nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒11‒04
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A SSNIP test for two-sided markets: the case of media By Lapo Filistrucchi
  2. Market Penetration and Late Entry in Mobile Telephony By Steffen Hoernig
  3. Potential Gains from Mergers in Local Public Transport : An Efficiency Analysis Applied to Germany By Matthias Walter; Astrid Cullmann
  4. Taste for Variety and Endogenous Fluctuations in a Monopolistic Competition Model By Thomas Seegmuller
  5. An Examination of Entry and Competitive Performance in Rural Banking Markets By Robert M. Feinberg; Kara M. Reynolds
  6. Market Entry in E-Commerce By Maximilian Kasy; Michael Kummer
  7. Antitrust and Trade Policy: Are Legislators Consistent? By Robert M. Feinberg; Thomas A. Husted; Kara M. Reynolds
  8. Complementary Patents and Market Structure By Klaus M. Schmidt;

  1. By: Lapo Filistrucchi (Department of Economics, CentEr & TILEC, Tilburg University)
    Abstract: I discuss the design and implementation of a SSNIP test in order to identify the relevant market in a media market. I argue that in such a two-sided market the traditional SSNIP test cannot be applied as it is usually conceived but rather should be modified in order to take into account indirect network externalities. I discuss the issues of which price the hypothetical monopolist should be thought of as raising, of whether we should look at profits changes on only one side or on both sides of the market and of which feedback among the two sides of the market we should take into account. I then derive the relevant formulas for Critical Loss Analysis. These look much uglier than in a single-sided market but in fact they are easy to calculate as they are still expressed in terms of elasticities and of current observed markups, prices and quantities. Data requirements are however higher as one needs to estimate the matrixes of the own and cross price elasticities of demand on the two-sides of the market and the matrixes of the network effects. The paper fills a gap in the economic literature, so much more as market definition in media markets is at the centre of many recent competition policy and regulation cases around the world.
    Keywords: two-sided markets, SSNIP test, Hypothetical Monopolist test, critical loss analysis, critical elasticity analysis, market definition, media
    JEL: L40 L50 K20
    Date: 2008–10
  2. By: Steffen Hoernig (School of Economics, Universidade Nova de Lisboa)
    Abstract: We consider some two dynamic models of entry in mobile telephony, with and without strategic pricing, and taking into account market penetration at entry, locked-in consumers and tariff-mediated network externalities. We show that on/off-net differentials may reduce the possibility of entry if incumbents are large, while they have no long-run effects if there are no locked-in consumers, or reduce the difference in subscriber numbers in their presence. Asymmetric fixed-to-mobile or mobile-to-mobile termination rates increase (decrease) market share and profit of the network with the higher (lower) rate. While the fixed-to-mobile waterbed effect is not full at the network level, it will be full in the aggregate.
    Keywords: Mobile Telephony, Entry, Penetration, Mobile termination rates
    JEL: L13 L51 L96
    Date: 2008–10
  3. By: Matthias Walter; Astrid Cullmann
    Abstract: We analyze potential gains from hypothetical mergers in local public transport using the non-parametric Data Envelopment Analysis with bias corrections by means of bootstrapping. Our sample consists of 41 public transport companies from Germany's most densely populated region, North Rhine-Westphalia. We merge them into geographically meaningful, larger units that operate partially on a joint tram network. Merger gains are then decomposed into individual technical efficiency, synergy and size effects following the methodology of Bogetoft and Wang [Bogetoft, P., Wang, D., 2005. Estimating the Potential Gains from Mergers. Journal of Productivity Analysis, 23(2), 145-171]. Our empirical findings suggest that substantial gains up to 16 percent of factor inputs are present, mainly resulting from synergy effects.
