nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒06‒18
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Bundling without Price Discrimination By Carvajal, Andrés; Rostek, Marzena; Weretka, Marek
  2. The strategic effect of bundling: a new perspective By A. Mantovani
  3. Optimal Price Setting with Observation and Menu Costs By Fernando Alvarez; Francesco Lippi; Luigi Paciello
  4. Entry Deterrence and the Calculation of the Net Cost of Universal Service Obligations By Christian Jaag
  5. Strategic Behavious of Firms in a Duopoly and the Impact of Extending the Patenting Period By Jolian McHardy; Tapan Biswas
  6. The Quality Factor in Patent Systems By Bruno Van Pottelsberghe
  7. The Role of Fees in Patent Systems: Theory and Evidence By Gaétan de Rassenfosse; Bruno Van Pottelsberghe
  8. Do Antitrust Agencies Facilitate Meetings in Smoke-Filled Rooms? By Bos Iwan; Peeters Ronald; Pot Erik
  9. Competition Issues in the Seed Industry and the Role of Intellectual Property By Moschini, GianCarlo

  1. By: Carvajal, Andrés (Department of Economics, University of Warwick); Rostek, Marzena (Department of Economics, University of Wisconsin-Madison,); Weretka, Marek (Department of Economics, University of Wisconsin-Madison,)
    Abstract: This paper examines the optimal bundling strategies of a multiproduct monopoly in markets in which a seller cannot monitor and thereby restrict the purchases of buyers to a single bundle, while buyers have resale opportunities. In such markets, the standard mechanism through which bundling increases seller profits, based on price discrimination, is not feasible. The profit-maximizing bundling strategy is characterized, given the restrictions on pricing policies resulting from resale and a lack of monitoring. The welfare implications of optimal bundling are analyzed.
    Keywords: Bundling ; Pricing ; Revenue Maximization ; Product Design JEL Codes: D42 ; L12
    Date: 2010
  2. By: A. Mantovani
    Abstract: This paper investigates the strategic effect of bundling when a multi-product firm producing two complements faces competition in both markets. I consider a demand structure where both Cournot and Bertrand competition can be evaluated. Bundling is completely ineffective when firms compete in quantities. On the contrary, under Bertrand competition, selling the two goods in a package is profitable when the goods produced by the rivals are perceived as close substitutes to those produced by the multi-product firm. Bundling drives prices up, and not only consumer surplus, but also social welfare shrinks, thus calling for the intervention of the antitrust agency.
    JEL: D43 L13 L41
    Date: 2010–05
  3. By: Fernando Alvarez (University of Chicago); Francesco Lippi (University of Sassari, EIEF); Luigi Paciello (EIEF)
    Abstract: We study the price setting problem of a firm in the presence of both observation and menu costs. In this problem the firm optimally decides when to collect costly information on the adequacy of its price, an activity which we refer to as a price “review”. Upon each review, the firm chooses whether to adjust its price, subject to a menu cost, and when to conduct the next price review. This behavior is consistent with recent survey evidence documenting that firms revise prices infrequently and that only a few price revisions yield a price adjustment. The goal of the paper is to study how the firm’s choices map into several observable statistics, depending on the level and relative magnitude of the observation vs the menu cost. The observable statistics are: the frequency of price reviews, the frequency of price adjustments, the size-distribution of price adjustments, and the shape of the hazard rate of price adjustments. We provide an analytical characterization of the firm’s decisions and a mapping from the structural parameters to the observable statistics. We compare these statistics with the ones obtained for the models with only one type of cost. The predictions of the model can, with suitable data, be used to quantify the importance of the menu cost vs. the information cost. We also consider a version of the model where several price adjustment are allowed between observations, a form of price plans or indexation. We find that no indexation is optimal for small inflation rates..
