nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒09‒29
twenty papers chosen by
Russell Pittman
United States Department of Justice

  1. Aggregative Oligopoly Games with Entry By Simon P. Anderson, Nisvan Erkal and
  2. One-Leader and Multiple-Follower Stackelberg Games with Private Information By Tomoya Nakamura
  3. Correlated equilibria in homogenous good Bertrand competition By Ole Jann; Christoph Schottmüller
  4. The Optimal Sequence of Costly Mechanisms By Hanzhe Zhang
  5. A Model of Advance Selling with Consumer Heterogeneity and Limited Capacity By X. Henry Wang; Chenhang Zeng
  6. Noncooperative Oligopoly in Markets with a Continuum of Traders: A Limit Theorem µa la Cournot By Busetto, Francesca; Codognato, Giulio; Ghosal, Sayantan
  7. A note on the effects of downstream free entry on wholesale pricing By Ioannis N. Pinopoulos
  8. Strategic Disclosure of Demand Information by Duopolists: Theory and Experiment By Jos Jansen; Andreas Pollak
  9. Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price By Kircher, Philipp; Kim, Kyungmin
  10. Certification and Market Transparency By Konrad Stahl; Roland Strausz; ;
  11. A Model of Quality Uncertainty with a Continuum of Quality Levels By Christopher Gertz
  12. Labeling by a private certifier and public regulation By Barry, I.; Bonroy, O.; Garella, P.G.
  13. Signalling quality with posted prices By Peyman Khezr; Abhijit Sengupta
  14. Collusion in regulated pluralistic markets By Miraldo, M; Crea, G; Longo, R; Street, A
  15. Taxation and the Sustainability of Collusion: Ad Valorem versus Specific Taxes By Azacis, Helmuts; Collie, David R.
  16. Using Remedies In Russian Merger Control By Anastasiya Redkina
  17. R&D Spillovers on a Salop Circle By Fabio Lamantia; Mario Pezzino
  18. Trade Liberalization and Food Retail Structure: The Italian Case By Bonanno, Alessandro; Castellari, Elena; Sckokai, Paolo
  19. How do Co nsumers Respond to Gasoline By David P. Byrne, "; " Gordon Leslie
  20. Substitution between fixed-line and mobile access: the role of complementarities By Lukasz GRZYBOWSKI; Frank VERBOVEN

  1. By: Simon P. Anderson, Nisvan Erkal and
    Abstract: We use cumulative reaction functions to compare long-run market structures in aggregative oligopoly games. We fi?rst compile an IO toolkit for aggregative games. We show strong neutrality properties across market structures. The aggregator stays the same, despite changes in the number of ?rooms and their actions. The IIA property of demands (CES and logit) implies that consumer surplus depends on the aggregator alone, and that the Bertrand pricing game is aggregative. We link together the following results: merging parties? pro?ts fall but consumer surplus is unchanged, Stackelberg leadership raises welfare, monopolistic competition is the market structure with the highest surplus.
    Keywords: Aggregative games; oligopoly theory; entry; strategic substitutes and
    JEL: D43 L13
    Date: 2009
  2. By: Tomoya Nakamura
    Abstract: This study analyzes one-leader and multiple-follower Stackelberg games with demand uncertainty. We demonstrate that the weight on public information regarding a follower's estimation of demand uncertainty determines the strategic relationship between the leader and each follower. When the relationship is strategic complement, the leader can exit from a market. The threshold is determined by the intensity of Cournot competition among the followers.
    Date: 2014–07
  3. By: Ole Jann (Department of Economics, Copenhagen University); Christoph Schottmüller (Department of Economics, Copenhagen University)
    Abstract: We show that there is a unique correlated equilibrium, identical to the unique Nash equilibrium, in the classic Bertrand oligopoly model with homogenous goods. This provides a theoretical underpinning for the so-called "Bertrand paradox" and also generalizes earlier results on mixed-strategy Nash equilibria. Our proof generalizes to asymmetric marginal costs and arbitrarily many players.
