nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒03‒20
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cournot Competition, Market Size Effects, and Agglomeration By Gallo, Fredrik
  2. Tacit Collusion and Capacity Withholding in Repeated Uniform Price Auctions By Dechenaux, Emmanuel; Kovenock, Dan
  3. Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary By Rumen Dobrinsky; Gábor Kõrösi; Nikolay Markov; László Halpern

  1. By: Gallo, Fredrik (Department of Economics, Lund University)
    Abstract: We analyse a two-stage location-quantity game with many firms and two regions. We show that the firms will never agglomerate in the same location if transportation is costly between the regions. We also analyse the effects of differences in market size and economic integration on the allocation of industrial activity. For high levels of trade costs firms locate in different regions. Lowering the trade costs beyond a critical level triggers an agglomeration of industry in the larger region. This process of agglomeration is gradual in nature and trade costs have to be successively lowered for a full-scale agglomeration to take place.
    Keywords: agglomeration; cross-hauling; market size effects; spatial Cournot competition
    JEL: D43 F12 L13 R30
    Date: 2005–03–11
    URL: http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_023&r=ind
  2. By: Dechenaux, Emmanuel (Kent State University); Kovenock, Dan (Purdue University)
    Abstract: This paper contributes to the study of tacit collusion by analyzing infinitely repeated multiunit uniform price auctions in a symmetric oligopoly with capacity constrained firms. Under both the Market Clearing and Maximum Accepted Price rules of determining the uniform price, we show that when each firm sets a price-quantity pair specifying the firm's minimum acceptable price and the maximum quantity the firm is willing to sell at this price, there exists a range of discount factors for which the monopoly outcome with equal sharing is sustainable in the uniform price auction, but not in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this outcome. We extend these results to the case where firms may set bids that are arbitrary step functions of price-quantity pairs with any finite number of price steps. Surprisingly, under the Maximum Accepted Price rule, firms need employ no more than two price steps to minimize the value of the discount factor above which the perfectly collusive outcome with equal sharing is sustainable on a stationary path. Under the Market Clearing Price rule, only one step is required. That is, within the class of step bidding functions with a finite number of steps, maximal collusion is attained with simple price-quantity strategies exhibiting capacity withholding.
    Keywords: Auction; Capacity; Collusion; Electricity Market; Supply Function
    JEL: D43 D44 L13 L41 L94
    Date: 2005–03–01
    URL: http://d.repec.org/n?u=RePEc:hhs:iuiwop:0636&r=ind
  3. By: Rumen Dobrinsky; Gábor Kõrösi; Nikolay Markov; László Halpern
    Abstract: Under perfect competition and constant returns to scale, firms producing homogeneous products set their prices at their marginal costs which also equal their average costs. However, the departure from these standard assumptions has important implications with respects to the derived theoretical results and the validity of the related empirical analysis. In particular, monopolistic firms will charge a markup over their marginal costs. We show that firms’ markups tend to be directly associated with the employed production technology, more specifically with their returns to scale. Accordingly, we analyze the implications for the markup ratios from the incidence of non-constant returns to scale. We present quantitative results illustrating the effect of the returns to scale index on the firms’ price markups, as well as the relationship between the two indicators, on the basis of firm-level data for Bulgarian and Hungarian manufacturing firms.
    Keywords: markup pricing, market imperfections, return to scale, Bulgaria, Hungary
    JEL: C23 D21 D24
    Date: 2004–07–01
    URL: http://d.repec.org/n?u=RePEc:wdi:papers:2004-710&r=ind

This nep-ind issue is ©2005 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.