    Date: 2010
  4. By: Christian Jaag
    Abstract: This paper relates to the current discussion about how to measure the net cost and unfair burden of universal service provision in network industries. The established profitability cost approach compares the profit of a universal service provider (USP) with and without a universal service obligation (USO). This paper argues that the net cost of universal service provision critically depends on the regulatory counterfactual and hence the USP’s strategy space without USO. A strong USO invites competition by limiting the USP’s means to position itself in the market and by thereby offering cream-skimming opportunities. On the other hand, a simple game-theoretic entry analysis shows that the USO may effectively serve as a valuable strategic commitment device to deter entry and hence may be valuable to the USP despite causing inefficient production. From a policy perspective, this constitutes a counter-intuitive result for the definition of the USO: The stricter it is regulated, the more detrimental it may be to competition and therefore the smaller is its burden on the USP.
    Keywords: Universal service obligation, Postal sector, Net cost
    JEL: L51
    Date: 2010–06
  5. By: Jolian McHardy (Department of Economics, The University of Sheffield Author-Person=pmc71); Tapan Biswas
    Abstract: This paper deals with strategic behaviour of firms in a duopoly, subsequent to the claim by one firm that it has reduced the unit cost of production. A variety of possible strategic equilibria are discussed in the context of a duopoly game between a multinational and a local firm. In the context of an extended uniform period of patenting, as finally agreed in the Uruguay round (1994), firms have increased incentive to take patents. In the presence of cost differences, the act of taking process-patents has implications for the equilibrium output strategies of the duopoly firms and sometimes may have a negative overall welfare effect for the local producer and consumers.
    Keywords: Asymmetric Information, Duopoly, Process Patenting, Repeated Games
    JEL: O12 D23 D43
    Date: 2010–06
  6. By: Bruno Van Pottelsberghe
    Abstract: This paper puts forward a new methodology that aims at comparing quality across patent systems. Quality is defined as the extent to which patent offices comply with the legal standards that rule patentability conditions (novelty, inventiveness, transparency). The methodology consists in a two-layer analytical framework composed of "legal standards" and their "operational design". Operational designs include several elements that frame the rigour and transparency of the filtering processes. The in-depth analysis of these two layers for the patent offices of the USA (USPTO), Japan (JPO) and Europe (EPO) lead to the following conclusions. The operational designs’ components are interdependent and form a coherent system. This systemic approach underlines that if legal standards are similar across countries, their operational design are heterogeneous. The empirical evidence suggests that the EPO provides higher quality services than the USPTO, the JPO being in an intermediate position. These differences call for a multi-faceted convergence of patent systems before worldwide mutual recognition and worksharing practices are to be put in place.
    Keywords: quality; patent propensity; intellectual property; patent system
    JEL: O30 O31 O34 O38 O57
    Date: 2010
  7. By: Gaétan de Rassenfosse; Bruno Van Pottelsberghe
    Abstract: This paper reviews the economic literature on the role of fees in patent systems. Two main research questions are usually addressed: the impact of patent fees on the behavior of applicants and the question of optimal fees. Studies in the former group confirm that a range of fees affect the behavior of applicants and suggest that a patent is an inelastic good. Studies in the latter group provide grounds for both low and high application (or pre-grant) fees and renewal (or post-grant) fees, depending on the structural context and on the policy objectives. The paper also presents new stylized facts on patent fees of thirty patent offices worldwide. It is shown that application fees are generally lower than renewal fees, and renewal fees increase more than proportionally with patent age (to the notable exception of Switzerland and the U.S.).
    Keywords: application fees; price elasticity; patent system; Intellectual property policy; renewal fees
    JEL: O30 O31 O38 O57
    Date: 2010
  8. By: Bos Iwan; Peeters Ronald; Pot Erik (METEOR)
    Abstract: The theory of industrial collusion generally does not distinguish between tacit and explicit collusion. We show that if tacit collusion is not sustainable, firms may still be willing and able to collude explicitly when demand is viscous, the expected antitrust penalty is limited and antitrust agencies are sufficiently effective in detecting and prosecuting cartels.
    Keywords: microeconomics ;
    Date: 2010
  9. By: Moschini, GianCarlo
    Abstract: Research and Development (R&D) and innovation are crucial features of the seed industry. To support large R&D investments by the private sector, strong intellectual property rights, such as patents, are necessary. The exclusivity granted by patents naturally creates market power positions and raises difficult and unresolved competition issues in an antitrust context. 
    JEL: L1 L4 O3 Q1
    Date: 2010–06–08

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