nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒09‒11
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Entry, exit and the determinants of market structure By Timothy Dunne; Shawn D. Klimek; Mark J. Roberts; Daniel Yi Xu
  2. Collusion, competition and piracy By Francisco Martínez-Sánchez
  3. Relative Performance and R&D Competition By Toshihiro Matsumura; Noriaki Matsushima; Susumu Cato
  4. Socially Optimal Liability Rules for Firms with Natural Monopoly By Atsushi Tsuneki;
  5. The Quest for Appropriate Remedies in the Microsoft Antitrust EU Cases: A Comparative Appraisal By Nicholas Economides; Ioannis Lianos

  1. By: Timothy Dunne; Shawn D. Klimek; Mark J. 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 factorsand 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: Markets ; Competition ; Service industries
    Date: 2009
    URL: http://d.repec.org/n?u=RePEc:fip:fedcwp:0907&r=ind
  2. By: Francisco Martínez-Sánchez (Universidad de Alicante)
    Abstract: In this paper we analyze firms' ability to tacitly collude on pricesin an infinitely repeated duopoly game of vertical productdifferentiation. We show that firms collude if and only if their discountfactor is high enough, i.e. if they value future profits sufficiently. We alsoshow that a lower cost of copying facilitates collusion but that a higherquality of the copy hinders collusion. Thus, the overall effect of thesenew characteristics of copies made by consumers is ambiguous.
    Keywords: Collusion, competition, piracy, consumers, cost of copying,
    JEL: D40 K42 L13 L40 O34
    Date: 2009–01
    URL: http://d.repec.org/n?u=RePEc:ivi:wpasad:2009-20&r=ind
  3. By: Toshihiro Matsumura; Noriaki Matsushima; Susumu Cato
    Abstract: This paper formulates a duopoly model in which firms care about relative profits as well as their own profits. Our purpose is to investigate the relationship between the weight of relative performance and R&D expenditure. We find a non-monotone relationship between the weight of relative performance in their objectives and their R&D levels. Both highly reciprocal (altruism) and negative reciprocal attitudes yield high levels of R&D, while the intermediate situations yield low levels of R&D.
    Date: 2009–08
    URL: http://d.repec.org/n?u=RePEc:dpr:wpaper:0752&r=ind
  4. By: Atsushi Tsuneki;
    Abstract: It has been shown by Polinsky and Shavell that the strict liability rule is socially superior to the negligence liability rule when firms are injurers, strangers are victims, and accidents have a unilateral nature if prefect competition among firms prevails. This article considers the problem of socially efficient liability rules in a market where natural monopoly prevails due to decreasing average cost. We especially consider a quasi-competitive case where average cost pricing is achieved in a naturally monopolized market either through well-organized government regulation or the weak invisible hands of contestability. In contrast to the perfectly competitive economy, the present article shows that in most cases, the negligence regime is socially more desirable than the strict liability regime from the view point of economic efficiency.
    Date: 2009–08
    URL: http://d.repec.org/n?u=RePEc:dpr:wpaper:0753&r=ind
  5. By: Nicholas Economides (Stern School of Business, NYU); Ioannis Lianos (Faculty of Laws, University College London)
    Abstract: The Microsoft cases in the United States and in Europe have been influential in determining the contours of the substantive liability standards for dominant firms in US antitrust law and in EC Competition law. The competition law remedies that were adopted, following the finding of liability, seem, however, to constitute the main measure for the “success” of the case(s). An important disagreement exists between those arguing that the remedies put in place failed to address the roots of the competition law violation identified in the liability decision and others who advance the view that the remedies were far-reaching and that their alleged failure demonstrates the weakness of the liability claim. This study evaluates these claims by examining the variety of remedies that were finally imposed in the European Microsoft cases, from a comparative perspective. The study begins with a discussion of the roots of the Microsoft issues in Europe and the consequent choice of a remedial approach by the Commission and the Court. It then explores the effectiveness of the remedies in achieving the aims that were set. The non-consideration of the structural remedy in the European case and the pros and cons of developing such a remedy in the future are briefly discussed before more emphasis is put on alternative remedies (competition and non-competition law ones) that have been suggested in the literature. The study concludes by discussing the fit between the remedy and the theory of consumer harm that led to the finding of liability and questions a total dissociation between the two. We believe that it is important to think seriously about potential remedies before litigation begins. However, we do not require an ex ante identification of an appropriate remedy by the plaintiffs, since this could lead to underenforcement or overenforcement.
    Keywords: antitrust, remedies, Microsoft, complementarity, innovation, efficiency, monopoly, oligopoly, media player, interoperability, Internet browser
    JEL: K21 L41 L42 L12 L86 L63
    Date: 2009–08
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:0905&r=ind

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