nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒01‒02
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Reputation and Turnover By Rafael Rob; Tadashi Sekiguchi
  2. Price squeezes in a regulatory environment By Bouckaert Jan; Verboven Frank
  3. Voluntary R&D cooperation in experimental duopoly markets By Suetens S.
  4. STRATEGIC DELEGATION IN OLIGOPOLY: THE MARKET SHARE CASE By Jansen,Thijs; Lier,Arie,van; Witteloostuijn,Arjen,van

  1. By: Rafael Rob (Department of Economics, University of Pennsylvania); Tadashi Sekiguchi (Kobe University - General)
    Abstract: We consider a repeated duopoly game where each firm privately chooses its investment in quality, and realized quality is a noisy indicator of the firm’s investment. We focus on dynamic reputation equilibria, whereby consumers ‘discipline’ a firm by switching to its rival in the case that the realized quality of its product is too low. This type of equilibrium is characterized by consumers’ tolerance level - the level of product quality below which consumers switch to the rival firm - and firms’ investment in quality. Given consumers’ tolerance level, we determine when a dynamic equilibrium that gives higher welfare than the static equilibrium exists. We also derive comparative statics properties, and characterize a set of investment levels and, hence, layoffs that our equilibria sustain.
    Keywords: Reputation, consumer switching, moral hazard, repeated games
    JEL: C73 D82 L14 L15
    Date: 2004–04–04
  2. By: Bouckaert Jan; Verboven Frank
    Abstract: Regulators have recently shown an increased sensitivity to the issue of price squeezes, especially telecom regulators in European countries. This paper analyzes the relevance and the scope of price squeeze tests as proposed by practitioners and economists, taking the existing regulatory environment as fixed. Based on the degree of existing regulation (full, partial or no) we distinguish between three types of price squeezes: regulatory squeezes, predatory squeezes, and squeezes as foreclosure. We argue that the scope of price squeeze tests is limited to predatory price squeeze tests, to be used in combination with other pieces of evidence as collected in standard predation cases. We propose a predatory squeeze test that respects previously made regulatory choices, in contrast with earlier proposed tests by European practitioners and economists. We extend the framework to ask at which aggregation level predatory price squeeze tests ought to be applied, a much-debated issue in telecommunications.
    Date: 2003–04
  3. By: Suetens S.
    Abstract: In the paper I examine in an experiment whether for two different levels of technological spillovers, cooperative R&D behavior voluntarily arises when firms have communication possibilities. It is assumed that in the output market, firms compete `a la Cournot. Experimental results indicate that when technological spillovers are complete and subjects communicate, R&D decisions converge to the cooperative level, while in other cases R&D decisions converge towards the Nash equilibrium.
    Date: 2003–12
  4. By: Jansen,Thijs; Lier,Arie,van; Witteloostuijn,Arjen,van (METEOR)
    Abstract: In this paper, we consider a two-stage (sequential) game as introduced by Vickers (1985),Fershtman (1985), Fershtman and Judd (1987) and Sklivas (1987). This game models the situation where the owners of competing firms manipulate their managers'' incentive contracts for strategic reasons. Instead of the sales volume as part of these contracts, we introduce market share, besides profit, as a natural part of managers'' incentives. Then we compare the results with those obtained for combinations of profits and sales volume, as well as for the classical Cournot model. Concerning an {\eightit n}-firm oligopoly, and compared to the sales-delegation case, it appears that owners put more emphasis on managerial profit-maximizing behavior, indicated by smaller weights attributed to market share in managerial incentive contracts. Social welfare corresponding to the market share-delegation case almost equals welfare associated with the sales-delegation case. However, its components differ.The case of market share-delegation leads to a higher profitability of incumbent rivals and to a lower consumer surplus, in comparison to the sales-delegation case. One may state that the owner''s strategic use of market share as a managerial incentive leads to a (partial) shift of benefits from consumers to producers.
    Keywords: mathematical economics;
    Date: 2004

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