nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒08‒14
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Matching Own Prices, Rivals' Prices, or Both By Morten Hviid; Greg Shaffer
  2. Licensing probabilistic Patents: The duopoly case. By Vargas Barrenechea, Martin
  3. The Size and Scope of the Sports Industry in the United States By Brad Humphreys; Jane Ruseski
  4. Why, How and When Do Prices Land? Evidence from the Videogame Industry By Hernández-Mireles, C.; Fok, D.; Franses, Ph.H.B.F.

  1. By: Morten Hviid (ESRC Centre for Competition Policy and Norwich Law School, University of East Anglia); Greg Shaffer (ESRC Centre for Competition Policy, University of East Anglia, and Simon School of Business, University of Rochester)
    Abstract: Many retailers promise that they will not be undersold by rivals (price-matching guarantees) and extend their promise to include their own future prices (most-favored-customer clauses). This is puzzling because the extant literature has shown that each promise independently has the potential to facilitate supracompetitive prices, and so one might think that the two promises are substitutes. In this paper, we consider why a firm might make both promises in the same guarantee, and show that price-matching guarantees and most-favored-customer clauses complement each other and can lead to higher prices than either one could have facilitated by itself.
    Keywords: facilitating practices, low-price guarantees, antitrust policy
    JEL: L11 L13 L41
    Date: 2008–07
  2. By: Vargas Barrenechea, Martin
    Abstract: In this work we study licensing games of non drastic innovations under the shadow of probabilistic patents. We study the situation of a insider innovator that get a new reduction cost innovation and acts in a duopoly market under Cournout competition. When the property rights are not ironclad the potential licensee additional to the option of use the backstop technology instead of the new technology ,has the option of infringe the patent. Under infringement the patent holder can sue the infringer in a court and if its successful could get a order of damages payment. Then when the infringer decides about what kind of technology to use the infringement is always better than to use the backstop technology then a difference of the ironclad licensing games probabilistic rights, change the threats points and makes attractive for the patent holder just to license big innovations under the Lost Profit rule.
    Keywords: Patents; innovation economics; probabilistic property rights; damage rules
    JEL: L0 K42 C72
    Date: 2008–08
  3. By: Brad Humphreys (University of Alberta); Jane Ruseski (University of Alberta)
    Abstract: We estimate the economic scope of the sports industry in the United States. Drawing on a variety of data sources, we investigate the economic size of sport participation, sports viewing, and the supply and demand side of the sports market in the United States. Estimates of the size of the sports industry based on aggregate demand and aggregate supply range from $44 to $73 billion in 2005. In addition, participation in sports and the opportunity time cost of attending sporting events are important, but hard to value, components of the industry.
    Keywords: sports economics
    JEL: L83
    Date: 2008–08
  4. By: Hernández-Mireles, C.; Fok, D.; Franses, Ph.H.B.F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: We examine how new products are priced over time, where we particularly look at sharp decreases in prices. New durable products like fashion, apparel, and videogames often show a significant price cut some time after the product’s introduction. We call this a price landing and we examine its drivers. Theory predicts that competitive effects or underperforming sales are drivers for such price landings. To our knowledge, however, a systematic empirical study of price landing is unavailable. To examine the drivers of significant price cuts of a new product, we consider a rich dataset concerning sales and prices of 1195 newly released videogames. Prior literature suggests that own sales, competitive sales, competitive prices or simply time could be such drivers. In this paper we put these suggestions to an empirical test. We put forward a mixture model that covers a set of pricing equations with the price landing moment and its speed as key parameters. Second, in a hierarchical model we explain the apparent heterogeneity across the products. Our main finding is that it is not sales thresholds but competition and time itself that makes managers decide to seriously cut prices.
    Keywords: pricing;pricing models;new products
    Date: 2008–07–22

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