nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒01‒10
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Signaling Role of Prices: Cournot By Wassim DAHER; Leonard J. MIRMAN; Marc Santugini
  2. Monopoly Price Discrimination and Demand Curvature. By Iñaki Aguirre; Simon Cowan; John Vickers
  3. Does cartel leadership facilitate collusion? By Marc Escrihuela-Villar
  4. Costly horizontal differentiation By João Correia-da-Silva; Joana Pinho
  5. Joan Robinson Was Almost Right:: Output under Third-Defree Price Discrimination. By Iñaki Aguirre
  6. Predatory Pricing, Recoupment, and Consumers’ Reaction By Lisa Bruttel; Jochen Glöckner
  7. Royalty Licensing. By Marta San Martin; Ana I. Saracho
  8. Regulating two-sided markets: an empirical investigation By Santiago Carbó Valverde; Sujit Chakravorti; Francisco Rodríguez-Fernández
  9. Consumer reactions to self-expressive brand display By Czellar, Sandor; Sprott, David E.; Spangenberg, Eric R.; Raska, David
  10. Rethinking Real Time Electricity Pricing By Hunt Allcott

  1. By: Wassim DAHER; Leonard J. MIRMAN; Marc Santugini (IEA, HEC Montréal)
    Abstract: Using the rational expectations approach, we study signaling in Cournot models, in which each oligopolist sets quantity, and, thus, partially controls the price-signal. We show that the quality of a homogeneous good is signaled by the market-clearing price. Moreover, our applications illustrate the tractability and usefulness of the rational expectations approach to signaling in complex economic settings. Indeed, the rational expectations equilibrium yields simple expressions for price, quantity, profit, and consumer surplus. Moreover, the rational expectations approach allows the model to specify posterior beliefs (including out-of-equilibrium beliefs).
    Keywords: Asymmetric information, Cournot, Learning, Oligopoly, Quality, Rational expectations, Signaling.
    JEL: D21 D43 D82 D83 D84 L13 L15
    Date: 2009–12
  2. By: Iñaki Aguirre (UPV/EHU); Simon Cowan (University of Oxford); John Vickers (All Souls College, Oxford)
    Abstract: This paper presents a general analysis of the effects of monopolistic third-degree price discrimination on welfare and oputput when all markets are served. Sufficient conditions -involving straightforward comparisons of the curvatures of the direct and inverse demand functions in the different markets- are presented for discrimination to have negative or positive effects on social welfare and output.
    Keywords: Third-Degree Price Discrimiation, Output, Monopoly, Welfare
    JEL: D42 L12 L13
    Date: 2009–12–16
  3. By: Marc Escrihuela-Villar (Universitat de les Illes Balears)
    Abstract: We discuss the implications of a Stackelberg sequence of play between a cartel and the fringe. We consider two different approaches to collusion: (i) one-stage static model and (ii) a multi-period oligopoly model. Our main result is that in the static model with quantity-setting firms a stable cartel only exist when cartel firms behave as a Stackelberg leader. It is also shown that in the supergame approach the cartel is always more easily sustained with the leadership than in the simultaneous-moves game. The opposite result is obtained in a price-setting supergame with differentiated products.
    Keywords: Collusion; Leadership; Stability; Sustainability
    JEL: L11 L13 L41 D43
    Date: 2009
  4. By: João Correia-da-Silva (CEF.UP and Faculdade de Economia, Universidade do Porto); Joana Pinho (Faculdade de Economia, Universidade do Porto)
    Abstract: We study the effect of quadratic differentiation costs in the Hotelling model of endogenous product differentiation. The equilibrium location choices are found to depend on the magnitude of the differentiation costs (relatively to the transportation costs supported by consumers). When the differentiation costs are low, there is maximum differentiation. When they are intermediate, there is partial differentiation, with a degree of differentiation that decreases with the differentiation costs. When they are above a certain threshold, there is no equilibrium. In any case, the socially optimal degree of differentiation is always lower than the equilibrium level. We also study the case of collusion between firms. If firms can combine locations but not prices, they locate asymmetrically when differentiation costs are high and choose maximum differentiation when they are low. When collusion extends to price setting, there is partial differentiation.
