nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒03‒01
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Coopetition in a Mixed Oligopoly Market By Duc-De Ngo; Mahito Okura
  2. Market power and merger simulation in retail banking By Molnár, József
  3. An empirical analysis of Mexican merger policy By De Hoyos, Rafael E.; Avalos, Marcos
  4. Chain-Store Competition: Customized vs. Uniform Pricing By Dobson, Paul W.; Waterson, Michael

  1. By: Duc-De Ngo (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Mahito Okura
    Abstract: In this study, we aim to investigate the impact of privatization on the degree of cooperation and competition in a mixed oligopoly market. We consider a duopoly market that comprises one semipublic firm and one private firm. Each firm is assumed to determine the level of two types of effort: the cooperative effort made to enlarge the total market size and the competitive effort made to increase market share. <br />In a contest framework, our results show that the competitive effort level of the semipublic firm is smaller than that of the private firm. The more the semipublic firm is concerned for social welfare, the less it competes. On the basis of average costs, we then analyze the case in which only the semipublic firm undertakes cooperative effort. In this case, the private firm behaves as a free rider. Furthermore, we find that the semipublic firm expends more cooperative effort than does the private firm.
    Keywords: Coopetition, Mixed oligopoly, Contests, Free rider
    Date: 2007
  2. By: Molnár, József (Bank of Finland Research)
    Abstract: This paper tests market power in the banking industry. Price-cost margins predicted by different oligopoly models are calculated using discrete-choice demand estimates of own-price and cross-price elasticities. These predicted price-cost margins are then compared with price-cost margins computed using observed interest rates and estimates of marginal costs. This paper is among the first to apply this methodology on a detailed, bank-level dataset from the retail banking sector. It extends on previous papers and illustrates the advantages of structural modelling by simulating a counterfactual merger experiment with a number of mergers, each of which involves two major banks, and studying the unilateral effect of the mergers on interest rates. This provides more evidence that concentration measures (such as the Herfindahl index) could be very misleading indicators of market power.
    Keywords: demand; discrete choice; product differentiation; banking; market power; merger simulation
    JEL: G21 L11 L13
    Date: 2008–02–27
  3. By: De Hoyos, Rafael E.; Avalos, Marcos
    Abstract: A newly created dataset including 239 decisions made by the Mexican Federal Competition Commission on horizontal mergers between 1997 and 2001 is used to estimate the different factors affecting the Commission ' s resolution. The paper approximates the decision making process using two different discrete choice models. The results indicate that, contrary to the Commission ' s objective, the presence of efficiency gains increases the probability of a case being issued. The findings also show that factors different from the ones explici tly mentioned by the Commission have a significant effect on the Commission ' s final decision. In particular, the presence of a foreign company among the would-be merger firms significantly increases the likelihood of observing an allowed merger.
    Keywords: Microfinance,Economic Theory & Research,Labor Policies,Bankruptcy and Resolution of Financial Distress,Corporate Law
    Date: 2008–02–01
  4. By: Dobson, Paul W. (Loughborough University Business School); Waterson, Michael (University of Warwick)
    Abstract: Retail chains essentially practice one of two broad strategies in setting prices across their stores. The more straightforward is to set a chain- or country- wide price. Alternatively, managers of retail chains may customize prices to the store level according to local demand and competitive conditions. For example, a chain may price lower in a location with lower demand and/or more competition. However, despite having the ability to customize prices to local market conditions, some choose instead to commit to uniform pricing with a “one price policy” across their entire store network. As an illustration, we focus on UK supermarket chains. Is there an advantage to be gained from deliberately choosing not to price discriminate across locations? We show generally and illustrate through means of a specific model that there exists a strategic incentive to soften competition in competitive markets by committing not to customize prices at the store level and instead adopt uniform pricing across the store network, and to raise overall profits thereby. Furthermore, we characterize quite precisely the circumstances under which uniform pricing is, and is not, profitable and illustrate that under a range of circumstances uniform pricing may be the preferable strategy.
    Keywords: Chain-store retailers ; price discrimination ; uniform pricing ; local pricing ; commitment
    Date: 2008

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