nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒05‒20
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On Nash equilibrium in prices in an oligopolistic market with demand characterized by a nested multinomial logit model and multiproduct firm as nest By Gang Liu
  2. Merger Control With Transfers from the Capital Gains Tax and Asset Divestments By Arnaud Féral
  3. Prices, Spatial Competition, and Heterogenous Producers: An Empirical Test By Chad Syverson
  4. The Competitive Market Paradox. By Gjerstad, S.
  5. A 'Super' Folk Theorem for Dynastic Repeated Games By Luca Anderlini; Dino Gerardi; Roger Lagunoff
  6. Regulation in telecommunications : a cross approach between law and economics By Thierry Pénard (CREM-CNRS); Nicolas Thirion (University of Liege)

  1. By: Gang Liu (Statistics Norway)
    Abstract: This note provides a proof on existence and uniqueness of Nash equilibrium in prices in a market where the demand side is characterized by a nested multinomial logit model with multiproduct firm as nest and the supply side consists of oligopolistic price-setting multiproduct firms with each producing various differentiated variants.
    Keywords: oligopolistic market; multiproduct firm; nested multinomial logit model; Nash equilibrium
    JEL: C25 C62 C72 D43 L13
    Date: 2006–04
  2. By: Arnaud Féral (THEMA, Department of Economics, Cergy-Pontoise University)
    Abstract: In a Cournot model of takeover under asymmetric information, we identify a link between efficiency gains and structural remedies, we show that more efficient Insiders are asked to divest a bigger part of their assets. Aware that a unique tool is insufficient to make Insider revealing their type, we allow the Antitrust Agency to choose the mix of cash and stock used as payment for the target, which indirectly defines a transfer. Relying on the medium of paiement literature we show that the merger is even more costly for Insiders when the amount of cash in the mix bid is more important, because of capital gains tax compensations. We introduce a relevant limited liability problem in the model, since the AA cannot ask higher transfers than those underlying to the all cash procedure. In this context we show that inefficient Insiders divest more than their First Best and make an all cash offer, whereas efficient Insider divest their First best and incorporate less cash in the global bid.
    Keywords: Merger control, structural remedies, asymmetric information, Medium of paiement, Limited liability
    JEL: L51 D82 L41
    Date: 2006
  3. By: Chad Syverson
    Abstract: In markets where spatial competition is important, many models predict that average prices are lower in denser markets (i.e., those with more producers per unit area). Homogeneous-producer models attribute this effect solely to lower optimal markups. However, when producers instead differ in their production costs, a second mechanism also acts to lower equilibrium prices: competition-driven selection on costs. Consumers’ greater substitution possibilities in denser markets make it more difficult for high-cost firms to profitably operate, truncating the equilibrium cost (and price) distributions from above. This selection process can be empirically distinguished from the homogenous-producer case because it implies that not only do average prices fall as density rises, but that upper-bound prices and price dispersion should also decline as well. I find empirical support for this process using a rich set of price data from U.S. readymixed concrete plants. Features of the industry offer an arguably exogenous source of producer density variation with which to identify these effects. I also show that the findings do not simply result from lower factor prices in dense markets, but rather because dense-market producers have low costs because they are more efficient.
    JEL: L0 L1 D4 L6
    Date: 2006–05
  4. By: Gjerstad, S.
    Abstract: The competitive market model is a paradoxical. In perfect competition, agents cannot influence price: they only select an output quantity. Such passive behavior doesn’t conform to the intuitive notion of competition. This paper describes an experiment which demonstrates that near or even at a competitive equilibrium price, competition is undiminished. A substantial difference between the performance of sellers and buyers frequently results from this vigorous competition, even with low price variability and approximate efficiency. In double auction experiment sessions conducted with both automated and human agents, exogenous variation of the pace of asks and bids of automated agents demonstrates that the performance difference between sellers and buyers results primarily from a difference between the pace of asks and bids. If the buyers’ pace is slower than sellers’ pace, buyers make price concessions less frequently than sellers so that prices move below the equilibrium price. Then more buyers become active and fewer sellers remain active. Prices stabilize when changes to the numbers of active buyers and sellers offset the superior bargaining capability of one side or the other. In competitive equilibrium, to a first approximation agents are price takers, but that doesn’t preclude vigorous competition: competitive behavior moves to the dimension of bargaining pace.
    Keywords: Bargaining ; bounded rationality ; competitive equilibrium ; double auction ; experimental economics
    JEL: C78 C92 D41 D44
    Date: 2006–02
  5. By: Luca Anderlini; Dino Gerardi; Roger Lagunoff (Department of Economics, Georgetown University)
    Abstract: We analyze “dynastic” repeated games. A stage game is repeatedly played by successive generations of finitely-lived players with dynastic preferences. Each individual has preferences that replicate those of the infinitely-lived players of a standard discounted infinitely-repeated game. When all players observe the past history of play, the standard repeated game and the dynastic game are equivalent In our model all players live one period and do not observe the history of play that takes place before their birth, but instead receive a private message from their immediate predecessors. Under very mild conditions, when players are sufficiently patient, all feasible payoff vectors (including those below the minmax of the stage game) can be sustained as a Sequential Equilibrium of the dynastic repeated game with private communication. The result applies to any stage game for which the standard Folk Theorem yields a payoff set with a non-empty interior. We are also able to characterize entirely when a Sequential Equilibrium of the dynastic repeated game can yield a payoff vector not sustainable as a Subgame Perfect Equilibrium of the standard repeated game. For this to be the case it must be that the players’ equilibrium beliefs violate a condition that we term “Inter-Generational Agreement.” Classification-JEL Codes: C72, C73, D82
    Keywords: Dynastic Repeated Games, Private Communication, Folk Theorem
  6. By: Thierry Pénard (CREM-CNRS); Nicolas Thirion (University of Liege)
    Abstract: Regulation in telecommunication industry is one of the most sophisticated sectorial regulation. Two main goals are targeted by public authorities. In one hand, the regulator is trying to build a competitive market to replace the historic monopolistic situation. Now the emphasis is less on the monopolization of the market by the former public operator and more on the risk of collective dominance by a dew dominant operators. In the second hand, the regulator is trying to promote other objectives such as protection of consumers, the territory balance, the defence of national champions. All these objectives can sometimes be in conflict. This paper analyses regulatory objectives and instruments, focusing on the economic and lax aspects.
    Keywords: Internet, Regulation, Law
    Date: 2006

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