nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒01‒17
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms By Arghya Ghosh; Manipushpak Mitra
  2. Maximal Cartel Pricing and Leniency Programs By Harold Houba; Evgenia Motchenkova; Quan Wen
  3. Non-comparative versus Comparative Advertising as a Quality Signal By Winand Emons; Claude Fluet
  4. Location of Upstream and Downstream Industries By José Pedro Pontes
  5. Prices and Market Structure: An Empirical Analysis of the Supermarket Industry in Chile By Loreto Lira; Magdalena Ugarte; Rodrigo Vergara.

  1. By: Arghya Ghosh (School of Economics, The University of New South Wales); Manipushpak Mitra (Indian Statistical Institute)
    Abstract: We revisit the classic comparison between Bertrand and Cournot outcomes in a mixed market with private and public firms. A departure from the standard setting, i.e., one where all firms maximize profits, provides new insights. A welfare-maximizing public firm's price is strictly lower while its output is strictly higher in Cournot competition. And whereas the private firm's quantity is strictly lower in Cournot (as in the standard setting), its price can be higher or lower. Despite this ambiguity, both firms, public and private, earn strictly lower profits in Cournot. The consumer surplus is strictly higher in Cournot under a linear demand structure. All these results also hold with more than two firms under a wide range of parameterizations. The ranking reversals also hold in a richer setting with a partially privatized public firm, where the extent of privatization is endogenously determined by a welfare-maximizing government. As a by-product of our analysis, we find that in a differentiated duopoly setting, partial privatization always improves welfare in Cournot but not necessarily in Bertrand competition.
    Keywords: Bertrand; Cournot; public firms; partial privatization
    JEL: L13 H42
    Date: 2008–10
  2. By: Harold Houba (VU University Amsterdam); Evgenia Motchenkova (VU University Amsterdam); Quan Wen (Vanderbilt University, Nashville (TN), USA)
    Abstract: For a general class of oligopoly models with price competition, we analyze the impact of ex-ante leniency programs in antitrust regulation on the endogenous maximal-sustainable cartel price. This impact depends upon industry characteristics including its cartel culture. Our analysis disentangles the effects of traditional antitrust regulation and the leniency program. Ex-ante leniency programs are effective if and only if these offer substantial rewards to the self-reporting firm. This is in contrast to currently employed programs that are therefore ineffective.
    Keywords: Cartel; Antitrust Policy; Antitrust Law; Antitrust regulation; Leniency program; Self-reporting; repeated game
    JEL: L41 K21 C72
    Date: 2008–12–17
  3. By: Winand Emons; Claude Fluet
    Abstract: Two firms produce a product with a horizontal and a vertical characteristic. We call the vertical characteristic quality. The difference in the quality levels determines how the firms share the market. Firms know the quality levels, consumers do not. Under non-comparative advertising a firm may signal its own quality. Under comparative advertising firms may signal the quality differential. In both scenarios the firms may attempt to mislead at a cost. If firms advertise, in both scenarios equilibria are revealing. Under comparative advertising the firms never advertise together which they may do under non-comparative advertising.
    Keywords: advertising; costly state falsification; signalling
    JEL: D82 K41 K42
    Date: 2008–12
  4. By: José Pedro Pontes
    Abstract: This paper studies the issue of agglomeration versus fragmentation of vertically related industries. While the downstream industry works under perfect competition, the upstream industry is a duopoly where each firm supplies a differentiated input to the competitive firms. These process the inputs under a quadratic production function entailing decreasing returns as in PENG, THISSE and WANG (2006). It is found that fragmentation occurs if the transport cost of final goods is medium to high, while the transport cost of inputs is low. Otherwise, agglomeration prevails. Multiple agglomerated equilibria are possible if the transport cost of intermediate goods is either medium or high.
    Keywords: Oligopoly; Vertically-Linked Firms; Location; Spatial Fragmentation.
    JEL: L13 R10
    Date: 2008–03
  5. By: Loreto Lira; Magdalena Ugarte; Rodrigo Vergara. (Instituto de Economía. Pontificia Universidad Católica de Chile.)
    Abstract: This paper investigates empirically the relationship between market structure and consumer prices in the supermarket industry in Chile. A panel of monthly data from 16 cities in the period January 1998–September 2006 was used. It was found that the more concentrated the industry is in a city, the higher the prices, while the participation of major national chains in cities tends to lower prices. Moreover, the dominant local chain was found to behave differently depending on whether or not one of the national chains was present in the city. <br><br>Finally, we find that prices rise when a national chain acquires another chain and both were previously in a city (inmerge) while if only one of the two was present (outmerge), prices fall.
    Keywords: Prices, retail, market structure.
    JEL: L11 L81
    Date: 2008

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