nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒01‒23
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competition Among the Big and the Small By Ken-Ichi Shimomura; Jacques-François Thisse
  2. Consumer Preferences in Monopolistic Competition Models By Tarasov, Alexander
  3. Selling Goods of Unknown Quality: Forward versus Spot Auctions By Hafalir, Isa E.; Yektas, Hadi
  4. Spatial Price Discrimination in International Markets By Julien Martin
  5. Product differentiation and welfare in a mixed duopoly with regulated prices: the case of a public and a private hospital By Herr, Annika
  6. Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design By Marianne Simonsen; Lars Skipper; Niels Skipper
  7. Attracting Investor Attention through Advertising By Dong Lou
  8. The Emerging Patent Marketplace By OECD

  1. By: Ken-Ichi Shimomura; Jacques-François Thisse (CREA, University of Luxembourg)
    Abstract: Armchair evidence shows that many industries are made of a few big commercial or manufacturing firms, which are able to affect the market outcome, and of a myriad of small family-run businesses with very few employees, each of which has a negligible impact on the market. Examples can be found in apparel, catering, publishers and bookstores, retailing, finance and insurances, and IT industries. We provide a new general equilibrium framework that encapsulates both market structures. Due to the higher toughness of the market, the entry of big firms leads them to sell more through a market expansion eect, which is generated by the exit of small firms. Furthermore, the level of social welfare increases with the number of oligopolistic firms because the procompetitive effect associated with the entry of a big rm dominates the resulting decrease in product variety.
    JEL: L13 L40
    Date: 2009
  2. By: Tarasov, Alexander
    Abstract: This paper develops a novel approach to modeling preferences in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the effects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of firms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.
    Keywords: firm prices; intensity of competition; consumer income.
    JEL: F12 D43
    Date: 2009–11
  3. By: Hafalir, Isa E.; Yektas, Hadi
    Abstract: We consider an environment where the sale can take place so early that both the seller and the potential buyers have the same uncertainty about the quality of the good. We present a simple model that allows the seller to put the good for sale before or after this uncertainty is resolved, , namely via forward auction or spot auction, respectively. We solve for the equilibrium of these two auctions and then compare the resulting revenues. We also consider the revenue implications of the insurance in forward auctions.
    Keywords: Forward Trading; Forward Auctions; Spot Auctions
    JEL: D44
    Date: 2010–01–07
  4. By: Julien Martin
    Abstract: This paper presents a theoretical discussion and an empirical investigation of the impact of distance on the spatial pricing policy of exporting firms. The theoretical part points out the importance of transport costs formulation to determine how distance impacts fob prices. Assuming additive or iceberg transport costs might imply opposite predictions concerning this relationship. The empirical analysis is based on French export data providing us with bilateral export unit values at the firm and product level. The main empirical result is that French exporters set higher prices toward the more remote markets. This finding goes against the predictions of the main models of international trade (with or without quality) predicting either a nil or a negative impact of distance on prices at the firm level. It also questions the use of iceberg transport costs. A way to reconcile theory with the data is to introduce additive transport costs.
    Keywords: Spatial price discrimination; export prices; distance; firm level data
    JEL: F10 F14 L11
    Date: 2009–09
  5. By: Herr, Annika
    Abstract: Hospital markets are often characterised by price regulation and the existence of different ownership types. Using a Hotelling framework, this paper analyses the effect of different objectives of the hospitals on quality, profits, and overall welfare in a price regulated duopoly with symmetric locations. In contrast to other studies on mixed oligopolies, this paper shows that in a duopoly with regulated prices privatisation of the public hospital may increase overall welfare depending on the difference of the hospitals' marginal costs and the weight of the additional public hospital's motive. --
    Keywords: mixed oligopoly,price regulation,quality,hospital competition
    JEL: L13 I18 H42
    Date: 2009
  6. By: Marianne Simonsen (School of Economics and Management, University of Aarhus, Denmark); Lars Skipper (Aarhus School of Business, University of Aarhus, Denmark); Niels Skipper (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: This paper investigates price sensitivity of demand for prescription drugs using drug purchase records for at 20% random sample of the Danish population. We identify price responsiveness by exploiting exogenous variation in prices caused by kinked reimbursement schemes and implement a regression kink design. Thus, within a unifying framework we uncover price sensitivity for different subpopulations and types of drugs. The results suggest low average price responsiveness with corresponding price elasticities ranging from -0.08 to -0.25, implying that demand is inelastic. Individuals with lower education and income are, however, more responsive to the price. Also, essential drugs that prevent deterioration in health and prolong life have lower associated average price sensitivity.
