nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒01‒25
ten papers chosen by
Russell Pittman
US Department of Justice

  1. Game complete analysis of symmetric Cournot duopoly By Carfì, David; Perrone, Emanuele
  2. Coalitional Approaches to Collusive Agreements in Oligopoly Games. By Sergio Currarini; Marco Marini
  3. Product differentiation and systematic risk: theory and empirical evidence By Bazdresch, Santiago
  4. Real Options and Signaling in Strategic Investment Games By Takahiro Watanabe
  5. Supply Function Equilibria Always Exist By Edward Anderson
  6. Are "Rockets and Feathers" Caused by Search or Informational Frictions By Ralph-C Bayer; Changxia Ke
  7. The Transaction Cost Benefits of Electronic Patent Licensing Platforms: A Discussion at the Example of the PatentBooks Model By Ghafele , Roya; Gibert, Benjamin
  8. Triple play as a separate market? Empirical findings and consequences to broadband market definition By Pápai, Zoltán; Lőrincz, László; Édes, Balázs
  9. The impact of step-down line extension on consumer-brand relationships: A risky strategy for luxury brands By F. Magnoni; E. Roux; P. Valette-Florence

  1. By: Carfì, David; Perrone, Emanuele
    Abstract: In this paper we apply the Complete Analysis of Differentiable Games (introduced by D. Carfì in [3], [6], [8], [9], and already employed by himself and others in [4], [5], [7]) to the classic Cournot Duopoly (1838), classic oligopolistic market in which there are two enterprises producing the same commodity and selling it in the same market. In this classic model, in a competitive background, the two enterprises employ, as possible strategies, the quantities of the commodity produced. The main solutions proposed in literature for this kind of duopoly are the Nash equilibrium and the Collusive Optimum, without any subsequent critical exam about these two kinds of solutions. The absence of any critical quantitative analysis is due to the relevant lack of knowledge regarding the set of all possible outcomes of this strategic interaction. On the contrary, by considering the Cournot Duopoly as a differentiable game (a game with differentiable payoff functions) and studying it by the new topological methodologies introduced by D. Carfì, we obtain an exhaustive and complete vision of the entire payoff space of the Cournot game (this also in asymmetric cases with the help of computers) and this total view allows us to analyze critically the classic solutions and to find other ways of action to select Pareto strategies. In order to illustrate the application of this topological methodology to the considered infinite game, several compromise decisions are considered, and we show how the complete study gives a real extremely extended comprehension of the classic model.
    Keywords: duopoly; normal-form games; microeconomic Policy; complete study of differentiable games; bargaining solutions
    JEL: B21 C71 C81 C7 O12 C72
    Date: 2012
  2. By: Sergio Currarini (Department of Economics,Faculty of Economics, Università degli Studi di Venezia "Ca' Foscari"); Marco Marini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo" and CREI, Università di Roma III)
    Abstract: In this paper we review a number of coalitional solution concepts for the analysis of the stability of cartels and mergers under oligopoly. We show that, although so far the industrial organization and the cooperative game-theoretic literature have proceeded somehow independently on this topic, the two approaches are highly inter-connected. We first consider the basic problem of the stability of the whole industry association of firms under oligopoly and, for this purpose, we introduce the concept of core in games with externalities. We show that different assumptions on the behaviour as well as on the timing of the coalitions of firms yield very di¤erent results on the set of allocations which are core-stable. We then consider the stability of associations of firms organized in coalition structures different from the grand coalition. To this end, various coalition formation games recently introduced by the so called endogenous coalition formation literature are critically reviewed. Again, di¤erent assumptions concerning the timing and the behaviout of firms are shown to yield a wide range of different results.
    Keywords: Cooperative Games, Coalitions, Mergers, Cartels, Core, Games with Externalities, Endogenous Coalition Formation.
