nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒07‒30
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Selection Effects in Regulated Markets By Maarten C.W. Janssen; Alexei Parakhonyak
  2. The Circular City with Heterogeneous Firms By Marco Alderighi; Claudio A. Piga
  3. Market Power and Electricity Market Reform in Northeast China By Xiaochun Zhang; John E. Parsons

  1. By: Maarten C.W. Janssen; Alexei Parakhonyak
    Abstract: This paper analyzes dynamic selection effects that arise in a regulated market where price structures are determined by a regulator or central management. Consumers come in different types where each type requires a different service or treatment. We show that for a large class of price structures some group of customers is refused the service. Equilibria with selection are welfare inferior to equilibria without selection. We also characterize the class of price structures for which selection does not arise. As the number of customers increases or agents become more patient the class of selection-free price structures shrinks and in the limit it is unique. Moreover, all other price structures induce selection. The general model can be applied to a variety of markets, including health care and taxi markets.
    JEL: I11 L51 R48
    Date: 2008–07
  2. By: Marco Alderighi (University of Valle d'Aosta, Italy.); Claudio A. Piga (Dept of Economics, Loughborough University)
    Abstract: The paper extends the Salop model of localized competition by allowing firms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets.
    Keywords: Localized competition; market effciency, cost heterogeneity; large markets.
    JEL: L11 D61
    Date: 2008–07
  3. By: Xiaochun Zhang; John E. Parsons
    Abstract: The Northeast region of China has been used as a testing ground for creation of a functioning wholesale electric power market. We describe the ownership structure of the generation assets for those plants participating in the trial operation of the Northeast China Regional Electricity Market and also for the region as a whole and for each of the provinces making up the region. We calculate the 4-firm Concentration Ratio (CR4) and the Hirschman-Herfindahl Index (HHI). In general, we find that the current ownership structure is relatively concentrated. Arguably, this is a troublesome obstacle to instituting some form of competitive bidding in the wholesale power market, and this may be one factor in the poor outcome of the trial operation.
    Date: 2008–01

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