nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒04‒18
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Upstream Competition and Downstream Buyer Power By Howard Smith; John Thanassoulis
  2. Persistence of Monopoly and Research Specialization By Philipp Weinschenk
  3. Is Cartelisation Profitable? A Case Study of the Rhenish Westphalian Coal Syndicate, 1893-1913 By Thorsten Lübbers

  1. By: Howard Smith; John Thanassoulis
    Abstract: It is often claimed that large buyers wield buyer power. Existing theories of this effect generally assume upstream monopoly. Yet the evidence is strongest with upstream competition. We show that upstream competition can yield buyer power for large buyers by generating supplier-level volume uncertainty - a feature that emerges from case study evidence of upstream competition - so the negotiated price depends on the seller’s cost expectation. By analyzing the effect of market structure changes on seller cost expectations the paper gives insights on three key policy-relevant questions around buyer power: (i) who wields it and under what circumstances (ii) does a downstream merger alter the buyer power of other buyers (so-called waterbed effects); and (iii) how are the incentives to invest in upstream technology altered by the creation of large downstream firms?
    Keywords: Buyer power, Waterbed effects, Bargaining in the supply chain, Milk, Private-label, Supermarkets
    JEL: L13 L42 L66
    Date: 2009
  2. By: Philipp Weinschenk (Max Planck Institute for Research on Collective Goods)
    Abstract: We examine the persistence of monopolies in markets with innovations when the outcome of research is uncertain. We show that for low success probabilities of research, the incumbent can seldom preempt the potential entrant. Then the efficiency effect outweighs the replacement effect. It is vice versa for high probabilities. Moreover, the incumbent specializes in “safe” research and the potential entrant in “risky” research. We also show that the probability of entry has an inverted U-shape in the success probability. Since even at the peak entry is rather unlikely, the persistence of the monopoly is high.
    Keywords: Persistence of Monopoly, Efficiency Effect, Replacement Effect, Stochastic Innovations
    JEL: L12 O31
    Date: 2009–04
  3. By: Thorsten Lübbers (Max Planck Institute for Research on Collective Goods)
    Abstract: We examine the effect of one of the presumably most powerful cartels ever on the profitability of its members. More precisely, we consider the Rhenish-Westphalian Coal Syndicate, a coal cartel that operated in Imperial Germany in the late 19th and early 20th century, using a newly constructed dataset and two different methodological approaches. At first, we employ event study methodology to asses the reaction of the stock market to the foundation of the cartel and two major revisions of its original contract. Furthermore, we look at different performance measures calculated from accounting and financial data in a dynamic panel data framework. Overall, our results suggest that the investigated cartel had no significant effect on the profitabil-ity of its members. However, we also find that it was able to stabilise coal prices and powerful enough to ensure that on average, prices were set high enough to avert negative repercussions on company performance.
    Keywords: Cartel, Economic history, Event study, Germany pre-1913
    JEL: L41 L71 N53
    Date: 2009–03

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