nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒09‒18
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Theory of Firm Decline By Gian Luca Clementi; Thomas F. Cooley; Sonia B. Di Giannatale
  2. Product and Quality Innovations: An Optimal Control Approach By Anton Bondarev
  3. Monopolization Through Acquisitions in Multimarket Oligopolies By Ray Chaudhuri, A.
  4. Exclusive Dealing and the Market Power of Buyers By Ryoko Oki; Noriyuki Yanagawa
  5. A Dynamic Duopoly Investment Game under Uncertain Market Growth By Boyer, Marcel; Lasserre, Pierre; Moreaux, Michel
  6. Excise Tax Policy and Cross-border Purchases of Automotive Fuels By Joze Mencinger
  7. A new version of Edgeworth's taxation paradox By Robert A. Ritz
  8. The Effects of Transport Regulation on the Oil Market: Does Market Power Matter? By Kverndokk, Snorre; Einar Rosendahl, Knut
  9. Last Exit: Privatization and Deregulation of the U.S. Transportation System By Winston, Clifford
  10. Estimate of Search Cost Frictions in the British Electricity Market By Monica Giulietti; Michael Waterson; Matthijs R. Wildenbeest

  1. By: Gian Luca Clementi; Thomas F. Cooley; Sonia B. Di Giannatale
    Date: 2010–09–03
  2. By: Anton Bondarev (Institute of Mathematical Economics, Bielefeld University)
    Abstract: In the suggested paper an attempt to combine two different aspects of innovative activity which are known as product and process innovations is made. The main objective of the paper is to demonstrate the importance of interdependence between these two types of innovative activity through means of a simple one agent model. Research questions which are studied in the paper are as following: 1. Whether it is possible to analyze simultaneously two di.erent aspects of innovations on a continious and dynamical basis. To our knowledge there are no models which would suggest the dynamical analysis of such type. 2. What is the interaction between product and quality innovations and how it may in uence both processes. 3. What is the effect of the degree of diversity of products on the innovative activity. The suggested model contains no uncertainty and only one agent (monopolist) which may invest in expan- sion of variety of products available on the market and into the development of quality of every product which already exists. To develop such a model in continuous time I make use of Infinite-dimensional Optimal Control methods. Main finding of the paper is that interaction between different types of innovative activity significantly changes the dynamics of product emergence to the market as well as the quality of products on the market as incentives of investor are changed. Another important finding is that heterogeneity of products and its nature are fundamental for the outcome of the model. The complementarity of product and process innovations changes our view on technology management and competition in this field.
    Date: 2010–08
  3. By: Ray Chaudhuri, A. (Tilburg University, Center for Economic Research)
    Abstract: This paper shows that, under Cournot competition, monopolization through acquisitions is more likely to occur in industries where firms serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. Under segmented markets, within a two-country model, the paper shows that if a multinational firm acquires a local …rm in one of the markets, the product price in that market rises but the product price in the other falls. This decreases the profit that each local firm would obtain if it unilaterally remained outside a merger to monopoly, making it cheaper to acquire. This reverses the well established result in the existing merger literature, which focuses on the case where an industry serves a single integrated market. Moreover, the paper shows that the sum of consumer surplus across the countries may rise in response to an acquisition despite the absence of any synergies, which existing literature shows is not possible in a single integrated market.
    Keywords: monopolization;horizontal mergers;competition policy;Cournot competition;economic integration
    JEL: L12 L40 L41 F15 F23
    Date: 2010
  4. By: Ryoko Oki (Graduate School of Economics, University of Tokyo); Noriyuki Yanagawa (Faculty of Economics, University of Tokyo)
    Abstract: This paper examines the effects of exclusive dealing contracts offered by an incumbent distributor. The effectiveness of exclusive dealing contracts offered by distributors is quite differrent from those offered by incumbent manufacturers. The traditional literature has focused solely on exclusive dealing contracts made by incumbent manufacturers and has derived multiple equilibria within homogeneous price competition models. In contrast, this paper asserts that exclusive dealing contracts made by a distributor generate a unique equilibrium and that an efficient entrant must be excluded under the equilibrium as long as distributors have sufficient bargaining power.
    Date: 2010–07
  5. By: Boyer, Marcel; Lasserre, Pierre; Moreaux, Michel
    Date: 2010–07
  6. By: Joze Mencinger
    Abstract: In a small open country such as Slovenia, drivers can either purchase automotive fuel within the country or abroad. A simple demand model is used to test the proposition that changes in excise tax policy caused the decline of purchases in the country, and to delineate the effects of excise tax policy from the effects of the simultaneously occurring economic crisis. To do that, short- and long-run, and direct- and cross-price elasticities are estimated for the purchase of gasoline and automotive diesel in five regions: Slovenia's four border regions and the interior. For the estimation of "volume of transportation" elasticity, vehicle crossings through road sites with automatic traffic meters are used. The simulations indicate that more than half of the decline in the purchase of automotive fuels in 2009 can be attributed to excise tax policy and less than half to the economic crisis, and that the increase in tax revenues generated by excise tax policy significantly exceeded the decrease in the sellers' earnings.
    Keywords: retail trade, taxation, time series model
    JEL: L81 H2 C22
    Date: 2010–09
  7. By: Robert A. Ritz
    Abstract: Edgworth’s taxation paradox states that an excise tax can decrease the market price of a good. This paper presents a new version of the paradox in which a tax reduces price because it attracts entry of additional firms into the market. The paper also presents two new applications: (i) an emissions tax that leads to an increase in industry emissions (due to entry), and (ii) an interest rate cut by the central bank that reduces lending by commercial banks (due to exit). Basic principles of environmental regulation and monetary policy therefore fail under the conditions of the paradox.
    Keywords: Bank lending, Cost pass-through, Edgeworth's paradox, Environmental regulation, Market structure, Taxation
    JEL: D43 G21 H22 Q50
    Date: 2010
  8. By: Kverndokk, Snorre; Einar Rosendahl, Knut
    Abstract: Popular instruments to regulate consumption of oil in the transport sector include fuel taxes, biofuel requirements, and fuel efficiency. Their impacts on oil consumption and price vary. One important factor is the market setting. We show that if market power is present in the oil market, the directions of change in consumption and price may contrast those in a competitive market. As a result, the market setting impacts not only the effectiveness of the policy instruments to reduce oil consumption, but also terms of trade and carbon leakage. In particular, we show that under monopoly, reduced oil consumption due to increased fuel efficiency will unambiguously increase the price of oil.
    Keywords: transport regulations, oil market, monopoly, terms-of-trade effects, carbon leakage
    JEL: D42 Q54 R48
    Date: 2010–09–03
  9. By: Winston, Clifford
    Abstract: In Last Exit Clifford Winston reminds us that transportation services and infrastructure in the United States were originally introduced by private firms. The case for subsequent public ownership and management of the system was weak, in his view, and here he assesses the case for privatization and deregulation to greatly improve Americans’ satisfaction with their transportation systems. Chapters 1 and 5 are included here as a preview.
    Date: 2010–09
  10. By: Monica Giulietti (Nottingham University Business School); Michael Waterson (University of Warwick); Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: This paper studies consumer search and pricing behaviour in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an incumbent and an entrant group compete for consumers who find it costly to obtain information on prices other than from their current supplier. We use a large data set on prices and input costs to structurally estimate the model. Our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns. We confront our estimates with observed switching behaviour and find they match well.
    Keywords: electricity, consumer search, price competition
    JEL: C14 L13 D83
    Date: 2010–08

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