nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒04‒28
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Mergers and collusion with asymmetric capacities By Emilie Dargaud
  2. Two Tales on Resale By Höeffler, Felix; Schmidt, Klaus M.
  3. Price Competition in Markets with Customer Testing: The Captive Customer Effect By Hoppe, Heidrun C.; Lehmann-Grube, Ulrich
  4. Pricing strategies by European Low Cost Carriers. By Claudio A. Piga; Enrico Bachis
  5. Hub Premium, Airport Dominance and Market Power in the European Airline Industry. By Claudio A. Piga; Enrico Bachis

  1. By: Emilie Dargaud (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: When it examines the risk of coordinated effects, an antitrust authority will usually compare the situation where the merger is accepted with an attendant risk of collusion with the benchmark case in which competition is present ex-post. The main objective of this paper is to show that the antitrust authority must take into account the possibility for firms to collude if a merger is rejected. In fact, firms can have incitations to make collusion ex-post (after a rejection of a merger) whereas they would not make collusion ex-ante. All the papers on mergers and collusion tend to look at a minimal discount factor threshold for collusion to be sustained. This article does not only suggest necessary and sufficient conditions for collusion to be enforced but it also analyses the choice which firms have as to whether to collude. We consider an industry with cost-asymmetric firms and we study the analysis of collusion under leniency programmes.
    Keywords: leniency programme ; merger ; oligopoly supergame
    Date: 2007–04–19
    URL: http://d.repec.org/n?u=RePEc:hal:papers:halshs-00142435_v1&r=ind
  2. By: Höeffler, Felix; Schmidt, Klaus M.
    Abstract: In some markets vertically integrated firms sell directly to final customers but also to independent downstream firms with whom they then compete on the downstream market. It is often argued that resellers intensify competition and benefit consumers, in particular when wholesale prices are regulated. However, we show that (i) resale may increase prices and make consumers worse off and that (ii) standard 'retail minus X regulation' may increase prices and harm consumers. Our analysis suggests that this is more likely if the number of integrated firms is small, the degree of product differentiation is low, and/or if competition is spatial.
    Keywords: non-spatial product differentiation; resale regulation; spatial product differentiation; vertical restraints; wholesale
    JEL: D43 L11 L42 L51
    Date: 2007–04
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6248&r=ind
  3. By: Hoppe, Heidrun C.; Lehmann-Grube, Ulrich
    Abstract: We introduce product differentiation into the analysis of price competition in markets where suppliers test customers in order to assess whether they will pay for received goods or services. We find that, if the degree of differentiation is sufficiently high, suppliers may improve the average probability that their clientele will pay by charging higher prices. This helps suppliers to sustain high prices in equilibrium. Moreover, endogenizing locations in product space, we demonstrate that the high price level can be implemented in a pure-strategy subgame-perfect equilibrium with a high degree of differentiation. This is in contrast to the original Hotelling model with linear travel costs where a pure-strategy subgame-perfect equilibrium fails to exist.
    Keywords: Hotelling; Iterated elimination of strictly dominated strategies; Mixed strategy; Price competition; Testing
    JEL: D83 G21 L13
    Date: 2007–04
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6229&r=ind
  4. By: Claudio A. Piga (Dept of Economics, Loughborough University); Enrico Bachis (Business School, Nottingham University)
    Abstract: We introduce an on-line pricing tactic where airlines post, at the same time and for the same flight, fares in different currencies that violate the law of One Price. Unexpectedly for an on-line market, we find that price discrimination may be accompanied by arbitrage opportunities and that both tend to persist before a flight’s departure. We find discrimination to be of a competitive type, although arbitrage opportunities are more likely in concentrated routes. Finally, the evidence suggests that discrimination may be used to manage stochastic demand.
    Keywords: on-line pricing; price discrimination; Law of One Price; sample selection; dispersion; airlines, exchange rate.
    JEL: L11 L13 L93
    Date: 2007–04
    URL: http://d.repec.org/n?u=RePEc:lbo:lbowps:2007_10&r=ind
  5. By: Claudio A. Piga (Dept of Economics, Loughborough University); Enrico Bachis (Business School, Nottingham University)
    Abstract: Using evidence from an original dataset of more than 12 million fares, this study sheds light on two issues relating to the pricing behaviour of the main European airlines: 1) the extent to which an airline’s dominant position at the origin airport, at the route and the city-pair level affects the airlines’ market power; 2) whether fares follow a monotonic time path consistent with the pursuing of an inter-temporal price discrimination strategy. Our estimates reveal that enjoying a dominant position within a route is conducive to higher fares, possibly because of the limited size of many “natural monopoly” routes that facilitate the incumbent’s engagement in a limit pricing strategy. On the contrary, a larger share within a city-pair does not seem to facilitate the exercise of market power, thereby suggesting the existence of a large degree of substitutability between the routes in a city-pair.
    Keywords: on-line pricing; price discrimination; dispersion; yield management.
    JEL: L11 L13 L93
    Date: 2007–04
    URL: http://d.repec.org/n?u=RePEc:lbo:lbowps:2007_11&r=ind

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