nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒07‒07
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Holdup and repeated interaction: the case of complementary monopoly By Kaz Miyagiwa
  2. Asymmetric Price Adjustment in the Small By Daniel Levy; Sourav Ray; Haipeng (Allan) Chen; Mark Bergen
  3. Collusion via Resale By Garratt, Rod; Troger, Thomas; Zheng, Charles Zhoucheng
  4. Best-reply matching and the centipede game. By Gisèle Umbhauer
  5. UK Merger Remedies under Scrutiny By Michael Harker
  6. Introducing Competition and Deregulating the British Domestic Energy Markets: a Legal and Economic Discussion By Michael Harker; Catherine Waddams Price

  1. By: Kaz Miyagiwa
    Abstract: Suppose consumers buy complementary goods sequentially from several monopolists. If prices cannot be contracted on, there may be no sale in a one-shot game due to the holdup problem. Dynamic interaction of agents attenuates the problem. In equilibrium, the first and the last monopolist capture the entire monopoly profit while the other monopolists break even. Vertical integrations that exclude the last monopolist neither lower the price nor increase social welfare. On the other hand, partial integrations that include the last monopoly can reduce the combined profit and hence may never occur despite the welfare-improving potential.
    Date: 2007–02
  2. By: Daniel Levy; Sourav Ray; Haipeng (Allan) Chen; Mark Bergen
    Abstract: Analyzing a large weekly retail transaction price dataset, we uncover a surprising regularity—small price increases occur more frequently than small price decreases for price changes of up to about 10 cents, while there is no such asymmetry for larger price changes. The asymmetry holds for the entire sample and for individual categories. We find that while inflation can explain some of the asymmetry, inflation is not the whole story as the asymmetry holds even after excluding inflationary periods from the data, and even for products whose price had not increased over the eight-year period. The findings hold for different measures of inflation and also after allowing for lagged price adjustments. We offer a consumer-based explanation for these findings.
    Date: 2007–02
  3. By: Garratt, Rod; Troger, Thomas; Zheng, Charles Zhoucheng
    Abstract: The English auction is susceptible to tacit collusion when post-auction inter-bidder resale is allowed. We show this by constructing a continuum of equilibria where, with positive probability, one bidder wins the auction without any competition and divides the spoils by optimally reselling the good to the other bidders. Such equilibria support a collusive bidding pattern without requiring the colluders to make any commitment on bidding behavior or post-bidding spoil-division. The equilibria are valid for any number of asymmetric or symmetric bidders, arbitrary reserve prices, and various resale market rules. In symmetric environments, these equilibria interim Pareto dominate (among bidders) the standard value-bidding equilibrium.
    Keywords: auction, resale, collusion, English auction
    JEL: D4
    Date: 2007–06–30
  4. By: Gisèle Umbhauer
    Abstract: In their paper on Best-Reply Matching (BRM), Droste, Kosfeld & Voorneveld (2003) obtained quite intuitive results for the centipede game. In this short paper we first show that these results derive from the application of their criterion to the reduced normal form of the game. Then we prove that applying their criterion to the normal form of the game leads to different results. Third we propose an extension of Droste, Kosfeld & Voorneveld’s criterion, which leads to the same results in both the reduced normal form and the normal form of a game. This extension leads to a larger set of behaviors, including the Subgame Perfect Nash equilibrium but also a limited rationality behavior that strongly sustains the continuation of the game.
    Keywords: Best-Reply Matching, centipede game, reduced normal form, normal form, Subgame Perfect Nash equilibrium.
    JEL: C72
    Date: 2007
  5. By: Michael Harker (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper focuses on the Somerfield decision of the Competition Appeal Tribunal (CAT). In that decision, the CAT demonstrated a high degree of deference to the Competition Commission where the latter was scoping divestiture remedies in a merger case. This approach is consistent with the case law of the US and the EC and, it is argued, is appropriate given the need for procedural expediency. The decision is placed in the wider context of the debates over the efficacy of merger remedies and the appropriate limits of judicial supervision of agency discretion in this area.
    Keywords: Merger remedies, divestiture, merger appraisal
    JEL: K21
    Date: 2006–10
  6. By: Michael Harker (Centre for Competition Policy, University of East Anglia); Catherine Waddams Price (Centre for Competition Policy, University of East Anglia)
    Abstract: In this article we chart the development of competition and deregulation of the British retail energy markets, explaining the evolution of competitive constraints when consumers are introduced to supplier choice for the first time. In the context of rising real energy prices for consumers, and continued market power on the part of the incumbents, we address the question of whether the control of pricing practices through the ex post provisions of the general competition law is sufficient to protect consumers. We also explore the issue of whether reliance solely on these provisions is desirable given the uncertainty which surrounds the application of the Chapter II prohibition (governing abuse of dominance), specifically in respect of price discrimination in final markets. We conclude that the outcome of the liberalisation experiment in terms of delivering benefits for consumers is unclear.
    Keywords: Energy markets, deregulation, monopoly, competition, dominance, market power, consumer switching, switching behaviour, price rebalancing, ex post and ex ante regulation
    JEL: K21 K23 I38 L12 L41 L51 L94 L95
    Date: 2006–11

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