    Keywords: Prescription drugs, price, reimbursement schemes, regression kink design
    JEL: I11 I18
    Date: 2010–01–15
  7. By: Dong Lou
    Abstract: This paper provides empirical evidence that managers adjust firm advertising expenditures to influence investor behavior and short-term stock prices. First, this paper shows that increased advertising spending is associated with individual investor buying and a contemporaneous rise in abnormal stock returns, which is then reversed in subsequent years. Second, there is a significant rise in firm advertising expenditures prior to insider sales and seasoned equity offerings. This large increase is followed by a significant decrease in advertising expenditures in the subsequent year. This pattern of advertising expenditures is consistent with the idea that managers are exploiting the return effect induced by advertising to the benefit of the existing shareholders and/or themselves.
    Date: 2009–11
  8. By: OECD
    Abstract: Facilitating the mobilisation, sharing, or exchange of patents is increasingly important to promote innovation in this globalised and well-networked world, where the circulation of ideas and technologies is essential to innovation. In the context of open innovation, patents are expected to play a role as a means for transferring ideas and technologies from one entity to another, in addition to acting as a means for excluding others from using companies’ own ideas and technologies. In such a situation, a variety of new entities focusing on patent-related transactions are emerging. Some IP specialist firms seek to monetise patents by creating strategic patent portfolios and licensing them. Others provide websites to establish online marketplaces where patents and ideas could be traded. And still others establish a co-operative venture that buys and licenses patents to its members for defensive purpose. They also include IP investment banks that will lend against the value of IP, and firms that seek to create funds, similar to mutual funds, which allow investors to earn revenue from royalties. These new players now could significantly influence the circulation of patents. It would be important for governments to deepen their understanding of how these new players are performing in the patent transaction markets in order to support their development in the most socially beneficial directions. This may also be important for traditional technology-oriented companies, since the effective use of patent transaction markets will help them improve their innovation process and strengthen their competitiveness. Therefore, analysis of the functions, business models, and activities of IP specialist firms is the central topic of this research.<P>Le nouveau marché des brevets<BR>De plus en plus, il est important de faciliter la mobilisation, le partage ou l’échange de brevets pour promouvoir l’innovation dans ce monde globalisé et très interconnecté où la circulation des idées et des technologies est essentielle pour l’innovation. Dans l’optique de l’innovation ouverte, les brevets devraient jouer un rôle en tant que moyen de transfert d’idées et de technologies d’une entité à l’autre, tout en servant à empêcher que d’autres utilisent les idées et technologies appartenant aux entreprises. Dans ces conditions, il apparaît actuellement diverses entités nouvelles dont l’activité est axée sur les transactions relatives aux brevets. Certaines entreprises spécialisées en PI cherchent à monétiser des brevets en créant des portefeuilles de brevets stratégiques et en concédant les licences d’exploitation qui s’y rattachent. D’autres s’emploient à mettre en place sur des sites Web des marchés en ligne où les brevets et les idées pourraient faire l’objet d’échanges. D’autres encore constituent des coopératives qui achètent des brevets et cèdent les licences d’exploitation à leurs membres à des fins défensives. On voit aussi se créer des banques d’investissement spécialisées dans la PI, qui octroient des prêts en utilisant la valeur de la PI comme garantie, et des entreprises qui cherchent à créer des fonds, comparables à des fonds communs de placement, permettant aux investisseurs de tirer des revenus des redevances. Ces nouveaux acteurs pourraient exercer désormais une puissante influence sur la circulation des brevets. Il importe, pour les pouvoirs publics, de mieux connaître les comportements de ces nouveaux acteurs sur les marchés où s’opèrent les transactions sur les brevets afin de pouvoir favoriser un essor de ces marchés tendant vers ce qui sera optimal pour la collectivité. Il peut être important aussi pour les entreprises classiques à vocation technologique de bien appréhender ces évolutions, car l’utilisation des marchés des transactions concernant les brevets les aidera à améliorer leur processus d’innovation et à renforcer leur compétitivité. L’analyse des fonctions, des modèles économiques et des activités des entreprises spécialisées en PI constitue donc le thème central de cette recherche.
    Keywords: innovation, IP market, IP, patent licence, patents, technology market, brevets, innovation, licence de brevet, marché de la PI, marché des technologies, PI
    Date: 2009–12–22

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