    Keywords: Costly product differentiation, Spatial competition, Hotelling model
    JEL: D43 L13 R32
    Date: 2009–12
  5. By: Iñaki Aguirre (UPV/EHU)
    Abstract: In this paper, we show that in order for third-degree price discrimination to increase total output, the demands of the strong markets should be, as conjectured by Robinson (1933), more concave than the demands of the weak markets. By making the distinction between adjusted concavity of the inverse demand and adjusted concavity of the direct demand, we are able to state necessary conditions and su¢ cient conditions for third-degree price discrimination to increase total output.
    Keywords: Third-Degree Discrimination, Output, Monopoly, Welfare
    JEL: D42 L12 L13
    Date: 2009–12–18
  6. By: Lisa Bruttel; Jochen Glöckner
    Abstract: This paper tests two basic assumptions underlying court made or statutory provisions prohibiting predatory pricing on the economic grounds that monopolistic pricing likely to occur in the long run will cause harm to competition and consumers. The first assumption under scrutiny is that customers will accept monopolistic prices during the subsequent phase of recoupment, even though they have become accustomed to low prices during the price war. The second assumption is that even in the subsequent phase of recoupment neither any displaced nor any other competitor will (re-)enter the market to undercut the monopolistic prices. We can confirm earlier data according to which predatory pricing occurs rarely in an experimental environment. Moreover, the experiment indicates that both assumptions are not backed up by actual decision making both of consumers and of competitors.
    Keywords: Predatory Pricing, Recoupment, Experiment
    Date: 2009
  7. By: Marta San Martin (UPV/EHU); Ana I. Saracho (UPV/EHU)
    Abstract: A patent provides its holder the monopolist´s right to sell licenses that allow the use of new technology. Empirically, most of the patent licensing agreements that are observed include royalties, in particular per unit or ad valorem royalties. The theoretical literature, however, has focused most of its attention to attempt to explain the presence of royalties by considering per-unit royalties. In this paper, we show that an internal patentee may prefer licensing by means of ad valorem royalties rather than per-unit royalties and other licensing mechanism traditionally considered in the literature. The reason is that by including an ad valorem royalty in the licensing contract the patentee can commit strategically to be less aggressive since its licensing revenues become increasing in the price of output. As a result, licensing hurts consumers.
    Keywords: Patent Licening; Royalty; Cournot Duooly
    JEL: D45
    Date: 2009–12–16
  8. By: Santiago Carbó Valverde; Sujit Chakravorti; Francisco Rodríguez-Fernández
    Abstract: We study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank- level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant acceptance being far from complete at the beginning and during the implementation of interchange fee ceilings. In addition, there is most likely a threshold interchange fee below which social welfare decreases although our data currently does not allow us to quantify it.
    Date: 2009
  9. By: Czellar, Sandor; Sprott, David E.; Spangenberg, Eric R.; Raska, David
    Abstract: Brand names and other brand elements are often displayed on one’s body or clothes for the purpose of personal value expression. Despite the frequency of such brand displays in the marketplace, we know little about how consumers respond to seeing brands in this fashion. A recent view of consumer brand identification—the concept of brand engagement in self-concept (BESC)—provides a unique perspective from which to explore how consumers react when see-ing brands displayed by others. Across three experiments, we demonstrate a consistent pattern of findings indicating that consumers’ reactions to others ostentatiously displaying brands as means of value expression are strongest for those with high BESC levels and with a high value focus during brand exposure. The research highlights important variations in consumers’ responses to self-expressive brand stimuli associated with others; implications for branding practice and re-search are provided.
    Keywords: Brand engagement; self-concept; advertising; brand management
    JEL: D11 D12 D91
    Date: 2009–12–08
  10. By: Hunt Allcott
    Abstract: Most US consumers are charged a near-constant retail price for electricity, despite substantial hourly variation in the wholesale market price. This paper evaluates the .rst program to expose residential consumers to hourly real time pricing (RTP). I .nd that enrolled households are statistically signi.cantly price elastic and that consumers responded by conserving energy during peak hours, but remarkably did not increase average consumption during o¤-peak times. Welfare analysis suggests that program households were not su¢ ciently price elastic to generate efficiency gains that substantially outweigh the estimated costs of the advanced electricity meters required to observe hourly consumption. Although in electricity pricing, congestion pricing, and many other settings, economists.intuition is that prices should be aligned with marginal costs, residential RTP may provide an important real-world example of a situation where this is not currently welfare-enhancing given contracting or information costs.
    Date: 2009–10

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