nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒05‒29
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. European Commission decisions on anti-competitive behavior By Gual, Jordi; Mas, Nuria
  2. The Influence of Collusion on Price Changes: New Evidence from Major Cartel Cases By Korbinian von Blanckenburg; Alexander Geist; Konstantin A. Kholodilin
  3. Collusive networks in market-sharing agreements under the presence of an antitrust authority By Roldan, Flavia
  4. Price competition with consumer confusion. By Chioveanu, I.; Zhou, J.
  5. Price and quality competition. By Chioveanu, I.
  6. How Do Firms Set Prices? Survey Evidence from Ireland By Keeney, Mary J.; Lawless, Martina; Murphy, Alan
  7. Generic drug pricing in Canada: components of the value-chain By Aidan Hollis
  8. Level of Access and Competition in Broadband Markets By Bourreau, Marc; Dogan, Pinar
  9. Coordination and Critical Mass in a Network Market: An Experimental Investigation By Bradley J. Ruffle; Avi Weiss; Amir Etziony

  1. By: Gual, Jordi (IESE Business School); Mas, Nuria (IESE Business School)
    Abstract: This paper provides an analysis of all the European Commission's decisions on anti-trust cases between January 1999 and February 2004. We use a unique dataset that contains information not only on the cases that were analyzed by the Commission and for which a decision was finally made public, but also on all the cases that were never pursued any further and those for which there is no final public decision. We have two goals. First, this data allows us, for the first time in the literature, to determine whether there is any type of bias in the selection process followed by the Commission when deciding which cases to pursue until a final decision is reached. Our results show that the selection of cases is not random and that it is quite efficient. Second, we can help to determine whether the criteria that have been shown by the economic literature to play an important role in anti-competitive behavior are also important for the Commission's decisions in anti-trust cases. Our results suggest that this is the case.
    Keywords: Anti-trust; competition; selection bias;
    Date: 2010–03–03
  2. By: Korbinian von Blanckenburg; Alexander Geist; Konstantin A. Kholodilin
    Abstract: In this paper, we compare the distribution of price changes between collusive and noncollusive periods for ten major cartels. The first moments focus on previous research. We extend the discussion to the third (skewness) and fourth (kurtosis) moments. However, none of the above descriptive statistics can be considered as a robust test allowing a differentiation between competition and cartel. Therefore, we implement the Kolmogorov-Smirnov test. According to our results, 8 out of 10 cartels were successful in controlling the market price for a number of years. The proposed methodology may be used for antitrust screening and regulatory purposes.
    Keywords: Cartel detection, collusion, competition policy
    JEL: L10 L60
    Date: 2010
  3. By: Roldan, Flavia (IESE Business School)
    Abstract: This paper studies how the presence of an antitrust authority affects market-sharing agreements made by firms. These agreements prevent firms from entering each other's market. The set of these agreements defines a collusive network, which is pursued by antitrust authorities. This article shows that while in the absence of the antitrust authority, a network is stable if its alliances are large enough when considering the antitrust authority, and more competitive structures can be sustained through bilateral agreements. Antitrust laws may have a pro-competitive effect, as they give firms in large alliances more incentives to cut their agreements at once.
    Keywords: market-sharing; economic networks; antitrust authorit; oligopoly;
    JEL: D43 K21 L41
    Date: 2010–04–07
  4. By: Chioveanu, I.; Zhou, J.
    Abstract: This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). We model price framing by assuming that firms’ frame choices affect the comparability of their price offers: consumers may fail to compare prices due to frame differentiation, and due to frame complexity. In the symmetric equilibrium the firms randomize over both price frames and prices, and make positive profits. This result is consistent with the observed coexistence of price and price frame dispersion in the market. We also show that (i) the nature of equilibrium depends on which source of consumer confusion dominates, and (ii) an increase in the number of firms can increase industry profits and harm consumers.