    JEL: C70 C71 D23 D43
    Date: 2011
  3. By: Bazdresch, Santiago
    Abstract: Firms producing differentiated products have high margins and therefore low risk. As a result firms invest more into developing differentiated products when they perceive risk is high. Higher risk also implies higher product skewness towards more differentiated products and therefore higher average markups. The model predicts endogenous systematic and idiosyncratic riskiness as well as endogenous intensity of competition: firms in high risk industries reduce their riskiness by competing less than firms in low risk industries. Empirical evidence on product differentiation, R\&D expenses, B/M ratios, and market $\beta$ is consistent with the model.
    Keywords: Stock Returns; Price Differentiation; Product Market Competition; Product Development; Idiosyncratic Volatility; Research and Development; Counter-Cyclical Markups; Price of Risk; Price-Cost Margin; Investment; Innovation
    JEL: L25 L16 L11 G12 E32 E22 G32 O31
    Date: 2011–10–01
  4. By: Takahiro Watanabe (Department of Business Administration, Tokyo Metropolitan University)
    Abstract: A game in which an incumbent and an entrant decide the timings of entries into a new market is investigated. The profit flows involve two uncertain factors: (1) the basic level of the demand of the market observed only by the incumbent and (2) the fluctuation of the profit flow described by a geometric Brownian motion that is common to both firms. The optimal timing for the incumbent, who privately knows the high demand, is earlier than that for the low-demand incumbent. This earlier entrance, however, reveals the information of the high demand to the entrant, so that the entrant observing the timing of the incumbent would accelerate the its own timing of the investment that reduces the monopolistic profit of the incumbent. Therefore, the high-demand incumbent may delay the timing of the investment in order to hide the information strategically. The equilibria of this signaling game are characterized, and the conditions for the manipulative revelation are investigated. The values of both firms are compared with the case of complete information.
    Keywords: Real Option, Investment Timing, Signaling, Asymmetric Information, Game Theory
    JEL: G31 D81 C73
    Date: 2012–01
  5. By: Edward Anderson (The University of Sydney Business School)
    Abstract: Supply function equilibria are used in the analysis of divisible good auctions with a large number of identical objects to be sold or bought. An important example occurs in wholesale electricity markets. Despite the substantial literature on supply function equilibria the existence of a pure strategy Nash equilibria for a uniform price auction in asymmetric cases has not been established in a general setting. In this paper we prove the existence of a supply function equilibrium for a duopoly with asymmetric firms having convex costs, with decreasing concave demand subject to an additive demand shock, provided the second derivative of the demand function is small enough. The proof is constructive and also gives insight into the structure of the equilibrium solutions.
    Keywords: Wholesale electricity markets; divisible good auctions; supply functions; existence of equilibria.
    Date: 2011–04
  6. By: Ralph-C Bayer; Changxia Ke
    Abstract: Prices usually adjust much faster when costs increase than when costs decrease. The mechanism driving this "Rockets-and-Feathers" phenomenon is not well understood despite of ample empirical evidence for its existence. We use simple experimental markets with and without consumer search and either privately or publicly observed cost shocks to study this puzzle. In contrast to the theoretical predictions, we observe price dispersion and asymmetric price adjustment in all four settings. We attribute the pricing behavior to bounded rationality and its interaction with adaptive expectations. We conclude that neither search costs nor private information are indispensable for prices to adjust asymmetrically.
    Keywords: Asymmetric Price Adjustment, Price Dispersion, Adaptive Search, Bounded Rationality
    JEL: D82 D83 C91 L13
    Date: 2011–09
  7. By: Ghafele , Roya; Gibert, Benjamin
    Abstract: Current mechanisms to compensate inventors and improve legal access to their inventions remain ineffective. Manufacturers encounter significant transaction costs in the process of licensing the multitude of patent rights implicated in their products. High-technology product manufacturing requires access to a diverse pool of technologies that are owned by different organizations all over the world. The transaction costs of licensing these disparate rights are inhibiting unlicensed manufacturers in emerging economies from entering important markets and simultaneously limiting the revenue patent owners can generate from non-exclusive licenses. As communications technologies improve, innovative licensing mechanisms are emerging that can help firms avoid many of these transaction costs. Search and information costs, bargaining and decision costs, enforcement costs and adjustment costs all limit the value generated from licensing transactions. These costs are particularly severe for smaller firms that lack complementary assets to develop their products, lack experience with licensing and do not have large human and financial resources to invest in negotiation outcomes. The transaction costs of licensed manufacturing increase exponentially when having to license multiple rights among disparate rightsholders in a global market. By identifying, grouping, and valuing different rights into a single license, PatentBooks, an illustration of an electronic patent licensing platform, reduces search and information transaction costs. Firms instantaneously identify appropriate license rights from all over the globe without investing considerable resources in hundreds of discrete negotiations. Patent owners are able to generate greater non-exclusive licensing revenue from manufacturers than they could by licensing their rights in isolation. In doing so, they permit firms of all sizes and nationalities to generate more returns from technology and accelerate innovation by facilitating access to valuable inventions.