    Keywords: Bertrand paradox, correlated equilibrium, price competition
    JEL: C72 D43 L13
    Date: 2014–06–30
  4. By: Hanzhe Zhang (Department of Economics, University of Chicago)
    Abstract: An impatient, risk-neutral monopolist must sell one unit of an indivisible good within a fixed number of periods and privately informed myopic buyers with independent values enter the market over time. In each period, the seller can either run a reserve price auction incurring a cost or post a price without the cost. We characterize the optimal sequence of mechanisms that maximizes the seller's expected profits. When there is an infinite number of periods, repeatedly running auctions with the same reserve price or posting a constant price is optimal. When there is a finite number of periods, the optimal sequence is a sequence of declining prices, a sequence of auctions with declining reserve prices converging to the static optimal monopoly reserve price, or the combination of the two. Most interestingly, a sequence of auctions before a sequence of posted prices is never optimal. The mechanism sequence of posted prices followed by auctions remains optimal under various extensions of the basic setting and resembles a Buy-It-Now option.
    Date: 2013
  5. By: X. Henry Wang (Department of Economics, University of Missouri-Columbia); Chenhang Zeng (Research Center for Games and Economic Behavior, Shandong University)
    Abstract: We study advance selling in a model with a capacity constraint for the seller and in the presence of both consumer heterogeneity and demand uncertainty. Buyers face different levels of uncertainty about their valuations in the advance selling period: one group (called informed buyers) now their individual valuations while the other group (called uninformed buyers) only know the distribution of their valuations. We find that the seller¡¯s optimal pricing strategy depends on his capacity size as well as the size of informed buyers. For a small capacity size, the Constant Price strategy with the highest possible price is adopted. For sufficiently large capacity sizes, both Advance Purchase Discount and Advance Purchase Premium strategies may be optimal. In general, the larger the size of informed buyers the more likely an Advance Purchase Premium strategy is adopted.
    Keywords: advance selling, capacity constraint, consumer heterogeneity, demand uncertainty.
    JEL: D42 L12
    Date: 2014–05
  6. By: Busetto, Francesca; Codognato, Giulio; Ghosal, Sayantan
    Abstract: In this paper, we consider an exchange economy µa la Shitovitz (1973), with atoms and an atomless set. We associate with it a strategic market game of the kind first proposed by Lloyd S. Shapley and known as the Shapley window model. We analyze the relationship between the set of the Cournot-Nash equilibrium allocations of the strategic market game and the Walras equilibrium allocations of the exchange economy with which it is associated. We show, with an example, that even when atoms are countably in¯nite, any Cournot-Nash equilibrium allocation of the game is not a Walras equilibrium of the underlying exchange economy. Accordingly, in the original spirit of Cournot (1838), we par- tially replicate the mixed exchange economy by increasing the number of atoms, without a®ecting the atomless part, and ensuring that the measure space of agents remains finite. We show that any sequence of Cournot-Nash equilibrium allocations of the strategic market games associated with the partially replicated exchange economies approximates a Walras equilibrium allocation of the original exchange economy.
    Date: 2014
  7. By: Ioannis N. Pinopoulos (Department of Economics, University of Macedonia, Greece)
    Abstract: We consider a simple model where downstream firms (retailers) carry the product of an upstream supplier (manufacturer). Under very general demand conditions, we show that, when downstream entry is endogenously dependent on profitability conditions, the optimal wholesale price charged by the manufacturer is higher under competitive conditions than under monopolistic conditions in the downstream market. The well-known result of the upstream supplier’s pricing policy being invariant to downstream market structure is reversed when free entry in the downstream market is taken into account.
    Keywords: Pricing, Supply chains, Equilibrium, Competition, Free entry.
    JEL: L22
    Date: 2014–09
  8. By: Jos Jansen; Andreas Pollak
    Abstract: We study the strategic disclosure of demand information and product-market strategies of duopolists. In a setting where firms may fail to receive information, we show that firms selectively disclose information in equilibrium in order to influence their competitor's product-market strategy. Subsequently, we analyze the firms' behavior in a laboratory experiment. We find that subjects often use selective disclosure strategies, and this finding appears to be robust to changes in the information structure, the mode of competition, and the degree of product differentiation. Moreover, subjects in our experiment display product-market conduct that is largely consistent with theoretical predictions.
