nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒04‒12
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Merger Review: How much of Industry is Affected in an International Perspective ? By Patrick Van Cayseele; Jozef Konings; Jan De Loecker
  2. Dynamic Price Competition with Network Effects By Cabral, Luís M B
  3. A Model of Vertical Oligopolistic Competition By Reisinger, Markus; Schnitzer, Monika
  4. Advance-Purchase Discounts as a Price Discrimination Device By Nocke, Volker; Peitz, Martin
  5. Entry Barriers in Retail Trade By Schivardi, Fabiano; Viviano, Eliana
  6. Efficiency Gain from Ownership Deregulation: Estimates for the Radio Industry By O'Gorman, Catherine; Smith, Howard
  7. Cournot Competition in the Electricity Market with Transmission Constraints. By Bert Willems
  8. Market Power and Efficiency in the Czech Banking Sector By Anca Pruteanu-Podpiera; Laurent Weill; Franziska Schobert

  1. By: Patrick Van Cayseele; Jozef Konings; Jan De Loecker
    Date: 2008–03
    URL: http://d.repec.org/n?u=RePEc:ete:ceswps:ces0315&r=ind
  2. By: Cabral, Luís M B
    Abstract: I consider a dynamic model of competition between two proprietary networks. Consumers die and are replaced with a constant hazard rate. Firms compete for new consumers to join their network by offering network entry prices (which may be below cost). New consumers have a privately known preference for each network. Upon joining a network, in each period consumers enjoy a benefit which is increasing in network size during that period. Firms receive revenues from new consumers as well as from consumers already belonging to their network. Using a combination of analytical and numerical methods, I discuss various properties of the equilibrium. I show that very small or very large networks tend to price higher than networks of intermediate size. I also show that, around symmetric states, the gap between the large and the small network tends to widen (increasing dominance) whereas the opposite is true (reversion to the mean) around very asymmetric states.
    Keywords: dynamic price competition; network effects
    JEL: L13
    Date: 2008–02
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6687&r=ind
  3. By: Reisinger, Markus; Schnitzer, Monika
    Abstract: This paper develops a model of successive oligopolies with endogenous market entry, allowing for varying degrees of product differentiation and entry costs in both markets. Our analysis shows that the downstream conditions dominate the overall profitability of the two-tier structure while the upstream conditions mainly affect the distribution of profits. We compare the welfare effects of upstream versus downstream deregulation policies and show that the impact of deregulation may be overvalued when ignoring feedback effects from the other market. Furthermore, we analyze how different forms of vertical restraints influence the endogenous market structure and show when they are welfare enhancing.
    Keywords: Deregulation; Free Entry; Price Competition; Product Differentiation; Successive Oligopolies; Two-Part Tariffs; Vertical Restraints
    JEL: D43 L13 L40 L50
    Date: 2008–02
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6730&r=ind
  4. By: Nocke, Volker; Peitz, Martin
    Abstract: In an intertemporal setting in which individual uncertainty is resolved over time, advance-purchase discounts can serve to price discriminate between consumers with different expected valuations for the same product. Consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance-purchase discount; consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high. We provide a necessary and sufficient condition under which the monopolist's optimal intertemporal selling policy features such advance-purchase discounts.
    Keywords: advance-purchase discount; demand uncertainty; intertemporal pricing; introductory offers; monopoly pricing; price discrimination
    JEL: D42 L12
    Date: 2008–01
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6664&r=ind
  5. By: Schivardi, Fabiano; Viviano, Eliana
    Abstract: The 1998 reform of the Italy's retail trade sector delegated the regulation of entry of large stores to the regional governments. We use the local variation in regulation to determine the effects of entry barriers on firms' performance for a representative sample of retailers. We address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. We also control for differences in trends and for area-wide shocks. We find that entry barriers are associated with substantially larger profit margins and substantially lower productivity of incumbent firms. Liberalizing entry has a positive effect on investment in ICT. Consistently, more stringent entry regulation results in higher inflation: lower productivity coupled with larger margins results in higher consumer prices.
    Keywords: entry barriers; productivity growth; technology
    JEL: L11 L5 L81
    Date: 2008–01
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6637&r=ind
  6. By: O'Gorman, Catherine; Smith, Howard
    Abstract: Reducing fixed cost duplication - a common justification for concentrated market structure - motivated the US government to relax the number of radio stations a firm could operate in any local market. After deregulation the number of firms per market decreased. The implied cost saving depends on the per market fixed costs incurred by each firm. Using data from 140 markets we estimate upper and lower bounds to fixed costs using (i) an empirical model of gross profit and (ii) the assumption that the observed post-deregulation market structure is a Nash equilibrium. The estimates suggest that the efficiency savings were significant.
    Keywords: moment inequalities
    JEL: L10 L40 L82
    Date: 2008–02
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6699&r=ind
  7. By: Bert Willems
    Abstract: This paper studies the market power of generators in the electricity market when transmission capacity is scarce. We consider a simple world of two generators providing electricity to their consumers through a single transmission line. In the literature, different Cournot equilibrium concepts have been developed. This paper applies these concepts and explains the implicit assumptions on the behavior of the System Operator made in those papers. We show that these implicit assumptions are not realistic. For an alternative role of the System Operator, we solve the Cournot equilibrium and compare the outcome. Furthermore, we show that the axiomatic equilibrium concept of Smeers and Wei (1997) is linked with the model of Oren (1997) and can also be defined as a Nash Equilibrium.
    Date: 2008–03
    URL: http://d.repec.org/n?u=RePEc:ete:ceswps:ces0024&r=ind
  8. By: Anca Pruteanu-Podpiera; Laurent Weill; Franziska Schobert
    Abstract: Banking competition is expected to provide welfare gains by reducing monopoly rents and cost inefficiencies, favoring a reduction of loan rates and then investment. These expected gains are a major issue for transition countries, in which bank credit represents the largest source of external finance for companies. With the use of exhaustive quarterly data for Czech banks, this paper aims to provide evidence on the effects of banking competition in the Czech Republic. First, we measure the level and evolution of banking competition between 1994 and 2005. Competition is measured by the Lerner index on the loan market, using data on loan prices. The results do not show a clear-cut trend in the evolution of the Lerner index. Second, we investigate the relationship and causality between competition and efficiency. We perform a Granger-causality-type analysis. This supports the ‘banking specificities’ hypothesis, according to which heightened competition can lead to an increase in monitoring costs through a reduction in the length of the customer relationship and due to the presence of economies of scale in the banking sector, in this way reducing the cost efficiency of banks. Therefore, our results reject the intuitive ‘quiet life’ hypothesis and indicate a negative relationship between competition and efficiency in banking.
    Keywords: Banks, competition, efficiency, transition countries.
    JEL: G21 L12 P20
    Date: 2007–12
    URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2007/6&r=ind

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