nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒05‒15
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Consumer Preferences in Monopolistic Competition Models By Tarasov, Alexander
  2. Quality, Upgrades, and Equilibrium in a Dynamic Monopoly Model By James Anton; Gary Biglaiser
  3. Increasing Dominance - the Role of Advertising, Pricing and Product Design By Kretschmer, Tobias; Rösner, Mariana
  4. The Effect of Payoff Tables on Experimental Oligopoly Behavior By Gürerk, Özgür; Selten, Reinhard
  5. Asymmetric Price Responses of Gasoline Stations: Evidence for Heterogeneity of Retailers By Riemer P. Faber

  1. By: Tarasov, Alexander
    Abstract: This paper develops a novel approach to modeling references in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the e¤ects 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 …rms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.
    Keywords: fi…rm prices; intensity of competition; consumer income
    JEL: D4
    Date: 2010–04
  2. By: James Anton; Gary Biglaiser
    Date: 2010–05–04
  3. By: Kretschmer, Tobias; Rösner, Mariana
    Abstract: Despite the empirical relevance of advertising strategies in concentrated markets, the economics literature is largely silent on the effect of persuasive advertising strategies on pricing, market structure and increasing (or decreasing) dominance. In a simple model of persuasive advertising and pricing with differentiated goods, we analyze the interdependencies between ex-ante asymmetries in consumer appeal, advertising and prices. Products with larger initial appeal to consumers will be advertised more heavily but priced at a higher level - that is, advertising and price discounts are strategic substitutes for products with asymmetric initial appeal. We find that the escalating effect of advertising dominates the moderating effect of pricing so that post-competition market shares are more asymmetric than pre-competition differences in consumer appeal. We further find that collusive advertising (but competitive pricing) generates the same market outcomes, and that network effects lead to even more extreme market outcomes, both directly and via the effect on advertising.
    Keywords: Increasing dominance; persuasive advertising; duopoly; network effects
    JEL: D21 L11 L13
    Date: 2010–05–01
  4. By: Gürerk, Özgür; Selten, Reinhard
    Abstract: We explore the effects of the provision of an information-processing instrument - payoff tables - on behavior in experimental oligopolies. In one experimental setting, subjects have access to payoff tables whereas in the other setting they have not. It turns out that this minor variation in presentation has non-negligible effects on participants' behavior, particularly in the initial phase of the experiment. In the presence of payoff tables, subjects tend to be more cooperative. As a consequence, collusive behavior is more likely and quickly to occur.
    Keywords: Collusion; Cournot oligopoly; payoff tables; bounded rationality; framing; presentation effect
    JEL: L13 C92 C72
    Date: 2010–04–29
  5. By: Riemer P. Faber (Erasmus University Rotterdam)
    Abstract: This paper studies asymmetric price responses of individual firms, via daily retail prices of almost all gasoline stations in the Netherlands and suggested prices of the five largest oil companies over more than two years. I find that 38% of the stations respond asymmetrically to changes in the spot market price. Hence, asymmetric pricing is not a feature of the market as a whole, but of individual firms. For asymmetrically pricing stations, the asymmetry is substantial directly after a change but disappears after one or two days. I study station-specific characteristics and conclude that asymmetric pricing seems to be a phenomenon that is randomly distributed across stations. I also find that none of the five largest oil companies adjust their suggested prices asymmetrically.
    Keywords: price setting; asymmetric price responses; gasoline markets
    JEL: D40 E31 L11 L81
    Date: 2009–11–19

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