    Date: 2009–08
  5. By: Chioveanu, I.
    Abstract: This study considers an oligopoly model with simultaneous price and quality choice. Exante homogeneous sellers compete by offering products at one of two quality levels. The consumers have heterogeneous tastes for quality: for some consumers it is efficient to buy a high quality product, while for others it is efficient to buy a low quality product. In the symmetric equilibrium …firms use mixed strategies that randomize both price and quality, and obtain strictly positive pro…ts. This framework highlights trade-offs which determine the impact of consumer protection policy in the form of quality standards.
    Date: 2010–03
  6. By: Keeney, Mary J. (Central Bank and Financial Services Authority of Ireland); Lawless, Martina (Central Bank and Financial Services Authority of Ireland); Murphy, Alan (Central Bank and Financial Services Authority of Ireland)
    Abstract: Despite the importance of understanding and estimating the “stickiness” of prices of goods and services, empirical assessment of price setting behaviour by firms has remained relatively limited. This is the first paper to provide detailed information on the pressures, manner and frequency with which Irish firms adjust their output prices. Using survey information from almost a thousand Irish firms, we present a number of stylised facts on price setting behaviour. One of the first of these relates to the level of control firms have over their pricing strategy – the most common approach for firms is to set a price based on costs and a self-determined profit margin. However, one-third of firms said that their price was set primarily by following that of their closest competitors. The perceived intensity of competition was found to be one of the most significant factors in determining the price-setting approach and is also a central factor in determining price changes
    Date: 2010–05
  7. By: Aidan Hollis
    Abstract: The problem of obtaining fair pricing for generic drugs has led to a series of regulatory measures in Canadian provinces. This paper offers a new way of thinking about the problems that need to be addressed, by considering three core components of the value chain of getting generic drugs to Canadians: litigation, production, and pharmacy services. The paper proposes that each component of this value chain should be paid for separately, using a royalty to reward successful litigation that benefits payers; a competitive market framework to pay for production; and a transparent, independent regulatory process to set dispensing fees for pharmacies. This approach would enable the total expenditures to match costs, would enable provinces to set appropriate quality and convenience standards for pharmacy, and would provide a measure of predictability for investors. The paper emphasizes that it is important to establish a separate mechanism for rewarding litigation that eliminates invalid patents. The savings to Canadians from such litigation exceeds one billion dollars annually. Without addressing the need to reward this valuable activity, it is dangerous for payers to drive down generic prices, since generic firms will lack incentives to invest in costly litigation. The paper also encourages governments to establish independent regulatory authorities to set fair fees for pharmacies by employing processes similar to those used in other price regulation agencies.
    Date: 2010–01–17
  8. By: Bourreau, Marc (Institut Telecom and CREST-LEI); Dogan, Pinar (Harvard U)
    Abstract: In this paper, we consider an unregulated incumbent who owns a broadband infrastructure and decides on how much access to provide to a potential entrant. The level of access, i.e., the network elements that are shared in the provision of competing broadband services, not only determines the amount of investment the entrant needs to undertake to enter the market, but also the intensity of post-entry competition. We consider an access scheme that determines an access level and an associated two-part tariff. We show that the equilibrium level of access is higher when the sensitivity of product differentiation to the level of access is lower, and when the marginal investment cost is higher. We also show that the unregulated incumbent sets a suboptimally low (high) level of access if the degree of service differentiation is sufficiently high (low).
    Date: 2010–02
  9. By: Bradley J. Ruffle (Ben-Gurion University); Avi Weiss (Bar-Ilan University); Amir Etziony (Hewlett-Packard Israel)
    Abstract: A network market is a market in which the benefit each consumer derives from a good is an increasing function of the number of consumers who own the same or similar goods. A major obstacle that plagues the introduction of a network good is the ability to reach critical mass, namely, the minimum number of buyers required to render purchase worthwhile. This can be likened to a coordination game with multiple Pareto-ranked equilibria. We introduce an experimental paradigm to study consumers' ability to coordinate on purchasing the network good. Our results highlight the central importance of the level of the critical mass.
    Keywords: Experimental economics, network goods, coordination game, critical mass
    JEL: C92 L19
    Date: 2010–02

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