    Keywords: duopoly, Cournot competition, Bertrand competition, information disclosure, incomplete information, common value, product differentiation, asymmetry, skewed distribution, laboratory experiment
    JEL: C92 D22 D82 D83 L13 M4
    Date: 2014–09–01
  9. By: Kircher, Philipp; Kim, Kyungmin
    Abstract: We consider a frictional two-sided matching market in which one side uses public cheap talk announcements so as to attract the other side. We show that if the first-price auction is adopted as the trading protocol, then cheap talk can be perfectly informative, and the resulting market outcome is efficient, constrained only by search frictions. We also show that the performance of an alternative trading protocol in the cheap-talk environment depends on the level of price dispersion generated by the protocol: If a trading protocol compresses (spreads) the distribution of prices relative to the first-price auction, then an efficient fully revealing equilibrium always (never) exists. Our results identify the settings in which cheap talk can serve as an efficient competitive instrument, in the sense that the central insights from the literature on competing auctions and competitive search continue to hold unaltered even without ex ante price commitment.
    Keywords: Directed search, competitive search, commitment, cheap talk,
    Date: 2013
  10. By: Konrad Stahl; Roland Strausz; ;
    Abstract: We provide elementary insights into the effectiveness of certification to increase market transparency. In a market with opaque product quality, sellers use certification as a signaling device, while buyers use it as an inspection device. This difference alone implies that seller-certification yields more transparency and higher social welfare. Under buyer-certification profit maximizing certifiers further limit transparency, but because seller-certification yields larger profits, active regulation concerning the mode of certification is not needed. These findings are robust and widely applicable to, for instance, patents, automotive parts, and financial products.
    Keywords: Market Transparency; Certification; Information and Product Quality; Asymmetric Information
    JEL: D82 G24 L15
    Date: 2014–09
  11. By: Christopher Gertz (Center for Mathematical Economics, Bielefeld University)
    Abstract: This work takes a closer look on the predominant assumption in usual lemon market models of having finitely many or even only two different levels of quality. We model a situation which is close to the classical monopolistic setting but admits an interval of possible quality values. Additionally, to make the model interesting, the consumer receives a signal which is correlated to the quality level and is her private information. We introduce a new concept for the consumer reaction to the received information, encompassing rationality but also allowing for a certain degree of imperfection. We find that there is always a strictly positive price-quality relation in equilibrium but the classical adverse selection effects are not observed. In contrast, low quality levels do not make any sales. After applying a refinement to these equilibria, we show that when the additional signal is very precise, more low quality levels are excluded from the market. In the limit of perfect information, the market breaks down, a behavior completely opposed to the original perfect information case. These different and quite extreme results compared to the classical lemon market case should serve as a warning to have a closer look at the assumption of having finitely many quality levels.
    Keywords: Quality uncertainty, Price signaling, Adverse selection, Two-sided incomplete information
    JEL: C72 D42 D82
    Date: 2014–09
  12. By: Barry, I.; Bonroy, O.; Garella, P.G.
    Abstract: This paper considers the effects of labels in a vertically differentiated duopoly. A label certifies the level of a product's measurable characteristic. It is shown that the certification label chosen by a private (for profit) certifier is lower than both the socially optimal and the firm's preferred one. Public policies that lead to an increase in the label can improve welfare - while also potentially benefiting firms. We fin that: (i) if public and private certification are offered, an indirect regulatory outcome is achieved (a second best) where the private certifier raises the standard of this label - even though no firm adopts the public label; (ii) two common tools, like a per unit tax on the unlabeled product or a subsidy in favor of the labeled one, lead to lower private certification standard with ambiguous effects on welfare; (iii) and ad valorem tax on the unlabeled product, by contrast, increases welfare.
    JEL: L13 L15 L5
    Date: 2014
  13. By: Peyman Khezr (School of Economics, The University of Queensland); Abhijit Sengupta (School of Economics, University of Sydney)
    Abstract: We study a game in which the seller of an indivisible object wants to sell her object to a finite number of potential buyers with a posted price. The environment is such that the seller has some private information about the quality of the object that cannot be communicated with buyers at zero cost. We focus on the separating equilibrium of this game in which the seller signals her actual type via the posted price. The conditions of the existence and the uniqueness of this equilibrium are studied. In an example, we calculate the seller’s expected payoff at this equilibrium and further discuss some comparative statistics.
    Date: 2014–09–02
  14. By: Miraldo, M; Crea, G; Longo, R; Street, A
    Date: 2014–08–28
  15. By: Azacis, Helmuts (Cardiff Business School); Collie, David R. (Cardiff Business School)
    Abstract: Assuming constant marginal cost, it is shown that a switch from specific to ad valorem taxation has no effect on the critical discount factor required to sustain collusion. This result is shown to hold for Cournot oligopoly as well as for Bertrand oligopoly when collusion is sustained with Nash-reversion strategies or optimal-punishment strategies. In a Cournot duopoly model with linear demand and quadratic costs, it is shown that the critical discount factor is lower with an ad valorem tax than with a specific tax. However, in contrast to Colombo and Labrecciosa (2013), it is shown that revenue is always higher with an ad valorem tax than with a specific tax.
