nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒05‒02
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competition under Dynamic Lot Sizing Costs with Capacity Acquisition By Hongyan Li; Joern Meissner
  2. Predation Under Perfect Information By Argenton, C.
  3. How much competition is a secondary market? By Jiawei Chen; Susanna Esteban; Matthew Shum
  4. Losses from competition in a dynamic game model of a renewable resource oligopoly By Kenji Fujiwara
  5. Insurance regulation and the credit crisis. What’s new? By Ferro, Gustavo

  1. By: Hongyan Li (Aarhus School of Business, Aarhus University, Denmark); Joern Meissner (Department of Management Science, Lancaster University Management School)
    Abstract: Lot-sizing and capacity planning are important supply chain decisions, and competition and cooperation affect the performance of these decisions. In this paper, we look into the dynamic lot sizing and resource competition problem of an industry consisting of multiple firms. A capacity competition model combining the complexity of time-varying demand with cost functions and economies os scale arising from dynamic lot-sizing costs is developed. Each firm can replenish inventory at the beginning of each period in a finite planning horizon. Fixed as well as variable production costs incur for each production setup, along with inventory carrying costs. The individual production lots of each firm are limited by a constant capacity restriction, which is purchased up front for the planning horizon. The capacity can be purchased from a spot market, and the capacity acquisition cost fluctuates with the total capacity demand of all the competing firms. We solve the competition model and establish the existence of a capacity equilibrium over the firms and the associated optimal dynamic lot-sizing plan for each firm under mild conditions.
    Keywords: computational economics, industrial competition, operations research, game theory, capacity optimization, supply chain management, lot sizing, heuristics, equilibrium
    JEL: C61
    Date: 2010–04
  2. By: Argenton, C. (Tilburg University, Center for Economic Research)
    Abstract: In an oligopoly configuration characterized by high barriers to (re-)entry, a finite horizon, perfect information about demand and costs and the presence of three identical firms, we show that two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately, after which the predators can enjoy higher profits, even if they do not raise their price. Predatory prices are thus observed on the equilibrium path and the predators end up earning more than in the best Bertrand (or even, collusive) equilibrium with three firms.
    Keywords: predation;predatory pricing;collusion;dynamic game;Bertrand competition
    JEL: D43 L13 L41
    Date: 2010
  3. By: Jiawei Chen (UC-Irvine); Susanna Esteban (Universitat Autµonoma de Barcelona); Matthew Shum (Caltech)
    Abstract: Do active secondary markets aid or harm durable goods manufacturers? We build a dynamic equilibrium model of durable goods oligopoly, with consumers who incur lumpy costs when transacting in the secondary market, and calibrate it to U.S. automobile industry data. By varying transaction costs, we obtain a direct measure of the competitive pressure that secondary markets create on durable goods manufacturers. For our calibrated parameter values, closing down the secondary market increases (net) profits of new car manufacturers by 39%. This suggests that regulatory changes that lower liquidity in secondary markets may aid manufacturers.
    Keywords: secondary markets; durable goods; oligopoly; transaction costs; automobile industry; market power
    Date: 2010–04–21
  4. By: Kenji Fujiwara (Kwansei Gakuin University)
    Abstract: This paper develops a dynamic game model of an asymmetric oligopoly with a renewable resource to reconsider welfare effects of increases in the number of firms. We show that increasing not only the number of inefficient firms but also that of Efficient firms reduces welfare, which sharply contrasts to a static outcome. It is discussed that the closed-loop property of feedback strategies plays a decisive role in this finding.
    Keywords: Dierential game, Asymmetric oligopoly, Feedback strategy
    JEL: C73 L13 Q20
    Date: 2010–04
  5. By: Ferro, Gustavo
    Abstract: Prior to the 2008 global credit crisis, some developments had occurred in the regulation of the insurance industry worldwide. At different speeds, the world was heading toward a more risk-based solvency regulation and some convergence on principles and criteria. We see a common thread in the present discussion and in the way events happened. We consider that the great debate in the industry is a fundamental decision: whether to engage in other than core business activities. If the industry focuses on its insurance business, the argument for specialized regulation and the continuity of a conservative and prudent line of business is strong. Instead, if the industry deepens its identification with other lines of financial business, the specialized supervision arrangement does not hold. The move entails both possibilities of new, riskier and promising business, but also perils, since the industry “buys” the systemic characteristics that distinguish other financial institutions.
    Keywords: regulation; insurance; financial crisis; integrated supervision; financial conglomerates
    JEL: L51 G22
    Date: 2010–02

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