New Economics Papers
on Industrial Organization
Issue of 2004‒12‒12
eight papers chosen by

  1. The Electricity Market Game By Stephen Spear
  2. Spatial Competition in the Network Television Industry By Ronald Goettler; Ron Shachar
  3. Determination of optimal penalties for antitrust violations in a dynamic setting By Motchenkova,E.
  4. On the Desirability of an Efficiency Defense in Merger Control By Johan N. M. Lagerlof; Paul Heidhues
  5. Seller Strategies on eBay By Steven Anderson; Daniel Friedman; Garrett Milam; Nirvikar Singh
  6. Competition and Confidentiality: Signaling Quality in a Duopoly when there is Universal Private Information By Andrew F. Daughety; Jennifer F. Daughety
  7. Horizontal mergers in the circular city : a note By Andreea Cosnita
  8. Deregulation By Rohan Pitchford

  1. By: Stephen Spear
    Abstract: This paper examines the effects of imperfect competition in unregulated electricity markets from a general equilibrium perspective, and demonstrates that horizontal market power can explain both the large peak-period price spikes observed recently in California and elsewhere, and the marked reduction in additions to capacity that have also occurred during the transition to competitive markets.
  2. By: Ronald Goettler; Ron Shachar
    Abstract: We present an empirical study of spatial competition and a methodology to estimate demand for products with unobservable characteristics. Using panel data, we estimate a discrete choice model with latent product attributes and unobserved heterogenous consumer preferences. Our application of the methodology to the network television industry yields estimates that are consistent with experts' views. Given our estimates, we compute Nash equilibria of a product location game, and find that firms' observed strategies (such as the degree of product differentiation) are generally optimal. Discrepancies between actual and optimal strategies reflect the networks' adherence to "rules of thumb," and possibly, bounded rationality behavior.
  3. By: Motchenkova,E. (TILEC (Tilburg Law and Economics Center))
    Date: 2004
  4. By: Johan N. M. Lagerlof (Department of Economics, Royal Holloway, University of London); Paul Heidhues (WZB Berlin)
    Abstract: We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. This enables the firms to influence the merger control procedure by strategically revealing their information to an antitrust authority. Although the information improves upon the quality of the authority’s decision, the influence activities may be detrimental to welfare if information processing/gathering is excessively costly. Whether this is the case depends on the merger control institution and, in particular, whether it involves an efficiency defense. We derive the optimal institution and provide conditions under which an efficiency defense is desirable. We also discuss the implications for antitrust policy and outline a three-step procedure that takes the influence activities into consideration.
    Keywords: lobbying, rent seeking, asymmetric information, disclosure, ef- ficiency gains, antitrust.
    JEL: D72 D82 K21 L40
    Date: 2004–10
  5. By: Steven Anderson (United States Geological Service); Daniel Friedman (University of California, Santa Cruz); Garrett Milam (Ryerson University); Nirvikar Singh (University of California, Santa Cruz)
    Abstract: This paper analyzes seller characteristics and choices in approximately 1000 eBay auctions for a particular model of PDA. Seller characteristics include frequency of selling, reputation, and the qualities of the product sold. Seller choices include the length of the auction, information provided about the product, starting price, and whether to use a ‘Buy it Now’ option. We find that different types of sellers pursue systematically different strategies for how their items are offered, and we discuss the possible causes of these differences. For example, the two high volume sellers in our sample always use a combination of a ‘Buy it Now’ with a low starting price, while the many less frequent sellers use an array of pricing strategies. In addition, more highly rated sellers were somewhat more likely to provide more detailed product information, as well as secure payment options.
    JEL: L
    Date: 2004–12–06
  6. By: Andrew F. Daughety (Department of Economics and Law School, Vanderbilt University); Jennifer F. Daughety (Department of Economics and Law School, Vanderbilt University)
    Abstract: How does the need to signal quality through price affect equilibrium pricing and profits, when a firm faces a similarly-situated rival? In this paper, we provide a model of non-cooperative signaling by two firms that compete over a continuum of consumers. We assume "universal incomplete information;" that is, each market participant has some private information: each consumer has private information about the intensity of her preferences for the firms' respective products and each firm has private information about its own product's quality. We characterize a symmetric separating equilibrium in which each firm's price reveals its respective product quality. We focus mainly on a model in which the quality attribute is safety (so that the legal system is brought into play) and quality is unobservable due to the use of confidential settlements; a particular specification of parameters yields a common model from the industrial organization literature in which quality is interpreted as the probability that a consumer will find the good satisfactory. We show that the equilibrium prices, the difference between those prices, the associated outputs, and profits are all increasing functions of the ex ante probability of high safety. When quality is interpreted as consumer satisfaction, unobservable quality causes all prices to be distorted upward, and lowers average quality and ex ante expected social welfare, but increases ex ante expected firm profits (when either the probability of high quality or the extent of horizontal product differentiation is sufficiently high). When quality is interpreted as product safety, the foregoing results are modified in that for some parameter values ex ante expected social welfare is higher under confidentiality because such legal secrecy lowers expected litigation costs.
    Keywords: Signaling, quality, safety, confidentiality, duopoly
    JEL: D43 D82 K13 L15
    Date: 2004–07
  7. By: Andreea Cosnita (EUREQua)
    Abstract: We investigate the profitability and locational effects of two-firm Cournot mergers in the circular city. As compared with the linear market, we find that mergers turn out to be unprofitable much earlier.
    Keywords: Horizontal merger, endogenous location, circular city
    JEL: D43 L13
    Date: 2004–02
  8. By: Rohan Pitchford
    Abstract: It is well known in the theoretical literature on deregulation, that any informative signal will be used to give the firm appropriate incentives. This paper presents a model of deregulation that draws on the multi-task model of Holmstrom and Milgrom (1991). Sufficient conditions are derived for deregulation to be optimal despite the existence of a signal that contains information about the firm’s activity. The conditions ensure that there is an adverse response by the firm whenever the regulator tries to use the signal for incentives.
    JEL: D23
    Date: 2001

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