nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒02‒19
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Market design By David Newbery
  2. Beyond Regulation By Stephen Littlechild
  3. Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race By Fershtman, Chaim; Markovich, Sarit
  4. Antitrust in Open Economies By Francois, Joseph; Horn, Henrik
  5. Competition, regulation, and pricing behavior in the Spanish retail gasoline market. By Ignacio Contín-Pilart; Aad F. Correljé; M. Blanca Palacios
  6. Price competition and convex costs By Weibull, Jörgen
  7. Do Entry Conditions Vary over Time? Entry and Competition in the Broadband Market: 1999-2003 By Xiao, Mo; Orazem, Peter

  1. By: David Newbery
    Abstract: Europe is liberalising electricity in accordance with the European Commission’s Electricity Directives. Different countries have responded differently, notably in the extent of restructuring, treatment of mergers, market power, and vertical unbundling. While Britain and Norway have achieved effective competition, others like Germany, Spain and France are still struggling to deal with dominant and sometimes vertically integrated companies. The Netherlands offers an interesting intermediate case, where good economic analysis has sometimes been thwarted by legalistic interpretations. Investment under the new Emissions Trading system could further transform the electricity industry but may be hampered by slow progress in liberalising European gas markets.
    Keywords: Competition, liberalisation, restructuring, electricity, market power
    JEL: G34 K23 L51 L94
    Date: 2006–02
    URL: http://d.repec.org/n?u=RePEc:cam:camdae:0615&r=ind
  2. By: Stephen Littlechild
    Abstract: The ‘standard model’ of electricity reform has been refined in many countries but not extended to others. Government is supplanting the role of regulation. Revised calculations suggest that the benefits of UK electricity privatisation were higher than previously estimated and more widely shared with consumers. Other calculations suggest that generation market power in the US is less than previously estimated by Lerner index calculations. Unduly tight price controls explain why there has been less customer switching in some residential electricity markets. There has been significant development of fixed price contracts in Nordic markets, posing questions for regulation in the absence of retail competition. There are alternatives to regulation of network monopolies. In Australia regulated interconnectors have been less economic than merchant interconnectors. In Argentina arrangements for users to determine transmission expansions have worked well. In Florida negotiated settlements have secured a better deal for customers than regulation.
    Keywords: : regulation, competition, electricity, transmission
    JEL: L94 L51
    Date: 2006–02
    URL: http://d.repec.org/n?u=RePEc:cam:camdae:0616&r=ind
  3. By: Fershtman, Chaim; Markovich, Sarit
    Abstract: R&D is an inherently dynamic process which involves different intermediate steps that need to be developed before the completion of the final invention. Firms are not necessarily symmetric in their R&D abilities; some may have advantages in early stages of the R&D process while others may have advantages in other stages of the process. The paper uses a simple two-firm asymmetric ability multistage R&D race model to analyse the effect of different types of patent policy regimes and licensing arrangement on the speed of innovation, firm value and consumers' surplus. The paper demonstrates the circumstances under which a weak patent protection regime, which facilitates free imitation of any intermediate technology, may yield a higher overall surplus than a regime that awards patent for the final innovation. This result holds even in cases where the length of the patent is optimally calculated.
    Keywords: licensing; patent protection; R&D race
    JEL: D43 L1 O3
    Date: 2006–02
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:5481&r=ind
  4. By: Francois, Joseph; Horn, Henrik
    Abstract: We examine antitrust rules in a two-county general equilibrium trade model, contrasting national and multilateral (cooperative) determination of competition policy, exploring the properties of the policy equilibrium. It is not imperfect competition, but variation in competitive stance between sectors that matters for trading partners. Beggar-thy-neighbor competition policies relate to countries' comparative advantages, and hurt the factor intensively used, or specific to, the imperfectly competitive sector. They also create a competitive advantage for export firms. FDI can be pro-competitive in this context, reducing the scope for beggar-thy-neighbor policies and reducing the gains from a multilateral competition agreement.
    Keywords: antitrust policy; competition policy; FDI; merger policy; trade and imperfect competition
    JEL: F12 F3 L4
    Date: 2006–02
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:5480&r=ind
  5. By: Ignacio Contín-Pilart (Universidad Pública de Navarra); Aad F. Correljé (Delft Technical University, and Clingendael International Energy Programme); M. Blanca Palacios (Universidad del País Vasco)
    Abstract: The restructuring of the Spanish oil industry produced a highly concentrated oligopoly in the retail gasoline market. In June 1990 the Spanish government introduced a system of ceiling price regulation in order to ensure that \"liberalization\" was accompanied by adequate consumer protection. This paper examines the pricing behavior of the retail gasoline market using multivariate error correction models over the period January 1993 (abolishment of the state monopoly)-December 2004. The results suggest that gasoline retail prices respond symmetrically to increases and decreases in the spot price of gasoline. However, one the ceiling price regulation was abolished, the \"collaboration\" between the government and the major operators, Repsol-YPF and Cepsa-Elf in order to control the inflation rate results in a slower rate of increase (decrease) of gasoline retail prices when gasoline spot prices went up (went down) than elsewhere in the European Union. Finally, retail margins were by the end of our timing period of analysis, as in the first years after the abolishment of the state monopoly, well above the European ones.
    Keywords: Competition, regulation, pricing behavior, gasoline market
    JEL: L11 L43 L51 L71
    Date: 2006–02–08
    URL: http://d.repec.org/n?u=RePEc:ehu:biltok:200602&r=ind
  6. By: Weibull, Jörgen (Dept. of Economics, Stockholm School of Economics)
    Abstract: In the original model of pure price competition, due to Joseph Bertrand (1883), firms have linear cost functions. For any number of identical such price-setting firms, this results in the perfectly competitive outcome; the equilibrium price equal the firms’ (constant) marginal cost. This paper provides a generalization of Bertrand’s model from linear to convex cost functions. I analyze pure price competition both in a static setting - where the firms interact once and for all - and in dynamic setting - where they interact repeatedly over an indefinite future. Sufficient conditions are given for the existence of Nash equilibrium in the static setting and for subgame perfect equilibrium in the dynamic setting. These equilibrium sets are characterized, and it is shown that there typically exists a whole interval of Nash equilibrium prices in the static setting and subgame perfect equilibria in the dynamic setting. It is shown that firms may earn sizable profits and that their equilibrium profits may increase if their production costs go up.
    Keywords: Bertrand competition;
    JEL: D43
    Date: 2006–02–14
    URL: http://d.repec.org/n?u=RePEc:hhs:hastef:0622&r=ind
  7. By: Xiao, Mo; Orazem, Peter
    Abstract: We extend Bresnahan and Reiss’s (1991) model of local oligopoly to allow firm entry and exit over time. In our framework, entrants have to incur sunk costs in order to enter a market. After becoming incumbents, they disregard these entry costs in deciding whether to continue operating or to exit. We apply this framework to study market structure and competitive conduct in local markets for high-speed Internet service from 1999 to 2003. Replication of Bresnahan and Reiss’s framework generates unreasonable variation in firms’ competitive conduct over time. This variation disappears when entry costs are allowed. We find that once the market has one to three firms, the next entrant has little effect on competitive conduct. We also find that entry costs vary with the order of entry, especially for early entrants. Our findings highlight the importance of sunk costs in determining entry conditions and inferences about firm conduct.
    Keywords: Broadband, High-Speed Internet, Entry, Exit, Competition, Pricing, oligopoly
    JEL: L8
    Date: 2006–02–16
    URL: http://d.repec.org/n?u=RePEc:isu:genres:12500&r=ind

This nep-ind issue is ©2006 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.