nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒10‒29
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Entry and Exit With Information Externalities By stefano comino
  2. Refunds and Collusion By Oz Shy; Staffan Ringbom
  3. Consumers' Behavior and the Bertrand Paradox: An ACE approach By Xavier Vilà
  4. Privatisation, regulation and productivity in the Italian motorway industry By Luigi Benfratello; Alberto Iozzi; Paola Valbonesi
  5. File-Sharing, Sampling, and Music Distribution By Martin Peitz; Patrick Waelbroeck

  1. By: stefano comino (Dipartimento di Economia, Università di Trento)
    Abstract: In the paper we analyze how the possibility of revealing information to a competitor alters the entry/investment behavior of a first entrant. We show that once it has entered the market, the firm might refrain from making further profitable investments in order to hide information from the competitor. Moreover, we show that before entering the market, the first entrant anticipates that there is a strategic advantage in choosing an initially small scale of entry: in this way it 'commits' itself to revealing the true state of the market with its subsequent decisions and this fact is beneficial since it induces the competitor to postpone entry into market.
    Keywords: Entry, Information Externalities, Wait and See, First Entrant, Strategic Behavior
    JEL: D82 D83 L11
    Date: 2005–10–21
  2. By: Oz Shy (WZB - Social Science Research Center Berlin); Staffan Ringbom (Department of Economics, Swedish School of Economics)
    Abstract: We characterize the conditions under which industry-wide agreements on refund policies weaken price competition. We identify the conditions under which joint industry proffit increases with the amount of refunds promised to those consumers who cancel a reservation or return a product. We compare it to similar industry configurations when firms set up shipping and handling charges instead of refunds. Finally, we investigate refund policies under moral hazard.
    Keywords: Refunds, Partial refunds, Collusion on refunds, Shipping & handling charges, Moral hazard
    JEL: L1 L41 M2
    Date: 2005–05
  3. By: Xavier Vilà
    Abstract: We analyze the classical Bertrand model when consumers exhibit some strategic behavior in deciding from which seller they will buy. We use two related but different tools. Both consider a probabilistic learning (or evolutionary) mechanism, and in the two of them consumers' behavior in uences the competition between the sellers. The results obtained show that, in general, developing some sort of loyalty is a good strategy for the buyers as it works in their best interest. First, we consider a learning procedure described by a deterministic dynamic system and, using strong simplifying assumptions, we can produce a description of the process behavior. Second, we use nite automata to represent the strategies played by the agents and an adaptive process based on genetic algorithms to simulate the stochastic process of learning. By doing so we can relax some of the strong assumptions used in the rst approach and still obtain the same basic results. It is suggested that the limitations of the rst approach (analytical) provide a good motivation for the second approach (Agent-Based). Indeed, although both approaches address the same problem, the use of Agent-Based computational techniques allows us to relax hypothesis and overcome the limitations of the analytical approach.
    Keywords: Agent-Based Computational Economics, Evolutionary Game Theory, Imperfect Competition
    JEL: C6 C7 D4
    Date: 2005–10–25
  4. By: Luigi Benfratello (University of Torino and Ceris-CNR); Alberto Iozzi (University of Rome "Tor Vergata" and University of Leicester); Paola Valbonesi (University of Padua)
    Abstract: The Italian highway industry has undergone an institutional and regulatory reform through the last decade, characterised by changes in ownership and a new price cap framework. To assess the effect of the reforms on firms’ performance, we use information on all the 20 Italian concessionaires over the 1992-2003 period and 1) estimate the technical progress in the industry, thereby providing a reference value for the X factor in the price cap formula; 2) assess the relative productivity of private vs. public concessionaires; 3) evaluate whether price cap regulation has induced firms to use resources efficiently, 4) determine the possible effect of the inclusion of the quality index in the price cap formula. We find that the introduction of a price cap regime does not increase firms’ productivity whereas a sharp increase in maintenance costs is recorded, arguably due to the quality indicator in the price cap formula. Furthermore, firms appear to have gained from the privatisation process and from a technical progress occurred in the period. We also find high density economies and a steady and large increase in traffic. Overall, these results suggest that the X factor has been set too conservatively in past years which in turn explains the high profits recorded by franchisees under price cap regulation.
    Keywords: Price Cap Regulation, Motorways
    JEL: L51 L92
    Date: 2005–05
  5. By: Martin Peitz (International University in Germany, D-76646 Bruchsal); Patrick Waelbroeck (ECARES, Université Libre de Bruxelles, CP 114, 50 av. Roosevelt, 1050 Bruxelles, Belgium)
    Abstract: The use of file-sharing technologies, so-called Peer-to-Peer (P2P) networks, to copy music files has become common since the arrival of Napster. P2P networks may actually improve the matching between products and buyers - we call this the matching effect. For a label the downside of P2P networks is that consumers receive a copy which, although it is an imperfect substitute to the original, may reduce their willingness-to-pay for the original - we call this the competition effect. We show that the matching effect may dominate so that a label's profits are higher with P2P networks than without. Furthermore, we show that the existence of P2P networks may alter the standard business model: sampling may replace costly marketing and promotion. This may allow labels to increase profits in spite of lower revenues.
    Keywords: ?le-sharing, P2P, sampling, information transmission, piracy, music
    JEL: L11 L82
    Date: 2004–12

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