nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒10‒10
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price Discrimination under Customer Recognition and Mergers By Rosa Branca Esteves; Hélder Vasconcelos
  2. Competitive Effects of Vertical Integration with Downstream Oligopsony and Oligopoly By Simon Loertscher; Markus Reisinger
  3. Testable implications of the Bertrand model By Robert R. Routledge
  4. On the existence of Bayesian Bertrand equilibrium By Robert R. Routledge
  5. On production costs in vertical differentiation models By Dorothée Brécard
  6. Complementary Patents and Market Structure By Klaus Schmidt
  7. Licensing weak patents By David Encaoua; Yassine Lefouili
  8. Licensing Complementary Patents: “Patent Trolls”, Market Structure, and “Excessive” Royalties By Anne Layne-Farrar; Klaus M. Schmidt

  1. By: Rosa Branca Esteves (Universidade do Minho - NIPE); Hélder Vasconcelos (Univ. Católica Portuguesa (CEGE) - CEPR)
    Abstract: This paper studies the interaction between horizontal mergers and price discrimination by endogenizing the merger formation process in the context of a repeated purchase model with two periods and three firms wherein firms may engage in Behaviour-Based Price Discrimination (BBPD). From a merger policy perspective, this paper's main contribution is two-fold. First, it shows that when firms are allowed to price discriminate, the (unique) equilibrium merger gives rise to significant increases in profits for the merging firms (the ones with information to price-discriminate), but has no effect on the outsider firm's profitability, thereby eliminating the so called "free-riding problem". Second, this equilibrium merger is shown to increase industry profits at the expense of consumers' surplus, leaving total welfare unaffected and, therefore, suggesting that competition authorities should scrutinize with greater zeal mergers in industries where firms are expected to engage in BBPD.
    Keywords: Behaviour-Based Price Discrimination, Customer Poaching, Horizontal Mergers
    JEL: L13 L15 L41 D43
    Date: 2009
  2. By: Simon Loertscher (University of Melbourne); Markus Reisinger (University of Munich)
    Abstract: We analyze the competitive effects of backward vertical integration by a partially vertically integrated firm that competes with non-integrated firms both upstream and downstream. We show that vertical integration is procompetitive under fairly general conditions. It can be anticompetitive only if the ex ante degree of integration is relatively large. Interestingly, vertical integration is more likely to be anticompetitive if the industry is less concentrated. These results are in line with recent empirical evidence. In addition, we show that even when vertical integration is procompetitive, it is not necessarily welfare enhancing.
    Keywords: Vertical Integration, Downstream Oligopsony, Downstream Oligopoly, Competition Policy, Capacity Choice
    JEL: D43 L41 L42
    Date: 2009–10
  3. By: Robert R. Routledge
    Date: 2009
  4. By: Robert R. Routledge
    Date: 2009
  5. By: Dorothée Brécard (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: In this paper, we analyse the effects of the introduction of a unit production cost beside a fixed cost of quality improvement in a duopoly model of vertical product differentiation. Thanks to an original methodology, we show that a low unit cost tends to reduce product differentiation and thus prices, whereas a high unit cost leads to widen product differentiation and to increase prices
    Date: 2009
  6. By: Klaus Schmidt (University of Munich)
    Abstract: Many high technology goods are based on standards that require several essential patents owned by different IP holders. This gives rise to a complements and a double mark-up problem. We compare the welfare effects of two different business strategies dealing with these problems. Vertical integration of an IP holder and a downstream producer solves the double mark-up problem between these firms. Nevertheless, it may raise royalty rates and reduce output as compared to non-integration. Horizontal integration of IP holders solves the complements problem but not the double mark-up problem. Vertical integration discourages entry and reduces innovation incentives, while horizontal integration always benefits from entry and innovation
    Keywords: IP rights, complementary patents, standards, licensing, patent pool, vertical integration
    JEL: L1 L4
    Date: 2009–08
  7. By: David Encaoua (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Yassine Lefouili (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In this paper, we revisit the issue of licensing ‘weak' patents under the shadow of litigation. Departing from the seminal paper by Farrell and Shapiro [2008], we consider innovations of any size and not only ‘small' innovations, and we allow the number of licensees to be less than the number of firms in the downstream industry. It is shown that the optimal two-part tariff license from the patent holder's perspective may either deter or trigger litigation, and conditions underwhich each case arises are provided. We also reexamine the claim that the licensing revenues from ‘weak' patents overcompensate the patent holder relative to what a natural benchmarkwould command. Finally we suggest two policy levers that may alleviate the harm raised by the licensing of ‘weak' patents.
    Keywords: Licensing Schemes ; Probabilistic Rights ; Patent Litigation
    Date: 2009–09–03
  8. By: Anne Layne-Farrar; Klaus M. Schmidt (University of Munich)
    Abstract: The infamous Blackberry case brought new attention to so-called “patent trolls” and began the general association of trolls with “non-practicing” patent holders. This has had important legal consequences: Namely, patent holders have been denied injunctive relief because they did not practice the patents themselves. In this paper we analyze how patent holders –– both non-practicing and vertically integrated –– choose their royalties depending on the structure of the upstream and downstream markets and the types of licensing agreements available. We show that a vertically integrated firm has an incentive to raise its rivals’ costs and to restrict entry on the downstream market; incentives that do not hold for non-integrated patent holders. An automatic presumption that a non-integrated patent holder will charge higher royalties than a vertically integrated company is therefore unfounded. Whether a company charges “excessive” royalties depends on whether there is scope for hold-up, either because of sunk investments on the part of potential licensees or because of “weak” patents held by t he licensor. These factors are orthogonal to whether patent holders are practicing or not.
    Date: 2009–09

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