nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒07‒03
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Predatory Exclusive Dealing By Klein, Joachim; Zenger, Hans
  2. Patent Pools and Cross-Licensing in the Shadow of Patent Litigation By Choi, Jay Pil
  3. The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence By Dirk Czarnitzki; Federico Etro; Kornelius Kraft
  4. Starting an R&D Project under Uncertainty By Sabien Dobbelaere; Roland Iwan Luttens; Bettina Peters
  5. Asymmetric Price Effects of Competition By Saul Lach; José Luis Moraga-González
  6. The Competitive Effects of “Consideration Payments”: Lessons from Radio Payola. By Adam D. Rennhoff

  1. By: Klein, Joachim; Zenger, Hans
    Abstract: While the previous literature on exclusive dealing has been concerned with the question of how exclusive dealing can raise static profits, this paper analyzes the question of how exclusive dealing can be used to predate in a dynamic context. It is shown that exclusive dealing may arise even if it reduces static profits. Exclusivity provisions may not only allow excluding efficient competitors, but indeed are often a cheaper exclusionary tool than predatory pricing. This is the case if the prey's access to finance is not too limited. Furthermore, it is more likely that exclusive dealing is preferable compared to predatory pricing the more market power the predator has with respect to the prey.
    Keywords: exclusive dealing; predation
    JEL: K21 L11 L12 L41 L42
    Date: 2009–06–09
    URL: http://d.repec.org/n?u=RePEc:lmu:muenec:10626&r=ind
  2. By: Choi, Jay Pil
    Abstract: This paper develops a framework to analyze the incentives to form a patent pool or engage in cross-licensing arrangements in the presence of uncertainty about the validity and coverage of patents that makes disputes inevitable. It analyzes the private incentives to litigate and compares them with the social incentives. It shows that pooling arrangements can have the effect of sheltering invalid patents from challenges. This result has an antitrust implication that patent pools should not be permitted until after patentees have challenged the validity of each other’s patents if litigation costs are not too large.
    Date: 2009–03
    URL: http://d.repec.org/n?u=RePEc:hit:piecis:417&r=ind
  3. By: Dirk Czarnitzki; Federico Etro; Kornelius Kraft
    Abstract: We develop a simple model of competition for the market that shows that, contrary to the Arrow view, endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more than the average firm. We test these predictions with a Tobit model based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats perceived by the firms reduce R&D intensity for the average firm, but not for an incumbent leader. Moreover, the size of the firms and their patent stocks, proxy for the protection of IPRs, are positively related to R&D intensity. These results hold after a number of robustness tests with instrumental variables.
    Keywords: R&D, Entry, Endogenous market structures, Leadership
    JEL: O31 O32
    Date: 2009–05
    URL: http://d.repec.org/n?u=RePEc:mib:wpaper:163&r=ind
  4. By: Sabien Dobbelaere (VU University Amsterdam); Roland Iwan Luttens (SHERPPA, Ghent University, and CORE, Université Catholique de Louvain); Bettina Peters (Centre for European Economic Research (ZEW))
    Abstract: We study a two-stage R&D project with an abandonment option. Two types of uncertainty influence the decision to start R&D. Demand uncertainty is modelled as a lottery between a proportional increase and decrease in demand. Technical uncertainty is modelled as a lottery between a decrease and increase in the cost to continue R&D. We relate differences in uncertainty to differences in risk premia. We deduct testable hypotheses on the basis of which we empirically analyze the impact of uncertainty on the decision to start an R&D project. Using data for about 4000 German firms in manufacturing and services (CIS IV), our model predictions are strongly confirmed.
    Keywords: Investment under uncertainty; R&D; demand uncertainty; technical uncertainty; entry threat
    JEL: D21 D81 L12 O31
    Date: 2009–05–15
    URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20090044&r=ind
  5. By: Saul Lach (The Hebrew University and CEPR); José Luis Moraga-González (University of Groningen)
    Abstract: This paper examines how the distribution of prices changes with the number of competitors in the market. Using gasoline price data from the Netherlands we find that as competition increases, the distribution of prices spreads out: the low prices go down while the high prices go up, on average. As a result, competition has an asymmetric effect on prices. These findings, which are consistent with a theoretical model where consumers differ in the information they have about prices, imply that consumers' gains from competition depend on their shopping behavior. In our data, all consumers, irrespective of the number of prices they observe, benefit from an increase in the number of gas stations. The magnitude of the welfare gain, however, is greater for those consumers that are aware of more prices. We conclude that an increase in the number of gas stations has a positive but unequal effect on the welfare of consumers in the Netherlands.
    Keywords: gasoline prices; imperfect information; number of firms and price distribution
    JEL: J1
    Date: 2009–06–03
    URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20090049&r=ind
  6. By: Adam D. Rennhoff
    Abstract: It is not uncommon for upstream manufacturers to make payments to downstream firms in order to obtain preferential treatment. These payments may generally be called “consideration payments.” Examples of this include the slotting allowance payments often discussed in the grocery, pharmaceutical, and consumer electronics industries. Payola in the radio industry shares many of the same characteristics as slotting allowances. The prohibition of radio payola in 1960 gives us an opportunity to empirically examine the effect that these payments had on the record labels using them and on overall product variety. We construct a unique variety measure based on the musical styles of Billboard chart artists and supplement this with information on radio airplay from Billboard charts to evaluate the effects of payola. We find that the prohibition of payola reduced musical variety and overall record sales, but may have helped increase access for smaller record labels. These findings support the theory that payola payments, which may impose a non-trivial financial burden on the record label, serve to reduce the radio station’s risk.
    Keywords: Radio; Payola; Regulation; Slotting Allowances
    JEL: L42
    Date: 2009–06
    URL: http://d.repec.org/n?u=RePEc:mts:wpaper:200904&r=ind

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