nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒06‒26
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Bertrand and Cournot in the unidirectional Hotelling model By stefano Colombo
  2. Initial Allocation Effects in Permit Markets with Bertrand Output Oligopoly By Evan Calford; Christoph Heinzel; Regina Betz
  3. Equilibrium mergers in a composite industry By Cristina Pardo-Garcia
  4. Product Line Pricing in a Vertically Differentiated Oligopoly By George Deltas; Thanasis Stengos; Eleftherios Zacharias
  5. Product Innovation and Adoption in Market Equilibrium: The Case of Digital Cameras By Juan Esteban Carranza

  1. By: stefano Colombo (DISCE, Università Cattolica)
    Abstract: The unidirectional Hotelling model where consumers can buy only from firms located on their right (left) is extended to allow for elastic demand functions. A Bertrand-type model and a Cournot-type model are considered. If firms choose location and then set prices, agglomeration never arises; instead, if firms choose location and then set quantities, agglomeration arises at one endpoint of the segment when transportation costs are low enough. Equilibrium distance between firms is lower in Cournot than Bertrand under the whole parameters’ set. We also study the impact of firms’ location on perfect collusion sustainability. We show that when consumers can buy only from firms located on their right (left), the incentive to deviate of each firm decreases the more the firm is located to the right (left) and the more the rival is located to the left (right).
    Keywords: Unidirectional Hotelling model; Location equilibrium; Collusion; Bertrand; Cournot.
    JEL: D43 L11 L41
    Date: 2010–05
    URL: http://d.repec.org/n?u=RePEc:ctc:serie3:ief0095&r=ind
  2. By: Evan Calford (Centre for Energy and Environmental Markets, School of Economics, University of New South Wales, Australia); Christoph Heinzel (Centre for Energy and Environmental Markets (CEEM) School of Economics, Australian School of Business, University of New South Wales, Australia); Regina Betz (Centre for Energy and Environmental Markets, School of Economics, University of New South Wales, Australia)
    Abstract: We analyse the efficiency effects of the initial permit allocation given to firms with market power in both permit and output market. We examine two models: a long-run model with endogenous technology and capacity choice, and a short-run model with fixed technology and capacity. In the long run, quantity pre-commitment with Bertrand competition can yield Cournot outcomes also under emissions trading. In the short run, Bertrand output competition reproduces the effects derived under Cournot competition, but displays higher pass-through profits. In a second-best setting of overallocation, a tighter emissions target tends to improve permit-market efficiency in the short run.
    Keywords: Emissions trading, Initial permit allocation, Bertrand competition, EU ETS, Endogenous technology choice, Kreps and Scheinkman
    JEL: L13 Q28 D43
    Date: 2010–03
    URL: http://d.repec.org/n?u=RePEc:een:eenhrr:1059&r=ind
  3. By: Cristina Pardo-Garcia (ERI-CES)
    Abstract: This industry is formed by single-component producers whose components are combined to create composite goods. When a given firm has the possibility of merging with either a complement or a substitute good producer, its equilibrium choice depends on the degree of product differentiation in the composite good market. A merger between complements, which allows for mixed bundling, only happens when composite goods are very differentiated. Private incentives do not always go along with social interests and the equilibrium merger can differ from the socially optimal merger. After a merger, outsiders have also the opportunity to react and merge to other outsiders or to join the previous merge.
    Keywords: merger, composite goods, substitutes, complements, pricing strategies, countermerger
    JEL: L13 L41
    Date: 2010–06
    URL: http://d.repec.org/n?u=RePEc:dbe:wpaper:0410&r=ind
  4. By: George Deltas (Department of Economics, University of Illinois, U.-C., United States); Thanasis Stengos (Department of Economics, University of Guelph, Canada); Eleftherios Zacharias (Department of Economics, Athens School of Economics, Greece)
    Abstract: This paper empirically examines the joint pricing decision of products in a firm's product line. When products are distinguished by a vertical characteristic, those products with higher values of that characteristic will command higher prices. We investigate whether, holding the value of the characteristic constant, there is a price premium for products on the industry and/or the firm frontier, i.e., for the products with the highest value of the characteristic in the market or in a firm's product line. The existence of price premia for lower ranked products is also investigated. Finally, the paper investigates whether firms set prices to avoid cannibalizing the other products in their portfolio, whether competition with rival firms is stronger for products that are closer to the frontier compared to other products, and whether a product's price declines with the time it is ownered by a firm. Using personal computer price data, we show that prices decline with the distance from the industry and firm frontiers. We find evidence that consumer tastes for brands is stronger for the consumers of frontier products (and thus competition between firms weaker in the top end of the market). Finally, there is evidence that a product's price is higher if a firm offers products with the immediately faster and immediately slower computer chip (holding the total number of a firm's offerings constant), possibly as an attempt way to reduce cannibalization.
    Keywords: Pricing, Multiproduct firms, Personal Computers, Product Entry and Exit
    JEL: L11 D43 L63
    Date: 2010–01
    URL: http://d.repec.org/n?u=RePEc:rim:rimwps:14_10&r=ind
  5. By: Juan Esteban Carranza
    Abstract: This paper contains an empirical dynamic model of supply and demand in the market for digital cameras with endogenous product innovation. On the demand side, heterogeneous consumers time optimally the purchase of goods depending on the expected evolution of prices and characteristics of available cameras. On the supply side, firms introduce new camera models accounting for the dynamic value of new products and the optimal behavior of consumers. The model is estimated using data from the market for digital cameras and the estimated model replicates rich dynamic features of the data. The estimated model is used to perform counterfactual computations, which suggest that more competition or lower product introduction costs generate more product variety but lower average product quality.
    Date: 2010–06–16
    URL: http://d.repec.org/n?u=RePEc:col:000130:007127&r=ind

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