nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒10‒08
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Barriers To Entry By Dennis W. Carlton
  3. Horizontally Differentiated Market Makers By Simon Loertscher

  1. By: Dennis W. Carlton
    Abstract: This paper analyzes the concept of barriers to entry. It explains that the concept is a static one and explores the inadequacy of the concept in a world with sunk costs, adjustment costs and uncertainty. The static concept addresses the question of whether profits are excessive. The more interesting and relevant question is how fast entry or exit will erode profits or losses and how do the bounds that entry and exit place on price vary with uncertainty and sunk cost. Intuition based on the static concept of barrier to entry can be misleading in many industries.
    JEL: L1 L4
    Date: 2005–10
  2. By: B Bhaskara Rao (University of the South Pacific); Gyaneshwar Rao (University of the South Pacific)
    Abstract: We use the LSE-Hendry general to specific approach to analyse if US gasoline price adjustments are asymmetric with respect to changes in crude oil prices. Furthermore, we modify some weaknesses in the earlier works by Boreinstein, Cameron and Gilbert (1997) and Bachmeier and Griffin (2003) and shows that if the price adjustment equations are properly specified and estimated, alternative specifications and temporal aggregation of data do not affect the results. Monthly US data are used to show that alternative specifications give equally good results and there is no asymmetry in the US gasoline price adjustments.
    Keywords: Asymmetric price adjustments, Market power, General to specific approach, Error correction models and Gasoline and crude oil prices
    JEL: P Q Z
    Date: 2005–10–02
  3. By: Simon Loertscher
    Abstract: I present a model of competition between two market makers who are horizontally differentiated. I first show that absent a search market for buyers and sellers, there is a continuum of symmetric equilibria. These equilibria are payoff equivalent for market makers, but affect buyers' and sellers' welfare in opposite ways. Second, I analyze the model when buyers and sellers can also exchange the good in search markets. The model with search markets shares many features with existing models, yet allows competing intermediaries to net a profit in equilibrium. Interestingly, the model exhibits a complementarity between intermediaries' profits in the presence of search markets. Third, I show that every equilibrium in a game with market makers is also an equilibrium in an appropriately defined game with matchmakers
    Keywords: Market making; intermediation and search; horizontal differentiation; market microstructure
    JEL: C72 D41 D43 L13
    Date: 2005–09

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