nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒01‒23
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Asymmetric Information without Common Priors: An Indirect Evolutionary Analysis of Quantity Competition By Werner Güth; Loreto Llorente Erviti; Anthony Ziegelmeyer
  2. Takeovers and Cooperatives By Frank Milne; David Kelsey
  3. Environmental Quality in a Differentiated Duopoly By Y. Hossein Farzin; Ken-Ichi Akao
  4. The Trade Effects of Preferential Arrangements: New Evidence from the Australia Productivity Commission By Dean A. DeRosa

  1. By: Werner Güth; Loreto Llorente Erviti; Anthony Ziegelmeyer
    Abstract: The common prior assumption justifies private beliefs as posterior probabilities when updating a common prior based on individual information. Common priors are pervasive in most economic models of incomplete information and oligopoly models with asymmetrically informed firms. We dispose of the common prior assumption for a homogeneous oligopoly market with uncertain costs and firms entertaining arbitrary priors about other firms’ cost-type to analyze which priors will be evolutionarily stable when truly expected profit measures (reproductive) success. When firms believe that all other firms entertain the same beliefs Nature’s priors are not the only evolutionarily stable priors. In a second model allowing for asymmetric priors Nature’s priors are not even evolutionarily stable.
    Keywords: (Indirect) evolution; Common prior assumption; Cournot competition
    JEL: C72 D43 D82 L13
    Date: 2006–12
  2. By: Frank Milne (Queen's University); David Kelsey (University of Exeter)
    Abstract: If consumers wholly or partially control a firm with market power they will charge less than the profit maximising price. Starting at the usual monopoly price, a small price reduction will have a second order e¤ect on profits but a first order effect on consumer surplus. Despite this desirable static result, it has been argued that cooperatives are vulnerable to take-over by outsiders who will run them as for-profit businesses. This paper studies takeovers of cooperatives. We argue that cooperatives are in fact quite stable due to the Grossman-Hart problem of free riding during takeovers.
    Keywords: corporate governance, co-operative, take-over, free-rider
    JEL: D70 L20
    Date: 2006–08
  3. By: Y. Hossein Farzin (University of California); Ken-Ichi Akao (Waseda University)
    Abstract: In a duopoly industry with environmentally differentiated products, we examine the effects of introducing a mandatory environmental quality standard on firms’ environmental quality choices, profits, and the average environmental quality offered by the industry. We show that at low standard levels, both firms choose to overcomply regardless of the standard level. At intermediate levels, the mandatory standard can reduce the profit of the low-cost firm while increasing that of the high-cost firm, and that it can lower the industry’s average environmental quality below what it would be without the standard.
    Keywords: Duopoly, Environmental Quality, Mandatory Environmental Standard, Overcompliance, Product Differentiation
    JEL: Q58 L13 L51 D43
    Date: 2006–11
  4. By: Dean A. DeRosa (ADR International Ltd)
    Abstract: This paper critically examines “new” evidence from the gravity model that indicates the majority of preferential trading arrangements (PTAs) today are predominantly trade diverting. This new evidence on trade diversion was presented in a recent Australia Productivity Commission (APC) working paper. Although no major faults are found in the methodology of the APC study, the present analysis finds the opposite conclusion—that the majority of current PTAs are predominantly trade creating—when a variant of the gravity model formulated by Andrew Rose is applied to upto- date regression data using a variety of econometric methods, including the Tobit regression method employed by the APC study.
    Keywords: trade policy, preferential trading arrangements, free trade agreements, gravity models
    JEL: F13 F15 F17
    Date: 2007–01

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