nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒12‒09
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cartel Prosecution and Leniency Programs: Corporate versus Individual Leniency By Philipp Festerling
  2. The Impact of Entry and Competition by Open Source Software on Innovation Activity By Jürgen Bitzer; Philipp J.H. Schröder
  3. Product Differentiation and Film Programming Choice: Do First-Run Movie Theatres Show the Same Films? By Darlene C. Chisholm; Margaret S. McMillan; George Norman
  4. Effects of Acquisitions on Product and Process Innovation and R&D Performance By Cefis, Elena; Rosenkranz, Stephanie; Weitzel, Utz
  5. Hedonic prices and multitask incentives By Masaki Nakabayashi
  6. Advertising and Conspicuous Consumption By Daniel Krähmer

  1. By: Philipp Festerling (Department of Economics, University of Aarhus, Denmark)
    Abstract: The paper explores the interdependencies between corporate and individual leniency programs. In a duopoly model where corporations are separated into representing owners and operating managers, conflicts between the two types of agents arise if the relative benefits of participating in the corresponding leniency programs differ. As an example of what might cause differing relative benefits, the paper considers the inclusion of damage payments for owners which are not covered by the corporate leniency program. The main findings are: (1) Individual leniency applications are never observed. (2) Threats by managers to apply for individual leniency may, however, increase the owners’ incentive to carry out corporate self-reports. (3) In other cases, the individual leniency program increases the owners’ tolerance for cartel activity for two reasons: Either the corporate leniency program is sufficiently unattractive to the owners, or the owners rely on the option to apply for corporate leniency after the Antitrust Authority has opened a case. (4) Finally, the more distortion decreases, the more ineffective the individual leniency program becomes.
    Keywords: Leniency, corporate leniency, individual leniency, cartel, law enforce- ment, antitrust
    JEL: K21 K42 L13 L44
    Date: 2005–11–28
  2. By: Jürgen Bitzer (Free University Berlin); Philipp J.H. Schröder (Aarhus School of Business)
    Abstract: This paper presents the stylized facts of open source software innovation and provides empirical evidence on the impact of increased competition by OSS on the innovative activity in the software industry. Furthermore, we introduce a simple formal model that captures the innovation impact of OSS entry by examining a change in market structure from monopoly to duopoly under the assumption that software producers compete in technology rather than price or quantities. The paper identifies a pro-innovative effect of OSS competition.
    Keywords: open source software, innovation, strategic interaction
    JEL: L13 L30 L86
    Date: 2005–12–02
  3. By: Darlene C. Chisholm; Margaret S. McMillan; George Norman
    Abstract: We present an empirical analysis of product differentiation using a rich new dynamic panel data set on film programming choice in a major U.S. metropolitan motion-pictures exhibition market. These data allow us to investigate the determinants of strategic product differentiation in a multicharacteristics space. We find evidence of stability in the degree of product differentiation over time, but also find that the degree of product differentiation between theatre pairs reflects a balance between strategic concerns and contractual constraints. Similarity in one dimension is offset by differentiation in others. Finally, we find that theatres under common ownership make more similar programming choices than theatres with different owners.
    JEL: L11 C33 L82
    Date: 2005
  4. By: Cefis, Elena; Rosenkranz, Stephanie; Weitzel, Utz
    Abstract: Using a game theoretical model on firms' simultaneous investments in product and process innovation, we deduct and empirically test hypotheses on the optimal R&D portfolio, investment, performance, and dynamic efficiency of R&D for acquisitions and in independently competing firms. We use Community Innovation Survey data on Italian manufacturing firms. Theoretical and empirical results show that firms involved in acquisitions invest in different R&D portfolios and invest at least as much in aggregate R&D as independent firms. The empirical results do not support our hypothesis on dynamic efficiency since acquisitions lead to inferior R&D performance.
    Keywords: cost reduction; dynamic efficiency; innovation; mergers and acquisitions; product differentiation
    JEL: C72 L1 L13 O32
    Date: 2005–10
  5. By: Masaki Nakabayashi (Graduate School of Economics, Osaka University)
    Abstract: Many human tasks are multidimensional. Hence Holmstrom and Milgrom (1991) concluded that a ghigh-poweredh incentive cannot work unless all dimensions of the task are observable in the firm. However, as this study shows, if the firm can observe the price vector of its product in the market, distinguish each dimension of the price vector, and connect the information with signals from workers in the firm, then the multitask ghighpoweredh incentive becomes manageable. Product differentiation with committed quality satisfies this condition, which has been practiced by Japanese, but not by Western, manufacturing for a century.
    Keywords: multitask incentive, high-powered incentive, hedonic price, contract theory, Japanese manufacturing.
    JEL: L22 D23 N65
    Date: 2005–12
  6. By: Daniel Krähmer (Freie Universität Berlin, Institut für Wirtschaftstheorie, Boltzmannstr. 20, 14195 Berlin, Germany, +49-(0)30-83855223,
    Abstract: The paper formalizes the intuition that brands are consumed for image reasons and that advertising creates a brand’s image. The key idea is that advertising informs the public of brand names and creates the possibility of conspicuous consumption by rendering brands a signalling device. In a price competition framework, we show that advertising increases consumers’ willingness to pay and thus provide a foundation, based on optimization behavior, for persuasive approaches to advertising. Moreover, an incumbent might strategically overinvest in advertising to deter entry, there might be too much advertising, and competition might be socially undesirable.
    Keywords: Advertising, Entry Deterrence, Brands, Conspicuous Consumption, Bertrand Competition, All-Pay Auction
    JEL: L12 L15 M37
    Date: 2005–08

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