nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒08‒31
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Technological Innovation and Monopolization By Scherer, F. M.
  2. The Birth of Brand: 4000 Years of Branding History By Moore, Karl; Reid, Susan
  3. Retail Competition and the Dynamics of Consumer Demand for Tied Goods By Hartmann, Wesley R.; Nair, Harikesh S.
  4. Why Does Popcorn Cost So Much at the Movies? An Empirical Analysis of Metering Price Discrimination By Gil, Ricard; Hartmann, Wesley R.
  5. Diversification, Productivity, and Financial Constraints Empirical Evidence from the US Electric Utility Industry By Goto, Mika; Low, Angie; Makhija, Anil K.

  1. By: Scherer, F. M. (Harvard U)
    Abstract: This paper, written for an American Bar Association compendium on competition policy, reviews seven of the most important U.S. antitrust cases charging firms in high-technology industries with violations of Sherman Act Section II -- i.e., with monopolization. The principal target firms were Standard Oil of New Jersey, General Electric (in lamps), AT&T, du Pont (for cellophane), Xerox, IBM, and Microsoft (both in the United States and Europe). From an analysis of the historical records, it is clear that in most instances, the legal system took far too long to deal with the contested issues. In the interim, firms that had achieved dominant positions through innovation often embraced new technologies slowly, sometimes pursuing an explicit "fast second" strategy -- that is, waiting to innovate until their positions were threatened by outsiders. The stimulating effect of outside challenges suggests that entry should be kept open, among other things by combating the extension over time of blocking patent positions. Procedural reforms for accelerating the adjudication of complaints are proposed.
    Date: 2007–10
  2. By: Moore, Karl; Reid, Susan
    Abstract: This paper seeks to show that brands are as old as civilization. It derives evidence of branding, in various forms, from important historical periods beginning 2250 BCE in the Indus Valley through to 300 BCE Greece. This evidence is compared with modern research directed toward developing a meaning of “brand”. We observe a gradual transition from a more utilitarian provision of information regarding origins and quality to the addition of more complex brand image characteristics over time. Including status/power, added value and finally, the development of brand personality.
    Keywords: brand; proto-brand; ancient world; brand personality
    JEL: L2 A1 D1
    Date: 2008
  3. By: Hartmann, Wesley R. (Stanford U); Nair, Harikesh S.
    Abstract: We empirically investigate the demand for tied goods sold through competing retail channels. Tied good pricing strategies commonly involve a low price on the initial purchase (i.e. the primary good) to drive adoption, and a substantial markup on aftermarket goods to capture value. However, if the goods are sold through downstream channels, retail market power and a misalignment of incentives could distort the relative prices of primary and aftermarket goods. To evaluate whether retail competition is strong enough to prevent such distortions, we explore the commonly noted example of razors and blades, which are sold through drug, grocery, mass merchandising, and club stores. We specify a forward-looking demand model that incorporates dynamics arising from the tied good nature of the products and the stockpiling and durability aspects of razors and blades. Furthermore, we allow intertemporal substitution in the purchase of both razors and blades to occur across channels as well as time. This modeling feature enables a novel approach to measuring retail competition in single category demand analyses. Our estimates indicate that there is substantial cross-channel substitution in razors, but some retail market power in blades. However, the channel with the most market power in blades, club stores, specializes in high volume customers that would adopt a razor even if blade prices are higher. This suggests that the manufacturer can achieve its desired level of razor adoption without vertical restraints, though blade sales may be slightly reduced by double marginalization.
    Date: 2007–12
  4. By: Gil, Ricard (U of California, Santa Cruz); Hartmann, Wesley R. (Stanford U)
    Abstract: Prices for goods such as blades for razors, ink for printers and concessions at movies are often set well above cost. This paper empirically analyzes concession sales data from a chain of Spanish theaters to demonstrate that high prices on concessions reflect a profitable price discrimination strategy often referred to as “metering price discrimination.” Concessions are found to be purchased in greater amounts by customers that place greater value on attending the theater. In other words, the intensity of demand for admission is “metered” by concession sales. This implies that while some consumers’ surplus may be reduced by the high concession prices, surplus of other consumers on the margin of attending may increase from theaters’ decisions to shift their margins away from movies and toward concessions.
    Date: 2008–01
  5. By: Goto, Mika (Central Research Institute of Electric Power Industry); Low, Angie (Nanyang Technological U); Makhija, Anil K. (Ohio State U)
    Abstract: We examine the real effects of parent firm diversification on their electric utility operating companies over the period, 1990-2003. Since electric utility operating companies produce a single homogenous product, we can better measure their Total Factor Productivity and make valid comparisons of productivity across firms. We find that, consistent with a diversification discount, greater parent diversification is associated with lower productivity across electric utility operating companies. However, the productivity of the electric utility operating companies improves with greater parent diversification over time. Diversification appears to provide an alternative channel to divert investment dollars away from overinvestment in the core electric business. Finally, we find that the improvement in the productivity of the electric utility operating companies from greater parent firm diversification over time is limited to financially constrained firms. This suggests that when managers have no resources to waste, it is more likely that any diversification activities are carefully planned and undertaken for strategic purposes that can help to increase productivity of the core business.
    JEL: L25
    Date: 2008–02

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