nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒06‒11
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Mixed oligopoly, vertical product differentiation and fixed quality-dependent costs By Stefan Lutz; Mario Pezzino
  2. Pricing Policy and Partial Collusion By Stefano Colombo
  3. 99 cent: Price points in e-commerce By Hackl, Franz; Kummer, Michael E.; Winter-Ebmer, Rudolf
  4. Second Mover Advantage and Bertrand Dynamic Competition: An Experiment By S.N. O'Higgins; Arturo Palomba; Patrizia Sbriglia
  5. A micro-econometric approach to geographic market definition in local retail markets: Demand side considerations By Beckert, Walter

  1. By: Stefan Lutz; Mario Pezzino
    Abstract: A private and a public firm face fixed quality-dependent costs of production and compete first in quality and then either in prices or in quantities. In the long run the public firm targets welfare maximization whereas the private firm maximizes profits. In the short run both firms compete in prices or quantities to maximize profits. Mixed competition is always socially desirable compared to a private duopoly regardless of the type of competition in the short run and the equilibrium quality ranking. In addition, mixed competition seems to be a more efficient regulatory instrument than the adoption of a minimum quality standard.
    Keywords: vertical product differentiation, mixed oligopoly, quality, price and quantity competition
    JEL: L13 L33 L50 H44
    Date: 2010–05
  2. By: Stefano Colombo (DISCE, Università Cattolica)
    Abstract: We study the pricing policy equilibria emerging in a partial collusion duopolistic framework where firms in the first stage of the game choose non-cooperatively whether to price discriminate or not, and from the second stage onward collude on prices.When the discount factor is particularly high or particularly low both firms price discriminate in equilibrium. For intermediate discount factors and high firms'asymmetry, the unique equilibrium is characterized by only the smaller firm choosing price discrimination.In the case of intermediate discount factors and low firms'asymmetry, there are two possible equilibria: both firms price discriminate or no firm price discriminates.
    Keywords: Partial Collusion, Pricing policy, Price discrimination
    JEL: D43 L13 L40
    Date: 2009–10
  3. By: Hackl, Franz; Kummer, Michael E.; Winter-Ebmer, Rudolf
    Abstract: Basu (2006) argues that the prevalence of 99 cent prices in shops can be explained with rational consumers who disregard the rightmost digits of the price. This bounded rational behaviour leads to a Bertrand equilibrium with positive markups. We use data from an Austrian price comparison site and find results highly compatible with Basu's theory. We can show that price points - in particular prices ending in 9 - are prevalent and have significant impact on consumer demand. Moreover, these price points are sticky; neither the price-setter itself wants to change them neither the rivals do underbid these prices, if they represent the cheapest price on the market. --
    Keywords: Competitive Behaviour,Pricing Behaviour,E-Commerce,Pricing in the Nines,Focal Pricing
    JEL: L11 D41 C41
    Date: 2010
  4. By: S.N. O'Higgins; Arturo Palomba; Patrizia Sbriglia
    Abstract: In this paper we provide an experimental test of a dynamic Bertrand duopolistic model, where firms move sequentially and their informational setting varies across different designs. Our experiment is composed of three treatments. In the first treatment, subjects receive information only on the costs and demand parameters and on the price’ choices of their opponent in the market in which they are positioned (matching is fixed); in the second and third treatments, subjects are also informed on the behaviour of players who are not directly operating in their market. Our aim is to study whether the individual behaviour and the process of equilibrium convergence are affected by the specific informational setting adopted. In all treatments we selected students who had previously studied market games and industrial organization, conjecturing that the specific participants’ expertise decreased the chances of imitation in treatment II and III. However, our results prove the opposite: the extra information provided in treatment II and III strongly affects the long run convergence to the market equilibrium. In fact, whilst in the first session, a high proportion of markets converge to the Nash-Bertrand symmetric solution, we observe that a high proportion of markets converge to more collusive outcomes in treatment II and more competitive outcomes in treatment III. By the same token, players’ profits significantly differ in three settings. An interesting point of our analysis relates to the assessment of the individual behavioural rules in the second and third treatments. When information on the behaviour of participants on uncorrelated markets is provided, players begin to adopt mixed behavioural rules, in the sense that they follow myopic best reply rules as long as their profits are in line with the average profits on all markets, and , when their gains fall below that threshold, they start imitating successful strategies adopted on other markets.
    Keywords: price competition, learning, strategic information.
    JEL: C90 C91
    Date: 2010–05
  5. By: Beckert, Walter
    Abstract: This paper formalizes an empirically implementable framework for the definition of local antitrust markets in retail markets. This framework rests on a demand model that captures the trade-off between distance and pecuniary cost across alternative shopping destinations within local markets. The paper develops, and presents estimation results for, an empirical demand model at the store level for groceries in the UK. --
    Keywords: Geographic antitrust market definition,discrete choice
    JEL: L11 L13 L41 L81 C35 C73
    Date: 2010

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