nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒09‒11
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On the Bertrand core and equilibrium of a market By Robert Routledge
  2. A simple economic teaching experiment on the hold-up problem By Balkenborg, Dieter; Kaplan, Todd R; Miller, Tim
  3. The Rising Tide of Patent Damages By Gilbert, Richard J
  4. The Importance of Broadband Provision to Knowledge Intensive Firm Location By Elizabeth A. Mack; Luc Anselin; Tony H. Grubesic
  5. Banking competition, monitoring incentives and financial stability By VO Thi Quynh Anh
  6. Global Cement Industry: Competitive and Institutional Dimensions By Selim, Tarek; Salem, Ahmed
  7. Capacity Investment under Demand Uncertainty. An Empirical Study of the US Cement Industry, 1994‐2006 By Jean-Pierre Ponssard; Catherine Thomas

  1. By: Robert Routledge
    Date: 2010
  2. By: Balkenborg, Dieter; Kaplan, Todd R; Miller, Tim
    Abstract: The hold-up problem is central to the theory of incomplete contracts. It shows how the difficulty to write complete contracts and the resulting need to renegotiate can lead to underinvestment. We describe the design of a simple teaching experiment that illustrates the hold-up problem. The model used is a simple perfect information game. The experiment can hence also be used to illustrate the concept of subgame perfect equilibrium and the problem of making non-binding commitments.
    Keywords: classroom experiment; holdup problem
    JEL: L14 K12 C90
    Date: 2010–09–03
  3. By: Gilbert, Richard J
    Abstract: Very large awards and settlements for patent infringement have increased dramatically since the 1980s. A large fraction of these awards have occurred in the computer hardware and software industries. Complex technologies such as computer hardware and software require rights to a very large number of patents. One explanation for the large awards for patent infringement is the bargaining power of a patentee that has a credible injunction threat for a product that requires rights to multiple patents. This can lead to infringement damage awards and settlements that overestimate the patent’s contribution to product value.
    Keywords: patents, infringement, damages, innovation
    Date: 2010–02–01
  4. By: Elizabeth A. Mack (GeoDa Center for Geospatial Analysis and Computation; Arizona State University); Luc Anselin (GeoDa Center for Geospatial Analysis and Computation; Arizona State University); Tony H. Grubesic
    Abstract: Despite the volume of literature afforded knowledge work and innovations in information and communications technologies (ICTs), few studies have examined the importance of ICTs to firms in knowledge industries. This study will develop spatial econometric models to examine the relative importance of the level of broadband provision to knowledge intensive firms in select U.S.  metropolitan statistical areas (MSAs). Results demonstrate the need for both a spatial econometric and a metropolitan area specific evaluation of this relationship. They also suggest potential spillover effects to knowledge intensive firm location, which may explain why some regional economies are relatively more successful at stimulating firm growth in this increasingly important sector of the U.S economy.
    Date: 2010
  5. By: VO Thi Quynh Anh (Norges Bank (Central Bank of Norway))
    Abstract: This paper addresses the desirability of competition in banking industry. In a model where banks compete on both deposit and loan markets and where banks can use monitoring technology to control entrepreneurs' behavior, we investigate three questions: what are the effects of competition on banks' monitoring incentives? Does competition hurt banks' stability? What can be devices to correct potential negative effcts of competition vis à vis financial stability? We find that impacts of competition on banks' monitoring incentives can be decomposed into two effects: one on the attractiveness of monitoring and the other on the monitoring efficiency. The first effect operates through the link between competition and loan margin. The second effect comes from the fact that marginal effct of monitoring on entrepreneur's effort depends on loan rate. We characterize the sufficient condition under which competition will increase monitoring incentives as well as banks' stability. For the third question, we focus on the role of capital requirement and claim that with capital requirement, we can attain a weak correction but not strong correction.
    JEL: G21 G28 D43 D82
    Date: 2010–08–31
  6. By: Selim, Tarek; Salem, Ahmed
    Abstract: The cement industry is a capital intensive, energy consuming, and vital industry for sustaining infrastructure of nations. The international cement market –while constituting a small share of world industry output—has been growing at an increasing rate relative to local production in recent years. Attempts to protect the environment in developed countries –especially Europe—have caused cement production plants to shift to countries with less stringent environmental regulations. Along with continually rising real prices, this has created a concerning pattern on economic efficiency and environmental compliance. This paper attempts to critically analyze the forces affecting pricing and production of cement from two perspectives. Porter’s five forces serve as our tool to analyze the competitive forces that move the industry from a market economy standpoint. On the other hand, the institutional economics framework serves to explain how governments and policymakers influence the structure and production distribution in the global market. Our findings suggest that the cement industry does not follow expected patterns of a market economy model. Additionally, it does not fully behave along the institutional economics paradigm. Hence, neither perspective explains the pricing or nature of the market on its own. Combining market forces within an institutional setting provides a more clear understanding of price dynamics and industry performance. We find that local regulation alone is insufficient to ensure market efficiency due to weak institutional governance in developing countries aligned with private business interests of global cement firms. Moreover, the global impact of local environmental non-compliance generates economic spillover effects that cannot be corrected by market forces alone. Due to asymmetries in governance and structure, this paper recommends the establishment of an independent international regulatory body for the cement industry that serves to provide sustainable industry development guidelines within a global context.
    Keywords: Keywords: cement – global industry– institutional economics – Porter competition – market niche
    JEL: F18 L61 D43
    Date: 2010–06
  7. By: Jean-Pierre Ponssard (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Catherine Thomas (Columbia Business School - Finance and Economics Division)
    Abstract: Uncertainty about the level of demand is thought to influence irreversible capacity decisions. This paper examines some implications of the theory literature on this topic in an empirical study of the US cement industry between 1994 and 2006. Firms in this sector have the ability to deliver cement either from domestic plants or from imports. Since cement is costly to transport via land, the difference in marginal cost between local production and imports varies across local markets. The marginal cost of imports is lower in areas with access to a sea port, decreasing the relative value of investing in local capacity sufficient to supply positive local demand shocks. In the presence of uncertain demand, firms may choose to serve these markets via both domestic production and imports. Consistent with the theory, we find a negative relationship between the average level of excess capacity and demand volatility only for coastal areas. An increase in demand volatility is associated with an increase in excess capacity only in landlocked areas. More generally, the paper shows that the cost of imports relative to the cost of domestic production affects the relationship between uncertainty and domestic capacity decisions. The results suggest that a unilateral climate policy in the US may induce a partial international relocation of capacity in carbon intensive industries, such as cement, by increasing the relative cost of domestic production.
    Keywords: Capacity Investment, Demand Uncertainty, Imports, Cement
    Date: 2010–08–30

This nep-ind issue is ©2010 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.