nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒05‒02
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Product Proliferation in Monopoly: A Dynamic Analysis By L. Lambertini
  2. The Economics of Collective Brands By Fishman, Arthur; Finkelshtain, Israel; Simhon, Avi; Yacouel, Nira
  3. Colluding through Suppliers By Salvatore Piccolo
  4. Firm size and growth opportunities: a survey By A. Arrighetti; A. Ninni
  5. On Competition and the Strategic Management of Intellectual Property in Oligopoly By Jos Jansen
  6. Pricing Rule in a Clock Auction By Peter Cramton; Pacharasut Sujarittanonta

  1. By: L. Lambertini
    Date: 2008–10
  2. By: Fishman, Arthur; Finkelshtain, Israel; Simhon, Avi; Yacouel, Nira
    Abstract: We consider the consequences of a shared brand name such as geographical names used to identify high quality products, for the incentives of otherwise autonomous firms to invest in quality. We contend that such collective brand labels improve communication between sellers and consumers, when the scale of production is too small for individual firms to establish reputations on a stand alone basis. This has two opposing effects on member firmsâ incentives to invest in quality. On the one hand, it increases investment incentives by increasing the visibility and transparency of individual member firms, which increases the return from investment in quality. On the other hand, it creates an incentive to free ride on the groupâs reputation, which can lead to less investment in quality. We identify parmater values under which collective branding delivers higher quality than is achievable by stand alone firms.
    Date: 2008–12–15
  3. By: Salvatore Piccolo (University of Naples "Federico II", CSEF and Toulouse School of Economics,)
    Abstract: In a dynamic game between N retailers and a large number of suppliers, I show that inefficient contracting emerges as a mechanism to implement collusion among retailers, building on the natural ‘complementarity’ between retail and wholesale prices. When efficient collusion is not sustainable, this complementarity allows retailers to rely on inefficient input supply, entailing double marginalization and negative franchise fees, to squeeze the wedge between collusive and deviation profits. I also study the role of communication on the equilibrium outcomes of games where retailers have the initiative. It turns out that communication is indeed fundamental to strengthen cartels' sustainability, although generating efficiency losses.
    Keywords: Bertrand competition, double marginalization, collusion, competing hierarchies.
    JEL: D21 D43 L42
    Date: 2009–04–24
  4. By: A. Arrighetti; A. Ninni
    Abstract: The qualifying aspect of the ongoing changes in firm growth processes seems to be the increased heterogeneity of size and a trend towards a broader fluctuation in average size. Exogenous factors (market size, demand trends, technological innovations, higher competition) determine a different impact on firms will to increase their own size, while endogenous variables play a greater role than in the past. The outcome is represented by a growth pattern that characterises some firms, but not all of them. Growth appear to be an asymmetric phenomenon, involving selectively but not casually a subgroup of firms. In the present paper it is hypothesized that growth stems from the asymmetric distribution of internalized resources (both material and immaterial), allowing some firms (regardless of the original size) to enter evolutionary paths that others don’t want or simply can’t enter.
    Keywords: Firm Growth, Size Distribution, Gibrat’s Law, Industrial Dynamics, Human Capital, Intangible Assets, Industrial Policy
    JEL: L11 L25
    Date: 2009
  5. By: Jos Jansen (Max Planck Institute for Research on Collective Goods)
    Abstract: An innovative firm chooses strategically whether to patent its process innovation or rely on secrecy. By doing so, the firm manages its rival’s beliefs about the size of the innovation, and affects the incentives in the product market. Different measures of competitive pressure in the product market have different effects on the equilibrium patenting choices of an innovative firm with unknown costs and probabilistic patent validity. Increasing the number of firms (degree of product substitutability) gives a smaller (greater) patenting incentive. Switching from Bertrand to Cournot competition gives a smaller (greater) patenting incentive if patent protection is weak (strong).
    Keywords: Bertrand and Cournot competition, oligopoly, product differentiation, entry, asymmetric information, strategic disclosure, stochastic patent, trade secret, process innovation, imitation
    JEL: D82 L13 O31 O32
    Date: 2009–04
  6. By: Peter Cramton (Economics Department, University of Maryland); Pacharasut Sujarittanonta
    Abstract: We analyze a discrete clock auction with lowest-accepted bid (LAB) pricing and provisional winners, as adopted by India for its 3G spectrum auction. In a perfect Bayesian equilibrium, the provisional winner shades her bid while provisional losers do not. Such differential shading leads to inefficiency. The size of the inefficiency declines with smaller bid increments. An auction with highest-rejected bid (HRB) pricing and exit bids is strategically simple, has no bid shading, and is fully efficient. In addition, it has higher revenues than the LAB auction, assuming profit maximizing bidders. The bid shading in the LAB auction exposes bidders to the possibility of losing the auction at a price below the bidder's value. Thus, fear of losing may cause bidders in the LAB auction to bid more aggressively than predicted assuming profit-maximizing bidders. We extend the model by adding an anticipated loser's regret to the payoff function. Revenue from the LAB auction yields higher expected revenue than the HRB auction when bidders' fear of losing at profitable prices is sufficiently strong. This would provide one explanation why India, with an expressed objective of revenue maximization, adopted the LAB auction for its upcoming 3G spectrum auction, rather than the seemingly superior HRB auction.
    Keywords: Auctions, clock auctions, spectrum auctions, behavioral economics, market design
    JEL: D44 C78 L96
    Date: 2009

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