nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒10‒07
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Asymmetric Information and the Signaling Role of Prices By Wassim Daher; Leonard J. Mirman; Marc Santugini
  2. Strategic Informative Advertising in a Horizontally Differentiated Duopoly By Levent Çelik
  3. A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments By Victor Aguirregabiria; Chun-Yu Ho
  4. Bertrand-Edgeworth games under oligopoly with a complete characterization for the triopoly By De Francesco, Massimo A.; Salvadori, Neri
  5. Optimal Two-Part Tariff Licensing Contracts with Differentiated Goods and Endogenous R&D By Ramón Faulí-Oller; Joel Sandonís

  1. By: Wassim Daher; Leonard J. Mirman; Marc Santugini (IEA, HEC Montréal)
    Abstract: We study asymmetric information and the signaling role of prices in a noiseless and imperfectly competitive environment. Here, the price is determined by market forces. After describing the general model, we study information flows in applications of industrial organization and finance: a quantity-setting monopoly, Cournot oligopoly, and a model of choice and allocation of a risky asset. For each application, there is a unique signaling equilibrium in which the price conveys all the information. Moreover, the signaling equilibrium differs from the full information equilibrium..
    Date: 2008–09
    URL: http://d.repec.org/n?u=RePEc:iea:carech:0809&r=ind
  2. By: Levent Çelik
    Abstract: When firms possess information about their competitors’ products, their advertisements may leak extra information. I analyze this within a duopoly television market that lasts for two periods. Each station may advertise its upcoming program by airing a tune-in during the first program. Viewers may alternatively sample a program. I find that each station’s equilibrium tune-in decision depends on both upcoming programs - thereby revealing more information than the actual content - when the sampling cost is sufficiently low. Otherwise, tune-in decisions are made independently. It is welfare improving to ban tune-ins in the latter case but not in the former.
    Keywords: Informative advertising, Tune-ins, Sampling, Information disclosure, Signaling.
    JEL: D83 L13 M37
    Date: 2008–09
    URL: http://d.repec.org/n?u=RePEc:cer:papers:wp359&r=ind
  3. By: Victor Aguirregabiria; Chun-Yu Ho
    Abstract: This paper studies the contribution of demand, costs, and strategic factors to the adoption of hub-and-spoke networks in the US airline industry. Our results are based on the estimation of a dynamic oligopoly game of network competition that incorporates three groups of factors which may explain the adoption of hub-and-spoke networks: (1) travelers value the services associated with the scale of operation of an airline in the hub airport (e.g., more convenient check-in and landing facilities); (2) operating costs and entry costs in a route may decline with an airline's scale operation in origin and destination airports (e.g., economies of scale and scope); and (3) a hub-and-spoke network may be an effective strategy to deter the entry of other carriers. We estimate the model using data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company in the routes between the 55 largest US cities. As a methodological contribution, we propose and apply a simple method to deal with the problem of multiple equilibria when using the estimated model to predict the effects of changes in structural parameters. We find that the most important factor to explain the adoption of hub-and-spoke networks is that the cost of entry in a route declines very importantly with the scale of operation of the airline in the airports of the route. For some of the larger carriers, strategic entry deterrence is the second most important factor to explain hub-and-spoke networks.
    Keywords: Airline industry; Hub-and-spoke networks; Entry costs; Industry dynamics; Estimation of dynamic games; Counterfactuals with multiple equilibria
    JEL: C10 C35 C63 C73 L10 L13 L93
    Date: 2008–09–29
    URL: http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-337&r=ind
  4. By: De Francesco, Massimo A.; Salvadori, Neri
    Abstract: The paper extends the analysis of price competition among capacity-constrained sellers beyond the cases of duopoly and symmetric oligopoly.We first provide some general results for the oligopoly and then focus on the triopoly, providing a complete characterization of the mixed strategy equilibrium of the price game. The region of the capacity space where the equilibrium is mixed is partitioned according to the features of the mixed strategy equilibrium arising in each subregion. Then computing the mixed strategy equilibrium becomes a quite simple task. The analysis reveals features of the mixed strategy equilibrium which do not arise in the duopoly
    Keywords: Bertrand-Edgeworth; Price game; Oligopoly; Triopoly; Mixed strategy equilibrium
    JEL: L13 D43 C72
    Date: 2008–05–11
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:10767&r=ind
  5. By: Ramón Faulí-Oller (Universidad de Alicante); Joel Sandonís (Universidad de Alicante)
    Abstract: In this paper we get the optimal two-part tariff contract for the licensing of a cost reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize R&D investment and get that an internal patentee invests more (less) in R&D when the technological opportunity is low (high). In this paper we get the optimal two-part tariff contract for the licensing of a cost reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize R&D investment and get that an internal patentee invests more (less) in R&D when the technological opportunity is low (high).
    Keywords: patent licensing, two-part tariff contracts, R&D, product differentiation.
    JEL: L11 L13 L14
    Date: 2008–07
    URL: http://d.repec.org/n?u=RePEc:ivi:wpasad:2008-12&r=ind

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