nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒01‒01
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competition and price discrimination in the market for mailing lists By Ron Borzekowski; Raphael Thomadsen; Charles Taragin
  2. Competition in large markets By Jeffrey R. Campbell
  3. Network competition and merchant discount fees By Fumiko Hayashi
  4. Markov perfect industry dynamics with many firms By Gabriel Y. Weintraub; C. Lanier Benkard; Benjamin Van Roy
  5. Price discrimination via the choice of distribution channels By Uwe Dulleck; Rudolf Kerschbamer
  6. The economic analysis of product diversity. By Heritiana Ranaivoson
  7. The Effects of Average Revenue Regulation on Electricity Transmission Investment and Pricing By Isamu Matsukawa

  1. By: Ron Borzekowski; Raphael Thomadsen; Charles Taragin
    Abstract: This paper examines the relationship between competition and price discrimination in the market for mailing lists. More specifically, we examine whether sellers are more likely to segregate consumers by offering a menu of quality choices (second-degree price discrimination) and/or offering different prices to readily identifiable groups of consumers (third-degree price discrimination) in more competitive markets. We also examine how the fineness with which consumers are divided corresponds to the level of competition in the market. ; The dataset includes information about all consumer response lists derived from mail order buyers (i.e. lists derived from catalogs) available for rental in 1997 and 2002. Using industry classifications, we create measures of competition for each list. We then use these measures to predict whether given lists utilize discriminatory pricing strategies. ; Our results indicate that lists facing more competition are more likely to implement second-degree and third-degree price discrimination, and when implementing second-degree price discrimination, to offer menus with more choices.
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-56&r=ind
  2. By: Jeffrey R. Campbell
    Abstract: This paper develops a simple and robust implication of free entry followed by competition without substantial strategic interactions: Increasing the number of consumers leaves the distributions of producers' prices and other choices unchanged. In many models featuring non-trivial strategic considerations, producers' prices fall as their numbers increase. Hence, examining the relationship between market size and producers' actions provides a nonparametric tool for empirically discriminating between these distinct approaches to competition. To illustrate its application, I examine observations of restaurants' seating capacities, exit decisions, and prices from 224 U.S. cities. Given factor prices and demographic variables, increasing a city's size increases restaurants' capacities, decreases their exit rate, and decreases their prices. These results suggest that strategic considerations lie at the heart of restaurant pricing and turnover.
    Keywords: Restaurant management ; Markets
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-05-16&r=ind
  3. By: Fumiko Hayashi
    Abstract: Pricing in two-sided markets has not been fully understood yet. Especially, investigations of how competition in these markets affects the price structure or levels are still underway. This paper takes the payment card industry as an example of two-sided markets and examines whether two networks’ competition lowers one of the prices in the industry, merchant discount fees, and if it does, how much it lowers equilibrium merchant fees compared with the fee set by a monopoly network. If some cardholders hold only one card and the other cardholders hold two different cards, whether network competition lowers the fees and by how much the fees will be lowered depends on various factors, such as the share of multihoming cardholders in the total cardholder base, the merchants’ transactional benefit, each network’s net transactional benefit to its card users, the difference in the two networks’ cardholder bases, and the share of cardholders in the total customer base. Numerical examples with various parameter values suggest that typically, if the share of multihoming cardholders is 20 percent or less, networks can act as if they are monopolies; and if the share is around 50 percent, the average equilibrium merchant fee is reduced from the monopolistic merchant fee by 25 percent.
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:fip:fedkpw:psrwp05-04&r=ind
  4. By: Gabriel Y. Weintraub; C. Lanier Benkard; Benjamin Van Roy
    Abstract: We propose an approximation method for analyzing Ericson and Pakes (1995)-style dynamic models of imperfect competition. We develop a simple algorithm for computing an "oblivious equilibrium," in which each firm is assumed to make decisions based only on its own state and knowledge of the long run average industry state, but where firms ignore current information about competitors' states. We prove that, as the market becomes large, if the equilibrium distribution of firm states obeys a certain "lighttail" condition, then oblivious equilibria closely approximate Markov perfect equilibria. We develop bounds that can be computed to assess the accuracy of the approximation for any given applied problem. Through computational experiments, we find that the method often generates useful approximations for industries with hundreds of firms and in some cases even tens of firms.
    Keywords: Competition ; Econometric models
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:fip:fedfwp:2005-23&r=ind
  5. By: Uwe Dulleck (Department of Economics, Johannes Kepler University Linz, Austria); Rudolf Kerschbamer (Department of Economics, University of Innsbruck, Austria)
    Abstract: This article studies the use of different distribution channels as an instrument of price discrimination in credence goods markets. In credence goods markets, where consumers do not know which quality of the good or service they need, price discrimination proceeds along the dimension of quality of advice offered. High quality advice and appropriate treatment is provided to the most profitable market segment only. Less profitable consumers are induced to demand a treatment without a serious diagnosis. If consumers differ in the probabilities of needing different treatments some consumers are potentially overtreated. By contrast, under heterogeneity in the valuations of a successful intervention some consumers are potentially undertreated. Our results help to explain the casual observation that in the early phase of the IT industry only low quality equipment was distributed via warehouse sellers while today it is quite common to see high quality equipment at discounters.
    Keywords: Price Discrimination; Distribution Channels; Credence Goods; Experts; Discounters
    JEL: L15 D82 D40
    Date: 2005–07
    URL: http://d.repec.org/n?u=RePEc:jku:econwp:2005_08&r=ind
  6. By: Heritiana Ranaivoson (MATISSE)
    Abstract: Product diversity is a long-debated issue in economics. We remind that mainly two questions have been given answers : (a) To which extent does the market provide diversity ? (b) Why should this diversity be promoted ? The first one stands out as the core of most articles on product diversity, whereas the second one is more evoked than really deepened. However, the economic analysis of product diversity stands out as a paradox. Actually, the definition of diversity itself has been somewhat forgotten. We try to give ways to overcome this absence so that product diversity can eventually be concretely assessed.
    Keywords: Product diversity, theory of consumer choice, monopolistic competition.
    JEL: D11 D43 L13
    Date: 2005–12
    URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:r05083&r=ind
  7. By: Isamu Matsukawa (Musashi University)
    Abstract: This paper investigates the long-run effects of average revenue regulation on an electricity transmission monopolist who applies a two- part tariff comprising a variable congestion price and a non-negative fixed access fee. A binding constraint on the monopolistfs expected average revenue lowers the access fee, promotes transmission investment, and improves consumer surplus. In a case of any linear or log-linear electricity demand function with a positive probability that no congestion occurs, average revenue regulation is allocatively more efficient than a Coasian two-part tariff if a positive access fee under average revenue regulation is lower than that under a Coasian two-part tariff.
    Keywords: congestion pricing; electric power transmission; two-part tariff; average revenue regulation; Coasian two-part tariff
    JEL: L
    Date: 2005–12–19
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0512009&r=ind

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