; Library Program; Orphan Works
    JEL: K20 O34 K21 L43 K11
    Date: 2011–06–15
  8. By: Wilko Bolt; Elizabeth Foote; Heiko Schmiedel
    Abstract: We consider debit and credit card networks. Our contribution is to introduce the role of consumer credit into these payment networks, and to assess the way this affects competition and equilibrium fees. We analyze a situation in which overdrafts are associated with current accounts and debit cards, and larger credit lines with ‘grace’ periods are associated with credit cards. If we just introduce credit cards, we find their merchant fees depend not only on the networks’ cost of funds and the probability of default, but also on the interest rates of overdrafts. Whilst debit card merchant fees do not depend on funding costs or default risk in a debit-card only world, this changes when they start to compete with credit cards. First, debit merchant acceptance increases with the default probability, even though merchant fees increase. Second, an increase in funding costs causes a surprising increase in debit merchant fees. Effectively, the bank offering the debit card benefits from consumers maintaining a positive current account balance, when they use their credit instead of their debit card. As a result, this complementarity may lead to relatively high debit card merchant fees as the bank discourages debit card acceptance at the margin.
    Keywords: Payment pricing; Card competition; Consumer credit; Complementarity
    JEL: L11 G21 D53
    Date: 2011–12
  9. By: Wilko Bolt; Sujit Chakravorti
    Abstract: The provision of retail payment services is complex with many participants engaging in a series of interrelated bilateral transactions and subject to large economies of scale and scope along with strong adoption, usage and network externalities. This makes sound public policy difficult. We focus on three types of market interventions for various countries. We argue that intervention into payment markets should concentrate on the removal of entry barriers in payment markets and providing greater incentives to adopt efficient payment instruments without stifling private sector investment in more efficient payment technologies over the long term. While the theoretical literature on the economics of payment cards is growing, the empirical literature is yet too limited to provide much guidance to public authorities. Eventually, the outcomes from different types of market interventions will provide a useful “natural experiment” to refute or validate the various theories of the economics of payments.
    Keywords: Retail payments; market interventions; pricing; public policy
    JEL: L11 G21 D53
    Date: 2011–12
  10. By: Andreas Haller; Christian Jaag; Urs Trinkner
    Abstract: There is a broad theoretical end empirical economic literature discussing the effects of termination charges on competition and retail prices. Most of this literature has focused on the telecommunications markets. Termination charges in the international parcel market have not yet received much attention in the economic literature. The aim of this paper is to fill this gap and to analyze the economics of termination charges for parcels. We find that the economics of termination charges in the international parcel market are different to termination charges in other mar-kets. Based on these findings the paper presents a number of practical solutions and potential regulatory remedies to the dilemma of termination charges in the international parcel market.
    Keywords: International parcel market, Termination charges, Remuneration system
    JEL: L14 L87
    Date: 2011–08
  11. By: Yelowitz, Aaron; Scott, Frank; Beck, Jason
    Abstract: We examine the market structure for real estate brokerage services across six large metropolitan areas, by collecting more than 300,000 real estate listings and computing the Herfindahl-Hirschman Index (HHI) for each neighborhood. When we divide neighborhoods based on income, house value, and race, we find no evidence of redlining; that is, the market structure for brokerage services is at least as competitive in less advantaged neighborhoods as it is in more advantaged ones.
    Keywords: HHI; real estate brokerage competition; Herfindahl-Hirschman Index; redlining
    JEL: L85
    Date: 2011–12–28

This nep-com issue is ©2012 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.