New Economics Papers
on Industrial Organization
Issue of 2008‒07‒20
six papers chosen by

  1. Information Sharing Networks in Oligopoly By Sergio Currarni; Francesco Feri
  2. Capacity restriction by retailers By Ramón Faulí-Oller
  3. Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels By Alberto ZAZZARO; David BARTOLINI
  4. Competition Within a Cartel: Correction By Scott A. Brave; Donald G. Ferguson; Kenneth G. Stewart
  5. Is Bundling Anticompetitive? By Ioana Chioveanu
  6. On Bundling in Insurance Markets By Maarten C. W. Janssen; Vladimir A. Karamychev

  1. By: Sergio Currarni (Department of Economics, University Of Venice Cà Foscari); Francesco Feri (University of Innsbruck)
    Abstract: We study the incentives of oligopolistic firms to share private information on demand parameters. Differently from previous studies, we consider bilateral sharing agreements, by which firms commit at the ex-ante stage to truthfully share information. We show that if signals are i.i.d., then pairwise stable networks of sharing agreements are either empty or made of fully connected components of increasing size. When linking is costly, non complete components may emerge, and components with larger size are less densly connected than components with smaller size. When signals have different variances, incomplete and irregular network can be stable, with firms observing high variance signals acting as "critical nodes". Finally, when signals are correlated, the empty network may not be pairwise stable when the number of firms and/or correlation are large enough.
    Keywords: Information sharing, oligopoly, networks, Bayesian equilibrium
    JEL: D43 D82 D85 L13
    Date: 2008
  2. By: Ramón Faulí-Oller (Universidad de Alicante)
    Abstract: A monopolist retailer facing two suppliers producing two symmetric and independent goods improves its bargaining position by commiting to sell only one good. We analyze if this advantage extends to the case where there are two undierentiated retailers competing in the same market. With linear supply contracts, we have partial capacity restriction in the sense that only one retailer commits to sell only one good. Then, we have that if retailers were to merge, welfare would decrease because the merger reduces the variety of goods available to consumers.
    Keywords: Retailing, mergers, variety
    JEL: L13 L41 L42
    Date: 2008–03
  3. By: Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); David BARTOLINI ([n.a.])
    Abstract: A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the Authority in charge is constrained by limited resources and imperfect information. However, few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the social optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and equilibrium binding agreements. Then we extend the analysis to the case of n symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.
    Keywords: antitrust policy, coalition formation, collusive cartels
    JEL: C70 L40 L41
    Date: 2008–07
  4. By: Scott A. Brave (Graduate School of Business, University of Chicago); Donald G. Ferguson (Department of Economics, University of Victoria); Kenneth G. Stewart (Department of Economics, University of Victoria)
    Abstract: The model of league conduct formulated by Ferguson, Jones, and Stewart (2000) contains an algebraic error. This note provides the relevant correction and shows that the empirical results given in their article are robust to it.
    JEL: D43 L83
    Date: 2008–07–04
  5. By: Ioana Chioveanu (Universidad de Alicante)
    Abstract: I analyze the implications of bundling on price competition in a market with complementary products. Using a model of imperfect competition with product differentiation, I identify the incentives to bundle for two types of demand functions and study how they change with the size of the bundle. With an inelastic demand, bundling creates an advantage over uncoordinated rivals who cannot improve by bundling. I show that this no longer holds with an elastic demand. The incentives to bundle are stronger and the market outcome is symmetric bundling, the most competitive one. Profits are lowest and consumer surplus is maximized.
    Keywords: Bundling, complementary goods, product differentiation
    JEL: L11 L13
    Date: 2008–03
  6. By: Maarten C. W. Janssen; Vladimir A. Karamychev
    Abstract: This paper analyzes the welfare consequences of bundling different risks in one insurance contract in markets where adverse selection is important. This question is addressed in the context of a competitive insurance model a la Rothschild and Stiglitz (1976) with two sources of risk. Accordingly, there are four possible types of individuals and many incentive compatibility constraints to be considered. We show that the effect of bundling on these incentive compatibility constraints is such that bundling always yields a welfare improvement, and this result only holds when all four types have strictly positive shares in the population. Due to the competition between insurance companies, these benefits accrue to consumers who potentially have fewer contracts to choose from, but benefit from the better sorting possibilities due to bundling.
    JEL: G22 D82
    Date: 2008–07

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