nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒06‒17
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Regulatory Barriers and Entry in Developing Economies By John Bennett; Saul Estrin
  2. “Ineffective” competition: a puzzle? By Andrej V. Ivanov; Florian Mueller
  3. Non-price advertising and price competition: a theory, and evidence from the Brazilian beer market By Renato D.B. Gomes; João Manoel Pinho de Mello
  4. Multi-Product Firms and Product Switching By Andrew B. Bernard; Stephen J. Redding; Peter K. Schott

  1. By: John Bennett (Brunel University); Saul Estrin (London Business School and IZA Bonn)
    Abstract: We model entry by entrepreneurs into new markets in developing economies with regulatory barriers in the form of licence fees and bureaucratic delay. Because laissez faire leads to ‘excessive’ entry, a licence fee can increase welfare by discouraging entry. However, in the presence of a licence fee, bureaucratic delay creates a strategic opportunity, which can result in both greater entry by first movers and a higher steady-state number of firms. Delay also leads to speculation, with entrepreneurs taking out licences to obtain the option of immediate entry if they later observe the industry to be profitable enough.
    Keywords: entry, entry barriers, developing economy
    JEL: L50 O14
    Date: 2006–05
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp2150&r=ind
  2. By: Andrej V. Ivanov (Chair for Applied Microeconomics, Department of Economics, Mannheim University, D-68131 Mannheim, Germany, aivanov@rumms.uni-mannheim.de); Florian Mueller (Chair for Applied Microeconomics, Department of Economics, Mannheim University, D-68131 Mannheim, Germany, f.mueller@econ.uni-mannheim.de)
    Abstract: Conventionally, we think of an increase in competition as weakly decreasing prices, increasing the number of consumers served, thus increasing consumer surplus, decreasing firms profits, etc. Here, we demonstrate that, under some tame circumstances, an increase in competition may lead to a price increase in a horizontally differentiated market. We show this relationship for the petrol market in German cities.
    Date: 2006–05
    URL: http://d.repec.org/n?u=RePEc:trf:wpaper:117&r=ind
  3. By: Renato D.B. Gomes (Ph.D. Student, Department of Economics - Northwestern University.); João Manoel Pinho de Mello (Department of Economics PUC-Rio.)
    Abstract: By engendering horizontal differentiation, non-price advertising increases the incentives to accommodate on the price dimension. However, advertising also increases the size of the market and, consequently, the payoffs to price undercutting, which induces more aggressive price competition. We propose a theory in which advertising has a different effect on price competition according to the level of market maturity. In mature markets - where potential growth in low - only the price accommodation effect is present. In immature markets, both effects are present. Therefore, advertising is more procompetitive (less anti-competitive) in immature markets. Evidence from several Brazilian beer markets corroborates the theory.
    Date: 2006–05
    URL: http://d.repec.org/n?u=RePEc:rio:texdis:525&r=ind
  4. By: Andrew B. Bernard; Stephen J. Redding; Peter K. Schott
    Abstract: This paper examines the frequency, pervasiveness and determinants of product switching among U.S. manufacturing firms. We find that two-thirds of firms alter their mix of five-digit SIC products every five years, that one-third of the increase in real U.S. manufacturing shipments between 1972 and 1997 is due to the net adding and dropping of products by survivors, and that firms are more likely to drop products which are younger and have smaller production volumes relative to other firms producing the same product. The product-switching behavior we observe is consistent with an extended model of industry dynamics emphasizing firm heterogeneity and self-selection into individual product markets. Our findings suggest that product switching contributes towards a reallocation of economic activity within firms towards more productive uses.
    JEL: D21 E23 L11 L60
    Date: 2006–06
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12293&r=ind

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