    Keywords: Merger; Public Transport; Efficiency; Data Envelopment Analysis
    JEL: L92 C14 L11
    Date: 2008
  4. By: Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In past years, imperfect competition has been introduced in several dynamic models to show how mark-up variability, increasing returns (decreasing marginal cost), and monopoly profits affect the occurrence of endogenous fluctuations. In this paper, we focus on another possible feature of imperfectly competitive economies: consumers' taste for variety due to endogenous product diversity. Introducing monopolistic competition (Dixit and Stiglitz (1977), Bénassy (1996)) in an overlapping generations model where consumers have taste for variety, we show that local indeterminacy can occur under the three following conditions: a high substitution between capital and labor, increasing returns arbitrarily small and a not too elastic labor supply. The key mechanism for this result is based on the fact that, due to taste for variety, the aggregate price decreases with the pro-cyclical product diversity, which has a direct influence on the real wage and the real interest rate.
    Keywords: Endogenous fluctuations; taste for variety; imperfect competition.
    Date: 2008
  5. By: Robert M. Feinberg; Kara M. Reynolds
    Abstract: This paper explores the change in the level of competition in rural banking markets since the deregulation that occurred following passage of the Riegle Neal Act of 1994. Using an empirical model that utilizes both the number of banks and the value of deposits in a cross-section of rural markets, we decompose the impact of the entry of new banks into resulting changes in per capita demand and the costs/profits of local banks in both 1994 and 2004. We conclude that the banking market is more competitive today despite the fact that the number of banks may have declined; on average fewer banks are now needed to make rural banking markets competitive than were needed in 1994.
    Keywords: Entry, Banking
    JEL: L11
    Date: 2008–05
  6. By: Maximilian Kasy (UC-Berkeley, Department of Economics); Michael Kummer (Johannes Keppler University, Linz, Austria)
    Abstract: We analyze the behavior of start-ups in e-commerce, namely on Austria's leading price-comparison-site, a multi-product environment with almost complete information. We use weekly panel data on price-quotes of digicams, Audio/HiFi-equipment and hardware. We furthermore use advanced estimation methods, which, having only recently been introduced to IO, aim at using a minimum of modeling assumptions. Thus, being able to trace the behavior of roughly 350 start-up companies and 600 incumbents, we investigate whether start-ups have a different composition of product-portfolios, charge lower prices and offer fewer goods.
    Keywords: nonparametric estimation, panel data, start-up, entry, e-commerce, strategic behavior, pricing
    JEL: C14 C23 L11 L14 L81
    Date: 2008–09
  7. By: Robert M. Feinberg; Thomas A. Husted; Kara M. Reynolds
    Abstract: In analyzing the potential exercise of monopoly power in domestic markets, both the academic literature and U.S. antitrust authorities have acknowledged the disciplining role of competition from abroad. In this paper, we explore the extent to which this view seems to reveal itself in recent U.S. Congressional votes taken during the 108th Congress (2003-04) on four free trade agreements (FTAs). To the extent that antitrust and trade liberalization are both viewed as pro-consumer in nature, we would expect to see a positive relationship between antitrust enforcement in their legislative district and Congressional votes in support of new FTAs. We do find evidence supporting a positive relationship between state-level antitrust enforcement (measured either by absolute number of cases filed or by cases relative to the state’s economic size) and support for FTAs.
    Keywords: Antitrust, Trade Protection
    JEL: F13 L4
    Date: 2008–09
  8. By: Klaus M. Schmidt; (Department of Economics, University of Munich, Ludwigstrasse 28, D-80539 Muenchen, Germany; )
    Abstract: Many high technology goods are based on standards that require access to several patents that are owned by different IP holders. We investigate the royalties chosen by IP holders under different market structures. Vertical integration of an IP holder and a downstream producer solves the double mark-up problem between these firms. Nevertheless, it may raise royalty rates and reduce output as compared to non-integration. Horizontal integration of IP holders (or a patent pool) solves the complements problem but not the double mark-up problem. Vertical integration discourages entry and reduces innovation incentives, while horizontal integration always encourages entry and innovation.
    Keywords: IP rights, complementary patents, standards, licensing, patent pool, vertical integration
    JEL: L15 O31 L24 O32 K11
    Date: 2008–09

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