    Keywords: Transaction cost economics; patent Licensing; patent archives; electronic trading platforms
    JEL: O34 O32 M21
    Date: 2011–12–20
  8. By: Pápai, Zoltán; Lőrincz, László; Édes, Balázs
    Abstract: Double and triple play bundled offers are common phenomena in many national communication markets. However the overall market context, technological background of provision, the level of facility based platform competition and strategic role of the bundled offers seems to be different in national markets. There is clear challenge to the current European regulatory approach to broadband markets, which is treated as a separate market on its own. If there was a separate market for the bundled product, the whole market analysis and remedy system had to be adapted to this market reality. Testing the (triple play) bundle the market hypothesis is the logical and necessary first step to address this issue. We designed and conducted an empirical study supported by the Hungarian Competition Authority in order to address these questions. A special, situation adaptive questionnaire design was applied in order to get the possibly best informed and adequate stated preference reactions to a 10% price change. We used the cri ical loss test for market definition, testing whether there is a separate market for triple play bundles. Results indicates that the market definition question whether bundle has to or could be considered as a separate relevant market can be answered using well designed survey techniques. Many clues support the hypothesis that the triple play bundle in 2010 indeed was a separate relevant market. --
    Keywords: triple play,double play,multi-play,bundle,market definition,SSNIP test,consumer survey,stated preference approach,critical loss
    Date: 2011
  9. By: F. Magnoni (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II, IAE Grenoble - Institut d'Administration des Entreprises - Grenoble - Université Pierre Mendès-France - Grenoble II, UPMF Grenoble II - Université Pierre Mendès France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique); E. Roux (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - IAE d'Aix-en-Provence - Université Paul Cézanne - Aix-Marseille III : EA4225); P. Valette-Florence (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II, IAE Grenoble - Institut d'Administration des Entreprises - Grenoble - Université Pierre Mendès-France - Grenoble II, UPMF Grenoble II - Université Pierre Mendès France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique)
    Abstract: This paper analyzes the role of the brand concept (luxury vs. non-luxury) in the impact of step-down line extension on consumer-brand relationships. A before-and-after pseudo-experimental study conducted on the Internet among BMW and Peugeot buyers shows that step-down line extension negatively influences the main variables of consumer-brand relationships (e.g., self-brand connections, brand attachment, brand trust and brand commitment) only for the luxury brand BMW. On the contrary, no dilution effects are found for the non-luxury brand Peugeot.
    Keywords: vertical line extension, dilution effects; consumer-brand relationships;luxury brands; cars; PSL approach
    Date: 2011
  10. By: Siham Mourad (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II, UPMF Grenoble II - Université Pierre Mendès France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique); P. Valette-Florence (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II, UPMF Grenoble II - Université Pierre Mendès France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique, IAE Grenoble - Institut d'Administration des Entreprises - Grenoble - Université Pierre Mendès-France - Grenoble II)
    Abstract: A large number of studies on counterfeiting explore consumer behaviors in the consumption of counterfeit articles. But few of them consider luxury brand consumers and counterfeiting. Our research attempts to contribute to this field by studying strategies adopted by luxury brand consumers in the face of counterfeiting (Commuri 2009). To do so, we use the concept of an "experience of another self" in buying a product (Dampérat et al., 2002), which focuses on personal and social objects of consumption.
    Keywords: Counterfeit consumption, Luxury brand, Consumption experience
    Date: 2011

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