nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒11‒21
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Preferences and Equilibrium in Monopoly and Duopoly By Yongmin Chen; Michael H. Riordan
  2. Competition and Quality Upgrading By Mary Amiti; Amit K. Khandelwal
  3. Investment in Electricity Markets with Asymmetric Technologies By Talat S. Genc; Henry Thille
  4. Iceberg transport technologies in spatial competition. Hotelling reborn By Xavier Martinez-Giralt; José María Usategui

  1. By: Yongmin Chen (University of Colorado at Boulder - Department of Economics); Michael H. Riordan (Columbia University - Department of Economics)
    Abstract: This paper takes the new approach of using a copula to characterize consumer preferences in a discrete choice model of product differentiation, and applies it to the economics of monopoly and duopoly. The comparative statics of demand strength and preference diversity, both properties of the marginal distribution of values for each product variety, are strikingly similar across market structures. Preference dependence, a property of the copula and an indicator of product differentiation, is a key determinant of whether prices are higher in multiproduct industries compared to single-product monopoly. Furthermore, the effects of preference on prices and profits influence equilibrium product selection. Remarkably, a horizontally-differentiated duopoly sometimes can foreclose a higher-quality monopoly to the detriment of consumer and social welfare.
    Date: 2009
  2. By: Mary Amiti; Amit K. Khandelwal
    Abstract: How does competition affect innovation? We address this question by using a novel approach to measure quality -- an important component of innovation -- using highly disaggregated product data for a large set of countries. Constructing an internationally comparable measure of quality enables us to separate the effect of reducing import tariffs, our measure of competition, on quality upgrading from other country level differences in competitive environments, and product demand shocks. We base our analysis on recent theoretical frameworks that predict that the effect of competition on innovation depends on firms' proximity to the world technological frontier. As predicted by theory, we find that lower tariffs are associated with quality upgrading for products close to the world frontier; whereas lower tariffs discourage quality upgrading for varieties distant from the frontier.
    JEL: F1
    Date: 2009–11
  3. By: Talat S. Genc (University of Guelph, Department of Economics); Henry Thille (University of Guelph, Department of Economics)
    Abstract: We study competition between hydro and thermal electricity generators under demand uncertainty. Producers compete in quantities and each is constrained: the thermal generator by capacity and the hydro generator by water availability. We analyze a two-period game emphasizing the incentives for capacity investments by the thermal generator. We characterize both Markov perfect and open-loop equilibria. In the Markov perfect equilibrium, investment is discontinuous in initial capacity and higher than it is in the open-loop equilibrium. However, since there are two distortions in the model, equilibrium investment can be either higher or lower than the efficient investment.
    Keywords: Electricity markets; Dynamic game; Duopoly; Capacity investment.
    JEL: D24 L13 L94
    Date: 2009
  4. By: Xavier Martinez-Giralt; José María Usategui
    Abstract: Transport costs in address models of differentiation are usually modeled as separable of the consumption commodity and with a parametric price. However, there are many sectors in an economy where such modeling is not satisfactory either because transportation is supplied under oligopolistic conditions or because there is a difference (loss) between the amount delivered at the point of production and the amount received at the point of consumption. This paper is a first attempt to tackle these issues proposing to study competition in spatial models using an iceberg-like transport cost technology allowing for concave and convex melting functions.
    Keywords: Spatial Competition, Iceberg transport costs
    JEL: L12 D42 R32
    Date: 2009–11–11

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