    Keywords: Taxes; Imperfect Competition; Oligopoly; Cartel; Supergame
    JEL: H21 H22 L13 L41 C72 C73
    Date: 2014–09
  16. By: Anastasiya Redkina (National Research University Higher School of Economics)
    Abstract: This article is motivated by a growing interest in the problem of merger control quality assessment. Remedies are one of the instruments of merger control and have a significant influence on the results of it. This paper aims to build and empirically evaluate a discrete choice model of merger remedies implementation in Russian merger control. The database consists of 443 merger cases accepted by the Russian antimonopoly agency between 2008 and 2011. We analyse the agency’s decisions to find which characteristics of merging firms and markets lead the Federal Antimonopoly Service to decide whether to allow conditional acceptance. We find that variables related to high market power lead more frequently to a remedy outcome. Such industries as the energy sector, communications and insurance positively affect the probability of a structural remedy. We do not find significant effects of “non-structural” variables, such as the world leader and the nationality of the firm-buyer
    Keywords: merger control, behavioural and structural remedies, discrete choice models
    JEL: K21 L40 D78
    Date: 2014
  17. By: Fabio Lamantia; Mario Pezzino
    Date: 2014
  18. By: Bonanno, Alessandro; Castellari, Elena; Sckokai, Paolo
    Abstract: In this paper we assess the impact of the LD 114/1998 on the structure of the Italian food retailing industry. We use difference–in–difference technique, comparing the level of concentration, number of stores, average store size and level of service offered to consumers in regions enacting mandated consistent with the LD 114/1998, versus those that did not. Results show that, once the endogenous nature of policy changes is controlled for, the policy appears more effective than expected, in terms of its impact on concentration, consumers’ access, store size and level of service to consumers. While the decree overall seems to have help the consumer to have more access and more in-store services, our analysis suggests food retailing became more concentrated in response to the implementation of the LD 114/1998. Further, the effect of the liberalization seems to have stronger effects in regions where the level of liberalization implemented is “low”.
    Keywords: Food Retailer Structure, Trade Liberalization, Industrial Organization, Marketing, L81 L22 L52,
    Date: 2014
  19. By: David P. Byrne, "; " Gordon Leslie
    Abstract: This paper empirically studies howconsumers respond to retail gasoline price cycles. Our analys is uses new station-level price data from local markets in Ontario, Canada, and a unique market-level measure of consumer responsiveness based onweb traffic fromgasoline price reportingwebsites. We first document how stations use coordinated pricing strategies that give rise to large daily changes in price levels and dispersion in cycling gasoline markets. We then show consumer responsiveness exhibits cycles that move with these price fluctuations. Through a series of tests we further show that forward-looking stockpiling behavior by consumers plays a central role in generating these patterns.
    Keywords: Retail gasoline price cycles; Dynamic demand; Consumer search
    JEL: L11 L9 D22
    Date: 2013
  20. By: Lukasz GRZYBOWSKI; Frank VERBOVEN
    Abstract: We study substitution from fixed-line to mobile voice access, and the role of various complementarities that may influence this process. We use rich survey data on 160,363 households from 27 EU countries during 2005-2012. We estimate a discrete choice model where households may choose one or both technologies, possibly in combination with internet access. We obtain the following main findings. First, there is significant fixed-to mobile substitution, especially in recent years: without mobile telephony, fixed-line penetration would have been 14% higher in 2012. But there is substantial heterogeneity across households and EU regions, with a stronger substitution in Central and Eastern European countries. Second, the decline in fixed telephony has been slowed down because of a significant complementarity between fixed-line and mobile connections offered by the fixed-line incumbent operator. This gives the incumbent a possibility to maintain to some extent its position in the fixed-line market, and to leverage it into the mobile market. Third, the decline in fixed telephony has been slowed down because of the complementarity with broadband internet: the introduction of DSL avoided an additional decline in fixed-line penetration of almost 9% in 2012. The emergence of fixed broadband has thus been the main source through which incumbents maintain their strong position in the fixed-line network.
    Date: 2014–06

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