nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒04‒24
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Start-up Entry Strategies: Employer vs. Nonemployer firms By Michele Moretto; Gianpaolo Rossini
  2. Platform Competition with Endogenous Multihoming By Roberto Roson

  1. By: Michele Moretto (University of Brescia); Gianpaolo Rossini (University of Bologna)
    Abstract: From 1997 to 2001 we observe in the Usa a faster growth in the number of Nonemployer firms (NF) vis à vis Employer firms (EF). The diverse speed of net entry may be due to particular internal organisation of the two types of firms and the effect that this has on the reactions to market uncertainty. However, the set of internal organizations of firms is larger than that made up simply by EFs and NFs, in particular among newborn firms, since we observe corporate start-ups with employees, firms owned and managed by their founders who are simultaneously the employees and, finally, non corporate enterprises. The second class of firms mostly belongs to the category of NFs, according to US nomenclature, while non corporate firms may belong to either category. Our curiosity is attracted by different entry patterns of NFs and EFs and our aim is to interpret them. According to recent literature, firms carry out an irreversible investment, such as entry, only if market prices are strictly larger than average total costs (Marshallian point). However, the trigger price that makes firms become active is affected by institutional rules, the existence of profit sharing, efficiency wages, exit options - i.e. partial reversibility -, financial constraints. Then, the internal organization of a newborn firm may make the difference. In a continuous time stochastic environment, where firms bear a sunk cost, we model entry as a growth option. On the trace of distinct objective functions we show that NFs and EFs have specific entry patterns in terms of output price and/or size. Why? Simply because they react in diverse fashions to market price volatility. In this sense we are able to show that, in most cases, the NF is locally less risky. This makes the NF better suited to enter under conditions of higher volatility. This exactly corresponds to what happened during the years between 1997-2001.
    Keywords: Entry strategies, Uncertainty, Nonemployer, Employer firms
    JEL: L21 L3 J54 G13
    Date: 2005–01
    URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.13&r=ind
  2. By: Roberto Roson (Università Ca’ Foscari di Venezia)
    Abstract: A model of two-sided market (for credit cards) is introduced and discussed. In this model, agents can join none, one, or more than one platform (multihoming), depending on access prices and the choices made by agents on the opposite market side. Although emerging multihoming patterns are, clearly, one aspect of equilibrium in a two-sided market, this issue has not yet been thoroughly addressed in the literature. This paper provides a general theoretical framework, in which homing partitions are conceived as one aspect of market equilibrium, rather than being set ex-ante, through ad-hoc assumptions. The emergence of a specific equilibrium partition is a consequence of: (1) the structure of costs and benefits, (2) the degree and type of heterogeneity among agents, (3) the intensity of platform competition.
    Keywords: Two-sided markets, Network externalities, Standards, Platforms, Multihoming
    JEL: D85 L10 L15 L89
    Date: 2005–01
    URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.20&r=ind

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