nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒02‒23
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Signaling Quality through Prices in an Oligopoly By Maarten C.W. Janssen; Santanu Roy
  2. Dynamic Efficiency of Product Market Competition By Jeroen Hinloopen; Jan Vandekerckhove
  3. How Banking competition Changed over Time By Jacob Bikker en Laura Spierdijk

  1. By: Maarten C.W. Janssen (Erasmus University Rotterdam); Santanu Roy (Southern Methodist University, Dallas, Texas)
    Abstract: Firms signal high quality through high prices even if the market structure is highly competitive and price competition is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality, production cost is increasing in quality and the quality of each firm’s product is private information (not known to consumers or to other firms), we show that there exist fully revealing equilibria in mixed strategies. In such equilibria, low quality firms enjoy market power when other firms are of high quality. High quality firms charge higher prices than low quality firms but lose business to rival firms with higher probability. Some of the revealing equilibria involve high degree of market power (price close to full information monopoly level) while others are more “competitive”. Under certain conditions, if the number of firms is large enough, information is revealed in every equilibrium.
    Keywords: Signaling; Quality; Oligopoly; Incomplete Information
    JEL: L13 L15 D82 D43
    Date: 2007–10–22
    URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20070081&r=ind
  2. By: Jeroen Hinloopen (Universiteit van Amsterdam, and Katholieke Universiteit Leuven); Jan Vandekerckhove (Kath. Universiteit Leuven)
    Abstract: We consider the efficiency of Cournot and Bertrand equilibria in a duopoly with substitutable goods where firms invest in process R&D. Under Cournot competition firms always invest more in R&D than under Bertrand competition. More importantly, Cournot competition yields lower prices than Bertrand competition when the R&D production process is efficient, when spillovers are substantial, and when goods are not too differentiated. The range of cases for which total surplus under Cournot competition exceeds that under Bertrand competition is even larger as competition over quantities always yields the largest producers' surplus.
    Keywords: Bertrand competition; Cournot competition; process R&D; efficiency
    JEL: L13
    Date: 2007–12–17
    URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20070097&r=ind
  3. By: Jacob Bikker en Laura Spierdijk
    Abstract: This paper is the first detailed and world-wide investigation of the developments in banking competition during the past fifteen years. Using the Panzar-Rosse approach, we establish significant changes over time in the competitiveness of the banking industry. The changes in competition over time are small on average, but substantial for several countries and regions. Various Western economies faced a significant decline in banking competition during recent years. In particular, the competitive climate in the euro area was subject to a major break around 2001 - 2002, initiating a period of less competition. Also for the United States and Japan we establish a break during this period. The part of Eastern Europe that now belongs to the European Union experienced a significant but modest decrease in competition during the past ten years. Furthermore, the banking industry in emerging markets became more competitive during the last decade. We attribute the predominantly downward trend in competition to increased bank size and the shift from traditional intermediation to off-balance sheet activities.
    Keywords: competition; banking industry; Panzar-Rosse model; structural breaks.
    JEL: C52 G21 L11 L13
    Date: 2008–02
    URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:167&r=ind

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