New Economics Papers
on Industrial Organization
Issue of 2009‒04‒05
four papers chosen by

  1. Beef up Your Competitor : A Model of Advertising Cooperation between Internet Search Engines By Geza Sapi; Irina Suleymanova
  2. Bank-Level Estimates of Market Power By Sophocles N. Brissimis; Manthos D. Delis
  3. Is the French mobile phone cartel really a cartel? By Mesnard, Louis de
  4. More firms, more competition : is it certain? The case of the fourth operator in France's mobile telephony. By Mesnard, Louis de

  1. By: Geza Sapi; Irina Suleymanova
    Abstract: We propose a duopoly model of competition between internet search engines endowed with different technologies and study the effects of an agreement where the more advanced firm shares its technology with the inferior one. We show that the superior firm enters the agreement only if it results in a large enough increase in demand for advertising space at the competing .rm and a relatively small improvement of the competitor's search quality. Although the superior firm gains market share, the agreement is beneficial for the inferior firm, as the later firm's additional revenues from a higher advertising demand outweigh its losses due to a smaller user pool. The cooperation is likely to be in line with the advertisers' interests and to be detrimental to users' welfare.
    Keywords: Search Engine, Two-Sided Market, Advertising, Strategic Complements, Technology
    JEL: L13 L24 L86 M37
    Date: 2009
  2. By: Sophocles N. Brissimis (Bank of Greece); Manthos D. Delis (University of Ioannina)
    Abstract: The aim of this study is to provide an empirical methodology for the estimation of market power of individual banks. The new method employs the well-known model of Panzar and Rosse (1987) and proposes its estimation using the local regression technique. Thus, a number of restrictive assumptions regarding the properties of the production function of banks are relaxed, while the method proves successful in providing reasonable estimates of bank-level market power when applied to a large panel of banks of transition countries. The empirical results suggest that many banks in the sample deviate significantly from competitive practices and that market power varies substantially across banks in each country. Country averages of the bank-level results exhibit a very close relationship with standard, industry-level Panzar-Rosse estimates.
    Keywords: Bank output; Market power; bank-level; local regression
    JEL: G21 L11 C14
    Date: 2009–01
  3. By: Mesnard, Louis de (LEG - CNRS UMR 5118 - Université de Bourgogne)
    Abstract: France Telecom (FT), SFR and Bouygues Telecom (BT) have been fined by France’s Conseil de la Concurrence (CC) for organizing a mobile phone cartel with stable market shares (one-half, one-third and one-sixth respectively) and for directly exchanging commercial information. While not contesting the legal decision, it is argued here that the economic reasoning is flawed. 1) As the CC made much of the firms’ stable market shares, we have first followed this line of reasoning by considering that the market shares are quotas under uniform costs. Even if there is a general incentive to form a monopolistic cartel, BT was too small for it to be worth its while to join it; it is not necessary to exchange information directly to coordinate market shares and prices effectively; all partial cartels are unlikely. 2) We then considered that the non-uniform market shares are explained by the costs in Cournot competition which can be deduced from the observed market shares by assuming that the costs are kept the same when switching from Cournot competition to any form of cartel. We deduced that market shares cannot be other than stable and non-uniform; any monopoly is unlikely to come about, because FT has negative incentives to form a monopolistic cartel; no partial cartels of two operators are viable because at least one member would lose out. The paper also shows that Stackelberg competition is unlikely as well as Bertrand-Edgeworth competition. In conclusion, Cournot competition is the only arrangement that guarantees no losses to all operators.
    Keywords: Cartel; Mobile phone; Mobile telephony; GSM; Conseil de la Concurrence;ARCEP ; Cournot ; Stackelberg
    JEL: L13 L41 L96 D43 K21
    Date: 2009
  4. By: Mesnard, Louis de (LEG - CNRS UMR 5118 - Université de Bourgogne)
    Abstract: The French government plans to authorize a fourth operator to enter the country’s mobile phone market alongside Orange, SFR and Bouygues Telecom. While the French government sees this as a way to foster competition, this paper predicts the move will prove a disappointment. Three points are examined. 1) If the operators are in four-way Cournot competition, minimizing the total profit fails to maximize the consumer surplus and the total surplus; the most realistic price fall is only of 1.11% compared to three-way Cournot competition. 2) The overall incentives for forming a monopoly are positive; when the fourth operator’s costs are high, there will be no move from a three-way Cournot competition to a monopolistic cartel of four because Orange experiences negative incentives; there will be no move from a monopolistic cartel of three to a monopolistic cartel of four. 3) Moving from fourway Cournot competition to a partial cartel formed by Orange, SFR and Bouygues Telecom is unlikely; when the fourth operator enters a market dominated by the monopolistic cartel of Orange, SFR and Bouygues Telecom, these three operators will not continue forming a cartel; excluding the fourth operator from the monopolistic cartel of four is also losing; the cartel formed by SFR, Bouygues Telecom and the fourth operator is never credible either.
    Keywords: Cartel; Mobile phone; Mobile telephony; Fourth operator; GSM; 3G.
    JEL: L13 L41 L96 D43
    Date: 2009

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