nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒05‒27
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Sequential Entry in a Vertically Differentiated Duopoly By Luca Lambertini; Piero Tedeschi
  2. Policy Formulation, Implementation and Feedback in EU Merger Control By Eric J. Shea,; Raj S. Chari
  3. Modularity as an Entry Strategy: The invasion of new niches in the LAN equipment industry By Stefano Brusoni; Roberto Fontana
  4. On the equivalence of selected supply chain contract mechanisms By Vijayender Reddy Nalla; Jack A.A. van der Veen; Venu Venugopal

  1. By: Luca Lambertini; Piero Tedeschi
    Abstract: We analyse a model of vertical differentiation focusing on the trade-off between entering early and exploiting monopoly power with a low quality, versus waiting and enjoying a dominant market position with a superior product. We show that, in a relevant parameter region, there exists a unique equilibrium where the leader enters with a lower quality than the follower. This happens when the time span spent by the leader as a monopolist matters the most, i.e., in correspondence of sufficiently low discount rate values, low costs of quality improvement and high consumers' willingness to pay for quality.
    Keywords: vertical differentiation, product innovation, monopoly rent
    JEL: L13 O31
    Date: 2006–05
  2. By: Eric J. Shea,; Raj S. Chari
    Abstract: This paper analyses the formulation of the EU Merger Control Regulation (MCR) and its implementation via the 1992 Nestlé/Perrier merger. It offers two arguments. First, these phases of policy development occurred in ‘macro’ and ‘micro’ policy communities found at the supranational level of governance. The first community consists of larger Commission and business interests that formulated the MCR and the second of specific actors within the ‘macro’ community - the Merger Task Force and the firms – that implemented the rules. Secondly, the development of these communities can be explained by private interest theory. The conclusions highlight two main lessons for students of comparative European politics. First, the concept of ‘macro’ and ‘micro’ communities existing at both the formulation and implementation phases of policy offers a framework for comparativists to better analyse which types of actors will interact during different stages of the policy-making process. It is argued that while the (larger) ‘macro’ community helps define the nature of the regulations, a related, but not necessarily equally composed, ‘micro’ community eventually implements the rules, potentially changing the nature of the policy itself via a ‘feedback’ mechanism. Secondly, this study suggests that comparativists must pay more attention to the private interests of policy-makers and how these are intertwined with their ‘private fears.’ Such interests and fears guide policy-makers while simultaneously constrain them from acting alone.
    Date: 2006–05–25
  3. By: Stefano Brusoni (CESPRI and CRORA, Università Bocconi, Milano and Silvio Tronchetti- Provera Foundation, Italy); Roberto Fontana (CESPRI, Università Bocconi, Milano and Department of Economics, University of Pavia, Italy)
    Abstract: This paper focuses on niche entry patterns in the LAN equipment industry in the 1990s. We analyze an original data-set of LAN equipment consisting of more than 1,000 hubs and switches marketed between 1990 and 1999. Modularity emerged as a design strategy that supported incumbent firms’ efforts to enter new product niches in the hub segment. However, after the emergence of switches as an alternative to hubs, coupled with the introduction of a new standard, incumbents relying on a modular hub strategy were overtaken by a new comer (Cisco). Moreover, the fastest followers were incumbents that had not previously relied on modular hub architectures. Our interpretation is as follows: modularity offers advantages of speed when changes occur within established boundaries. However, it also generates a ‘tunnel effect’ that prevents firms from developing products based on different problem-solving strategies. Such changes are more easily introduced by firms that do not rely on tightly-defined modular design rules.
    Keywords: Entry; Modularity; LAN Equipment
    JEL: O33 L63 D83
    Date: 2005–07
  4. By: Vijayender Reddy Nalla; Jack A.A. van der Veen; Venu Venugopal (Nyenrode Business Universiteit)
    Abstract: This paper models a situation where a Supplier sells a fashion product to a Buyer who in turn sells the product to the consumers. Both the Supplier and the Buyer set their own selling price. For the above setting this paper designs different contract mechanisms such as Revenue sharing, Profit sharing, Quantity discounts, License fee and Mail-in-rebate contract mechanisms. The paper shows that the designed contract mechanism can provide both coordination and win-win. The paper also establishes the equivalence between the designed contract mechanisms and argues that industries can use one mechanism over the other in case of implementation problem.
    Keywords: Coordination, Win-Win, Supply Chain Contracts, Mail-in-rebates
    Date: 2005

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