nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒11‒24
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competing Complements By Ramon Casadesus-Masanell; Barry Nalebuff; David B. Yoffie
  2. Asymmetric Collusion and Merger Policy By Mattias Ganslandt; Lars Persson; Helder Vasconcelos
  3. Quantity Versus Quality in the Soviet Market for Weapons By Harrison, Mark; Markevich, Andrei

  1. By: Ramon Casadesus-Masanell (Harvard Business School); Barry Nalebuff (Yale School of Management); David B. Yoffie (Harvard Business School)
    Abstract: In Cournot's model of complements, the producers of A and B are both monopolists. This paper extends Cournot's model to allow for competition between complements on one side of the market. Consider two complements, A and B, where the A+B bundle is valuable only when purchased together. Good A is supplied by a monopolist(e.g., Microsoft) and there is competition in the B goods from vertically differentiated suppliers (e.g., Intel and AMD). In this simple game, there may not be a pure-strategy equilibria. In the standard case where marginal costs are weakly positive, there is no pure strategy where the lower quality B firm obtains positive market share. We also consider the case where A has negative marginal costs, as would arise when A can expect to make upgrade sales to an installed base. When profits from the installed base are sufficiently large, a pure strategy equilibrium exists with two B firms active in the market. Although there is competition in the complement market, the monopoly Firm A may earn lower profits in this environment. Consequently, A may prefer to accept lower future profits in order to interact with a monopolist complement in B.
    Keywords: AMD, complementors, complements, co-opetition, equilibrium non-existence, installed base, Intel, Microsoft, pricing.
    JEL: C72 D43 K21 L13 L15 M21
    Date: 2007–08
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:0744&r=ind
  2. By: Mattias Ganslandt (Research Institute of Industrial Economics (IFN)); Lars Persson (Research Institute of Industrial Economics (IFN) and CEPR); Helder Vasconcelos (Universidade Católica Portuguesa and CEPR)
    Abstract: In their merger control, EU and the US have considered symmetric size distribution (cost structure) of firms to be a factor potentially leading to collusion. We show that forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with higher risk of collusion, when firms face indivisible costs of collusion. In particular, we show that if the rule determining the collusive outcome has the property that the large (efficient) firm benefits sufficiently more from collusion when industry asymmetries increase, collusion can become more likely when firms are moderately asymmetric.
    Keywords: Collusion; Cost Asymmetries; Merger Policy
    JEL: D43 L41
    Date: 2007–10
    URL: http://d.repec.org/n?u=RePEc:pca:wpaper:28&r=ind
  3. By: Harrison, Mark (Department of Economics, University of Warwick ; Centre for Russian and East European Studies, University of Birmingham ; and Hoover Institution on War, Revolution, and Peace, Stanford University.); Markevich, Andrei (Department of Economics, University of Warwick and the Center for Economic and Financial Research, New Economic School, Moscow)
    Abstract: Military market places display obvious inefficiencies under most arrangements, but the Soviet defense market was unusual for its degree of monopoly, exclusive relationships, intensely scrutinized (in its formative years) by a harsh dictator. This provided the setting for quality versus quantity in the delivery of weapons to the government. The paper discusses the power of the industrial contractor over the defense buyer in terms of a hold-up problem. The typical use that the contractor made of this power was to default on quality. The defense ministry’s counter-action took the form of deploying agents through industry with the authority to verify quality and reject substandard goods. The final compromise restored quality at the expense of quantity. Being illicit, it had to be hidden from the dictator.
    Keywords: Contracts ; Dictatorship ; Hold-Up Problem ; Soviet Economy
    JEL: L2 N4 P2
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:wrk:warwec:822&r=ind

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