nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒07‒03
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Asymmetric information and exchange of information about product differentiation By António Brandão; Joana Pinho
  2. Price Discrimination and Social Network : Evidence from North American Auto Dealership Transaction Data By Tsuru, Tsuyoshi; Owan, Hideo; Uehara, Katsuhito
  3. Analysis of Internet Patenting Strategies of E-commerce Firms By Biju Paul Abraham
  4. Broadband Openness Rules Are Fully Justified by Economic Research By Nicholas Economides
  5. Why Imposing New Tolls on Third-Party Content and Applications Threatens Innovation and Will Not Improve Broadband Providers’ Investment By Nicholas Economides

  1. By: António Brandão (CEF.UP, Faculdade de Economia, Universidade do Porto, Portugal); Joana Pinho (Faculdade de Economia, Universidade do Porto, Portugal)
    Abstract: We introduce asymmetric information about consumers' transportation costs (i.e., the degree of product differentiation) in the model of Hotelling (1929). When the transportation costs are high, both firms have lower profits than in the case of perfect information. Contrarily, both firms may prefer the asymmetric information case if the transportation costs are low (the informed firm always prefers the informational advantage, while the uninformed firm may or may not prefer to remain uninformed). Information sharing is ex-ante advantageous for the firms, but ex-post damaging in the case of low transportation costs. If the information is not verifiable, the informed firm always tends to announce that the transportation cost is high. To induce truthful revelation: (i) the uninformed firm must pay for the informed firm to confess that the transportation costs are low; and (ii) the informed firm must make a payment (to the uninformed firm or to a third party) for the uninformed firm to believe that the transportation costs are high.
    Keywords: Hotelling model; Horizontal differentiation; Asymmetric information; Transportation costs; Information sharing
    JEL: D43 D82 L13
    Date: 2010–06
    URL: http://d.repec.org/n?u=RePEc:por:fepwps:379&r=ind
  2. By: Tsuru, Tsuyoshi; Owan, Hideo; Uehara, Katsuhito
    Abstract: Using personnel and transaction data obtained from two auto dealerships located in a large city in Canada, we examine whether same or different ethnic matches between salespersons and customers affect the prices and quantities of transactions. First, compared with White-White matches, we find little evidence of price discrimination for different ethnicity matches (such as White vs. Middle East), and we detect neither premium price setting nor discounting among same ethnicity matches (such as Asian vs. Asian) relative to different ethnicity matches. Regarding quantity, however, sales ratios to ethnically-same customers are substantially higher than is the case for ethnically dissimilar customers. For example, East Asian salespersons concluded more than 30% of their sales with East Asian customers. Moreover, we find that high-performing salespersons skillfully utilize social networks to conclude transactions with customers of the same ethnicity, especially when business conditions are unfavorable. This finding suggests that social networks are important to understanding the nature of auto retail markets.
    JEL: M12 M5 J15 J33
    Date: 2010–03
    URL: http://d.repec.org/n?u=RePEc:hit:hituec:a529&r=ind
  3. By: Biju Paul Abraham
    Abstract: Patents and patent applications are important indicators of innovative activity in industrial R & D, especially in areas such as Information Technology (IT), where technology growth is rapid. Within the IT sector this is especially true of patents for Internet-related technologies where patenting is often the only way by which entry-barriers can be erected against competitors. This paper presents the analysis of Internet-related patent applications that have been filed under the Paris Cooperation Treaty (PCT) of the World Intellectual Property Organization (WIPO) by fourteen major international firms.[Working Paper No. 532]
    Keywords: Patents, Information Technology, Internet-related technologies, Paris Cooperation Treaty (PCT), World Intellectual Property Organization (WIPO), international firms
    Date: 2010
    URL: http://d.repec.org/n?u=RePEc:ess:wpaper:id:2600&r=ind
  4. By: Nicholas Economides (Stern School of Business, NYU)
    Abstract: This paper responds to arguments made in filings in the FCC’s broadband openness proceeding (GN Dkt. 09-191) and incorporates data made available since my January 14th filing in that proceeding. Newly available data confirm that there is limited competition in the broadband access marketplace. Contrary to some others’ arguments, wireless broadband access services are unlikely to act as effective economic substitutes for wireline broadband access services (whether offered by telephone companies or cable operators) and instead are likely to act as a complement. Nor will competition in the Internet backbone marketplace constrain broadband providers’ behavior in providing “last mile” broadband access services. The last mile, concentrated market structure, combined with high switching costs, provides last mile broadband network providers with the ability to engage in practices that will reduce social welfare in the absence of open broadband rules. Furthermore, the effect of open broadband rules on broadband provider revenues is likely to be small and can be either positive or negative. Unfortunately, various filings have misstated or mischaracterized the results on the economics of two-sided markets. Contrary to what some have argued, allowing broadband providers to charge third party content providers will not necessarily result in lower prices being charged to residential Internet subscribers. This is true under a robust set of assumptions. Despite some parties’ mischaracterization of the economic literature, price discrimination by broadband providers against third party applications and content providers will reduce societal welfare for numerous reasons. This reduction in societal welfare is especially acute when price discrimination is taken to the extreme of exclusive dealing between broadband providers and content providers. Antitrust and consumer protection laws are insufficient to protect societal welfare in the absence of open broadband rules.
    Keywords: Network Neutrality, Internet, Discrimination, Prioritization, Two-Sided Market, Market Power, Termination Fee, Broadband
    JEL: L1 D4 L12 L13 C63 D42 D43
    Date: 2010–04
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1002&r=ind
  5. By: Nicholas Economides (Stern School of Business, NYU)
    Abstract: While some broadband providers have called Internet content and application providers free riders on their infrastructure, this is incorrect and misguided. End-users pay for their residential broadband providers for access to the Internet, and content providers pay their own ISPs for connectivity as well. However, content providers need not pay residential broadband providers’ ISPs in order to reach their customers. This feature of the Internet has been one key factor that has allowed innovation to prosper and kept barriers to entry low, as the network transport market for content and application providers functions relatively efficiently. In this paper, I consider the impact of a departure from this current system. I examine the possible impact of last-mile broadband providers’ imposing “termination fees” on third-party content providers or application providers to reach end-users. Broadband providers would engage in paid prioritization arrangements – that is, application and content providers could pay the broadband provider to have their traffic prioritized over competitors’ services. I argue that these arrangements would create inefficiency in the market and harm innovation. Because the last mile access broadband market is concentrated and consumers face switching costs, these concerns are particularly significant. Broadband providers insist that imposing these new charges will greatly improve network investment, and thus these charges are beneficial. I argue that this is not the case. Possible higher revenues from discrimination may simply be returned to shareholders and not invested. Additionally, evidence suggests networks invest more under non-discrimination requirements, and paid prioritization schemes would divert money towards managing scarcity instead of expanding capacity. Paid prioritization could even create an incentive for broadband providers to create congestion to increase the price of prioritized service.
    Keywords: Network Neutrality, Internet, Market Power, Discrimination, Two-Sided Market, Prioritization, Broadband, Termination Fees
    JEL: L1 D4 L12 L13 C63 D42 D43
    Date: 2010–01
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1001&r=ind

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