nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒09‒05
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Mobile Termination and Mobile Penetration By Sjaak Hurkens; Doh-Shin Jeon
  2. Entry, Exit, and the Determinants of Market Structure By Timothy Dunne; Shawn Klimek; Mark Roberts; Daniel Yi Xu
  3. Quality of Supply in Energy Regulation Measurement,Assessment and Experience from Norway By Growitsch, C.; Jamasb, T.; Mueller, C.; Wissner, M.
  4. Signaling the Strength of a Market Entrant By Janda, Karel
  5. The Firm Size Distribution and Inter-Industry Diversification By John Hutchinson; Jozef Konings; Patrick Paul Walsh

  1. By: Sjaak Hurkens; Doh-Shin Jeon
    Abstract: In this paper, we study how access pricing affects network competition when subscription demand is elastic and each network uses non-linear prices and can apply termination-based price discrimination. In the case of a fixed per minute termination charge, we find that a reduction of the termination charge below cost has two opposing effects: it softens competition but helps to internalize network externalities. The former reduces mobile penetration while the latter boosts it. We find that firms always prefer termination charge below cost for either motive while the regulator prefers termination below cost only when this boosts penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase penetration without distorting call volumes.
    Keywords: Mobile Penetration, Termination Charge, Access Pricing, Networks, Interconnection, Regulation, Telecommunications.
    JEL: D4 K23 L51 L96
    Date: 2009–07–31
    URL: http://d.repec.org/n?u=RePEc:aub:autbar:777.09&r=ind
  2. By: Timothy Dunne; Shawn Klimek; Mark Roberts; Daniel Yi Xu
    Abstract: Market structure is determined by the entry and exit decisions of individual producers. These decisions are driven by expectations of future profits which, in turn, depend on the nature of competition within the market. In this paper we estimate a dynamic, structural model of entry and exit in an oligopolistic industry and use it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. We find that entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all important determinants of long run firm values and market structure. As the number of firms in the market increases, the value of continuing in the market and the value of entering the market both decline, the probability of exit rises, and the probability of entry declines. The magnitude of these effects differ substantially across markets due to differences in exogenous cost and demand factors and across the dentist and chiropractor industries. Simulations using the estimated model for the dentist industry show that pressure from both potential entrants and incumbent firms discipline long-run profits. We calculate that a seven percent reduction in the mean sunk entry cost would reduce a monopolist's long-run profits by the same amount as if the firm operated in a duopoly.
    Keywords: entry, exit, market structure, competition, service industry
    JEL: L11 L13 L84
    Date: 2009–09
    URL: http://d.repec.org/n?u=RePEc:cen:wpaper:09-23&r=ind
  3. By: Growitsch, C.; Jamasb, T.; Mueller, C.; Wissner, M.
    Abstract: In order to overcome the incentive of excessive maintenance reductions and insufficient network investments in incentive regulation of electricity distribution companies, regulators throughout Europe have started regulating quality of service in the energy sector. In this paper, we discuss the issue of assessing and implementing quality-related incentives based on customers’ WTP for network reliability and analyse the impact of such regulatory measures by means of a concrete casestudy. Surveying the most prominent methodological approaches to quantify customers’ WTP for quality we find that survey techniques such as contingent valuation and conjoint analysis cover regulatory purposes well. As Norway has put the measurement and assessment of quality of supply into practice, we empirically examine how network operators have adapted to quality-incorporated regulation. We find that the external cost for quality has not played a major role in Norwegian electricity distribution.
    Keywords: electricity, quality of service, willingness-to-pay, data envelopment analysis
    JEL: L15 L51 L94
    Date: 2009–08–30
    URL: http://d.repec.org/n?u=RePEc:cam:camdae:0931&r=ind
  4. By: Janda, Karel
    Abstract: This article belongs to the game theoretic and information economics literature dealing with the problem of signaling in the context of game theoretical models of entry into the industry. As opposed to the majority of literature we consider the situation of asymmetric information where the private information belongs to the entrant. We model the capacity decision of the entrant as a signal of his strength. We show that in the Stackelberg model of market entry for some values of underlying parameters the entrant fully utilizes his capacity while for other parameter values he builds excess capacity. The model may be empirically relevant for industrial organization analysis of the entry of a new supplier to the existing supply chain.
    Keywords: Signaling; Entry; Capacity
    JEL: L13 D82 D43
    Date: 2009–08–29
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:17007&r=ind
  5. By: John Hutchinson (European Central Bank); Jozef Konings (Economics Department, K.U. Leuven); Patrick Paul Walsh (SPIRe and The Geary Institute University College Dublin)
    Abstract: We show that the stylized facts of the Firm Size Distribution (FSD) by age cohorts, as shown in Cabral and Mata (2003), bind within 4-digit manufacturing industries in the UK and Belgium. As in Klepper and Thompson (2006) and Sutton (1998), we explore whether time to build a portfolio of products is a mechanism that relates age to firm size. While inter industry diversification, to some extent, accounts for the role of age, we find that the presence of economies of scope has a separate impact on firm size when controlling for age, amongst other factors. Using the techniques in Cabral and Mata's we show that the FSD by degrees of product diversification shifts to the right, but more so in older age groups. This shows a role for inter-industry diversification over and above an age effect.
    JEL: L10 L11 L16
    Date: 2009–08–25
    URL: http://d.repec.org/n?u=RePEc:ucd:wpaper:200926&r=ind

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