nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒09‒29
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Curing Sinus Headaches and Tying Law: An Empirical Analysis of Bundling Decongestants and Pain Relievers By David S. Evans; Michael Salinger
  2. When do Countries Introduce Competition Policy? By Forslid, Rikard; Häckner, Jonas; Muren, Astri
  3. On the Uniqueness of Optimal Prices Set by Monopolistic Sellers By van den Berg, Gerard J
  4. M&As Performance in the European Financial Industry By Campa, José Manuel; Hernando, Ignacio
  5. Intra- and Inter-Channel Competition in Local-Service Sectors By Cleeren, K.; Dekimpe, M.G.; Verboven, F.
  6. Relevant Market and Pricing Behavior of Regional Newspapers in the Netherlands By Kranenburg,Hans,van
  7. Product Quality Under Regulated Monopoly By Donald A R George
  8. Spatial Cournot Oligopoly with Vertical Linkages By André Rocha; José Pedro Pontes
  9. Price and Output Comparison under Alternative Duopoly Structures. By Jim Y. Jin; Tatiana Damjanovic; Osiris J.Parcero

  1. By: David S. Evans; Michael Salinger
    Abstract: We apply and extend the cost-based approach to bundling and tying under competition developed in Evans and Salinger (2004) to over-the-counter pain relievers and cold medicines. We document that consumers pay much less for tablets with multiple ingredients than they would if they bought tablets with each ingredient separately. We then decompose the sources of these savings into marginal cost savings and a component that reflects fixed costs of product offerings. The analysis both documents substantial economies of bundling and illustrates the sort of cost analysis that is necessary for understanding tying.
    JEL: L11
    Date: 2005
  2. By: Forslid, Rikard; Häckner, Jonas; Muren, Astri
    Abstract: This paper first presents stylized evidence showing how the date of the introduction of competition policy is correlated with country size. Smaller countries tend to adopt competition policy later. We thereafter present a simple theoretical model with countries of different size and firms competing à la Cournot. The predictions of the model are consistent with the empirical regularity presented. An implication of our model is that globalization may give very different incentives regarding competition policy for small and large developing countries.
    Keywords: anti-trust; competition policy; trade costs
    JEL: F12 F15 F21 R12
    Date: 2005–08
  3. By: van den Berg, Gerard J
    Abstract: This paper considers price determination by monopolistic sellers who know the distribution of valuations among the potential buyers. We derive a novel condition under which the optimal price set by the monopolist is unique. In many settings, this condition is easy to interpret, and it is valid for a very wide range of distributions of valuations. The results carry over to the optimal minimum price in independent private value auctions. In addition, they can be fruitfully applied in the analysis of quantity discount price policies.
    Keywords: auction; hazard price; hazard rate; local maxima; minimum price; monopoly; quantity discount; regularity; reservation price
    JEL: D42 D44 L12 L42
    Date: 2005–08
  4. By: Campa, José Manuel; Hernando, Ignacio
    Abstract: This paper looks at the performance record of M&As that took place in the European Union financial industry in the period 1998-2002. First, the paper reports evidence on shareholder returns from the merger. Merger announcements implied positive excess returns to the shareholders of the target company around the date of the announcement, with a slight positive excess-return on the 3-months period prior to announcement. Returns to shareholders of the acquiring firms were essentially zero around announcement. One year after the announcement, excess returns were not significantly different from zero for both targets and acquirers. The paper also provides evidence on changes in the operating performance for the subsample of merges involving banks. M&As usually involved targets with lower operating performance than the average in their sector. The transaction resulted in significant improvements in the target banks performance beginning on average two years after the transaction was completed. Return on equity of the target companies increased by an average of 7%, and these firms also experience efficiency improvements.
    Keywords: banking; European integration; mergers and acquisitions
    JEL: G21 G34
    Date: 2005–08
  5. By: Cleeren, K.; Dekimpe, M.G.; Verboven, F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Although economically very important, local-service sectors have received little attention in the extensive literature on competitive interactions. Detailed data gathering in these sectors is hard, not only because of the multitude of local players, but also because key service dimensions are hard to quantify. Using empirical entry models, we show how to infer information on these sectors’ degree of intra- and inter-channel competition from the observed entry decisions in different local markets. The approach also controls for relevant socio-demographic characteristics of the trading area that may affect performance. We apply the proposed empirical entry model to the video-rental market. Additional entries of video stores are found to significantly increase the level of intra-channel competition. Unlike the predictions of many normative economic models, we find this increase to be larger when the entry occurs in a duopoly than in a monopoly, a pattern consistent with recent experimental research on collusive behavior in oligopolies. We also find evidence of inter-channel cannibalization from the upstream channel (movie theatres), but not from the downstream channel (premium cable). Finally, various socio-demographic characteristics of the trading zone, such as income and household size, are found to also have a significant impact on store performance.
    Keywords: Channel competition;Empirical entry models;Movie industry;
    Date: 2005–03–30
  6. By: Kranenburg,Hans,van (METEOR)
    Abstract: The aim of this study is to investigate the effect of market structure and area characteristics on the subscription prices and advertising rates for regional newspapers in the Netherlands. The price-market structure analysis in this study shows that there exists a negative relationship between market structure and prices. The results also show that advertising rates, differently to subscription prices, are significantly influenced by regional income and particularly by population density in the specific area. Furthermore, the evidence indicates that the relevant market for regional newspapers in the Netherlands is a market which encompasses regional newspapers, national newspapers and other media sources.
    Keywords: Strategy;
    Date: 2005
  7. By: Donald A R George
    Abstract: A monopolist regulated via a price cap may well have an incentive to change other variables of interest to consumers, in an attempt to shift the cost and demand curves in his favour. This paper develops a model in which the monopolist can vary product quality and the terms of a warranty, in response to price regulation. The regulated and unregulated monopoly outcomes are compared with the Pareto-efficient outcome.
  8. By: André Rocha; José Pedro Pontes
    Abstract: This paper examines the equilibrium of location of N vertically-linked firms. In a spatial economy composed of two regions, a monopolist firm supplies an input to N consumer goods firms that compete in quantities. It was concluded that, when there are increases in the transport cost of the input, downstream firms prefer to agglomerate in the region where the upstream firm is located, in order to obtain savings in the production cost. On the other hand, increases in the general transport cost or in the number of downstream firms lead to a dispersion of these firms, in order to reduce competition and locate closer to the final consumer.
    Keywords: Agglomeration; Intermediate Goods; Spatial Oligopoly.
    JEL: R30 L13 C72
  9. By: Jim Y. Jin; Tatiana Damjanovic; Osiris J.Parcero
    Abstract: Duopoly competition can take different forms: Bertrand, Cournot, Bertrand-Stackelberg, Cournot-Stackelberg and joint profit maximization. In this paper we find a clear price ranking among these five markets when goods are substitutes and an output ranking when goods are complements. Moreover, the ranking can be explained by different levels of conjectural variation associated with those markets.
    Keywords: Bertrand, Cournot, Stackelberg, monopoly, ranking, conjectural variation
    JEL: L11 L13 D43
    Date: 2005–09

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