nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒03‒06
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Intra-firm Coordination and Horizontal Merger By Lilia Filipova; Peter Welzel
  2. Advertising in Specialized Markets: Example from the US Pharmaceutical Industry By Amrita Bhattacharyya
  3. STRATEGIC PROFIT SHARING BETWEEN FIRMS: A PRIMER By Roberts Waddle
  4. STRATEGIC PROFIT SHARING BETWEEN FIRMS: THE BERTRAND MODEL By Roberts Waddle
  5. STRATEGIC PROFIT SHARING BETWEEN FIRMS: AN APLLICATION TO JOINT VENTURES By Roberts Waddle
  6. STRATEGIC PROFIT SHARING BETWEEN FIRMS: A WIN-WIN STRATEGY By Roberts Waddle

  1. By: Lilia Filipova (University of Augsburg, Department of Economics); Peter Welzel (University of Augsburg, Department of Economics)
    Abstract: We examine the effects of ex post revelation of information about the risk type or the risk-reducing behavior of insureds in automobile insurance markets both for perfect competition and for monopoly. Specifically, we assume that insurers can offer a contract with information revelation ex post, i.e., after an accident has occurred, in addition to the usual second-best contracts. Under moral hazard this always leads to a Pareto-improvement of social welfare. For adverse selection we find that this is also true except when bad risks under self-selecting contracts received an information rent, i.e., under monopoly or under competition with cross-subsidization from low to high risks. Regulation can be used to establish Pareto-improvement also in these cases. Privacy concerns do not alter our positive welfare results.
    Keywords: information moral hazard, adverse selection, insurance
    JEL: D82 G22
    Date: 2005–02
    URL: http://d.repec.org/n?u=RePEc:aug:augsbe:0270&r=ind
  2. By: Amrita Bhattacharyya (Boston College)
    Abstract: Pharmaceutical companies spend billions of dollars on advertising prescription drugs to doctors and also to consumers directly. People wonder why is direct-to-consumer-advertising (DTCA) concentrated among only a few classes of drugs, what explains the within-class variation of DTCA, how are DTCA and physician advertising related. We analyze the advertising equilibriums in prescription drugs market and find that it is possible to have a sub-game perfect non-symmetric Nash-equilibrium when, (i)the number of patients who are aware of a treatment is very low, and (ii) there are very few people who insist on having a particular drug. Otherwise, for very familiar diseases a non-advertising equilibrium is most likely. We also find that, all competing brands in a class are likely to advertise to consumers if the number of insisting patients is very high. Finally, advertising to consumers does not substitute for advertising directed to physicians.
    Keywords: advertising, DTCA, prescription, expert, Nash equilibrium
    JEL: L0 M3 I0
    Date: 2005–02–28
    URL: http://d.repec.org/n?u=RePEc:boc:bocoec:610&r=ind
  3. By: Roberts Waddle
    Abstract: This paper builds a theory of profit sharing between two firms in a duopoly market through which firms seek to increase their profits and, in turn, to limit the competition. We use a general model to show the direct (negative) and indirect (positive) effects of this strategy. We then focus on some oligopolistic models to analyze more deeply and more precisely these two opposite effects in search of the dominant one. We thus show that giving away profits is a rewarding strategy for firms in some (but not all) models of oligopolistic competition.
    Date: 2005–02
    URL: http://d.repec.org/n?u=RePEc:cte:werepe:we050801&r=ind
  4. By: Roberts Waddle
    Abstract: The present paper first considers two firms in a homogeneous market competing in a two-stage game. Using a particular strategy, it shows that firms may be able to set prices above the marginal costs and thus get positive profits. This remarkable result is robust to the number of firms and to cost asymmetries. Furthermore and more importantly, when firms' costs are different, firms obtain positive profits even though they set prices at the highest marginal cost.
    Date: 2005–02
    URL: http://d.repec.org/n?u=RePEc:cte:werepe:we050902&r=ind
  5. By: Roberts Waddle
    Abstract: Our companion article developed a clear conceptual framework of profit sharing between two rival firms and studied the effects of this strategy on each firm's profit under the assumption that each firm decides unilaterally to give away voluntarily a part of its profit to its rival. This article relaxes totally this assumption and allows firms to invest rather a fraction of their profits in a joint venture. As in the previous article, it shows how and when forming a joint venture may be a successful strategy. Furthermore and more importantly, it brings to light that joint venture may be used to conceal the profit-sharing (maybe forbidden) strategy.
    Date: 2005–02
    URL: http://d.repec.org/n?u=RePEc:cte:werepe:we051003&r=ind
  6. By: Roberts Waddle
    Abstract: Our companion article developed a clear conceptual framework of profit sharing between two rival firms and studied the positive effects of this strategy on each firm's profit under the assumption that each firm decides unilaterally to give away voluntarily a part of its profit to its rival. This article relaxes partially this assumption by letting only one firm to share its profit whereas the other firm keeps its entire profit. Contrary to the previous article, we show that no firm wins by adopting such an opportunistic behavior. This suggests that profit sharing between firms is a win-win (dominant) strategy if both firms are involved and compete in prices.
    Date: 2005–02
    URL: http://d.repec.org/n?u=RePEc:cte:werepe:we051104&r=ind

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