nep-ind New Economics Papers
on Industrial Organization
Issue of 2004‒12‒20
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Vertical Integration and Technology: Theory and Evidence By Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zilibotti
  2. Entry thresholds and actual entry and exit in local markets By Carree,Martin; Dejardin,Marcus
  3. Better safe than sorry? Reliability policy in network industries By CPB
  4. Sunk Costs and Antitrust Barriers to Entry By Schmalensee, Richard
  5. Network Externalities, Demand Inertia and Dynamic Pricing in an Experimental Oligopoly Market By Ralph C Bayer; Mickey Chan

  1. By: Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zilibotti
    Abstract: This paper investigates the determinants of vertical integration using data from the UK manufacturing sector. We find that the relationship between a downstream (producer) industry and an upstream (supplier) industry is more likely to be vertically integrated when the producing industry is more technology intensive and the supplying industry is less technology intensive. Moreover, both of these effects are stronger when the supplying industry accounts for a large fraction of the producer's costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number of firm and industry-level characteristics. They are consistent with the incomplete contract theories of the firm that emphasize both the potential costs and benefits of vertical integration in terms of investment incentives.
    JEL: L22 L23 L24 L60
    Date: 2004–12
  2. By: Carree,Martin; Dejardin,Marcus (METEOR)
    Abstract: Bresnahan and Reiss (1991) derive entry thresholds (equilibrium numbers of firms) for local markets but do not investigate actual entry and exit flows. This paper investigates for thirteen Belgian retail and service industries whether markets with actual numbers of firms higher (lower) than the thresholds display exit (entry) in subsequent periods.
    Keywords: industrial organization ;
    Date: 2004
  3. By: CPB
    Abstract: This report develops a roadmap for reliability policy in network industries. Based on economic theory, we analyse the relationship between reliability and various types of government policy: privatisation, liberalisation, regulation, unbundling, and 'commitment policy'. We let government policy depend on (1) the feasibility of competition between networks, (2) contractibility of reliability, and (3) the relation between profit maximisation and public interests. We test this roadmap on the basis of the empirical literature and case studies on electricity, natural gas, drinking water, wastewater, and railways.
    Keywords: reliability; network; networks; network industry; network industries; government policy; privatisation; privatization; liberalisation; liberalization; regulation; electricity; natural gas; water; railways
    JEL: L15 L22 L51 L33 L92 L L95 L98
    Date: 2004–12
  4. By: Schmalensee, Richard
    Abstract: US antitrust policy takes as its objective consumer welfare, not total economic welfare. With that objective, Joe Bain's definition of entry barriers is more useful than George Stigler's or definitions based on economic welfare. It follows that economies of scale that involve sunk costs may create antitrust barriers to entry. A simple model shows that sunk costs without scale economies may discourage entry without creating an antitrust entry barrier.
    Keywords: antitrust, U.S. antitrust policy, entry barriers,
    Date: 2004–12–10
  5. By: Ralph C Bayer (University of Adelaide); Mickey Chan (University of Adelaide)
    Abstract: This paper analyses dynamic pricing in markets with network externalities. Network externalities imply demand inertia, because the size of a network increases the usefulness of the product for consumers. Since past sales increase current demand, firms have an incentive to set low introductory prices to be able to increase prices as their networks grow. However, in reality we observe decreasing prices. This could be due to other factors dominating the network e¤ects. We use an experimental duopoly market with demand inertia to isolate the effect of network externalities. We find that experimental price dynamics are rather consistent with real world observations than with theoretical predictions.
    Keywords: Network Externalities, Demand Inertia, Experiments, Oligopoly
    JEL: L13 C92
    Date: 2004–12–14

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