New Economics Papers
on Industrial Organization
Issue of 2010‒10‒23
eight papers chosen by

  1. Monopoly price discrimination and demand curvature.. By Aguirre, Iñaki; Cowan, Simon; Vickers, John
  2. Competition and cost pass-through in differentiated oligopolies By Zimmerman, Paul R.; Carlson, Julie A.
  3. Revealed Preference Tests of the Cournot Model By Andres Carvajal; Rahul Deb; James Fenske; John K.-H. Quah
  4. Can they beat the Cournot equilibrium? Learning with memory and convergence to equilibria in a Cournot oligopoly By Thomas Vallée; Murat Yildizoglu
  5. The effect of experience in Cournot play By José Luis Ferreira; Praveen Kujal; Stephen Rassenti
  6. Horizontal mergers with synergies: first-price vs. profit-share auction By Wei Ding; Cuihong Fan; Elmar G. Wolfstetter
  7. Does marketing and sales integration always pay off? evidence from a social capital perspective By Rouziès, Dominique; Hulland, John; Barclay, Donald W
  8. Tools to keep brands on the market By Doval, E; Doval, O

  1. By: Aguirre, Iñaki; Cowan, Simon; Vickers, John
    Abstract: This paper presents a general analysis of the effects of monopolistic third-degree price discrimination on welfare and output when all markets are served. Sufficient conditions — involving straightforward comparisons of the curvatures of the direct and inverse demand functions in the different markets — are presented for discrimination to have negative or positive effects on social welfare and output.
    JEL: L13 D42 L12
    Date: 2010–09
  2. By: Zimmerman, Paul R.; Carlson, Julie A.
    Abstract: The impact that competition exerts on the incentives of firms to pass through reductions in their marginal costs is an important consideration in assessing the performance of alternate market structures. This paper examines the role of product differentiation on firm-specific and industry-wide pass-through rates. Relying on Shubik’s (1980) model of differentiated Cournot competition with linear demand, we show that there exists an initial critical range over which the firm-specific cost pass-through rate decreases in the number of firms. Beyond this range the rate continually increases – approaching 50 percent as the number of firms goes to infinity. This contrasts with a model of differentiated Bertrand competition in which cost pass through monotonically decreases in the number of firms. The disparate effects across the Cournot and Bertrand models are shown to stem from the influence of competition and product differentiation on the respective firm reaction functions. Suggestions for future empirical work based upon the models’ predictions and implications for antitrust policy are also discussed.
    Keywords: Competitive effects; Oligopoly; Merger; Pass-through; Product differentiation
    JEL: L13 L40
    Date: 2010–10–15
  3. By: Andres Carvajal; Rahul Deb; James Fenske; John K.-H. Quah
    Abstract: We consider an observer who makes a finite number of observations of an industry producing a homogeneous good, where each observation consists of the market price and firm specific production quantities. We develop a revealed preference test (in the form of a linear program) for the hypothesis that the firms are playing a Cournot game, assuming that they have convex cost functions that do not change and the observations are generated by the demand function varying across observations. Extending this basic result, we develop tests for the case where (in addition to changes to demand) firms’ cost functions may vary across observations. We also develop tests of Cournot interaction in cases where there are multiple products and where cost functions may be non-convex. Applying these results to the crude oil market, we show that Cournot behavior is strongly rejected.
    Keywords: Nonparametric test, Observable restrictions, Linear programming, Multi-product Cournot oligopoly, Collusion, Crude oil market
    JEL: C14 C61 C72 D21 D43
    Date: 2010
  4. By: Thomas Vallée (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272); Murat Yildizoglu (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)
    Abstract: This article analyses the possibility of firms learning collusive solutions in a Cournot quantity game. Starting from the results of Vallée and Yildizoglu (2009) and of Alos-Ferrer (2004), we study the role of random experimenting, social learning (imitation), and (updated) memory in helping firms to discover more collusive market configurations than those of the Cournot equilibrium (CE). We show that long memory and its update is necessary to achieve such configurations.
    Keywords: Cournot oligopoly; Learning; Evolution; Selection; Evolutionary stability; Nash Equilibrium; Collusion
    Date: 2010–10–15
  5. By: José Luis Ferreira; Praveen Kujal; Stephen Rassenti
    Abstract: Strategic play requires that players in oligopolies be more sophisticated than in perfectly competitive markets. It thus seems reasonable to assume that player experience becomes important as the environment gets more complicated. We find that subject experience indeed plays an important role. While inexperienced symmetric duopolies play around the Nash-Cournot quantity, experienced duopolies reduce output and get closer to the monopolistic outcome. Both inexperienced and experienced symmetric quadropolies,however, produce output above the Nash-Coumot equilibrium but, even in this case, output is lower for experienced quadropolies. Experience, however, does not make markets less competitive with the introduction of cost asymmetry. Under cost asymmetry, and relative to the equilibrium prediction, high cost firms produce more output than low cost firms. Analysis of individual data tells us that experienced duopolies and quadropolies adjust output in the same direction as their rivals. Due to the strategic substitutability of quantity choice, we interpret this as an attempt at tacitly colluding. This is true for both duopolies and quadropolies.
    Date: 2010–05
  6. By: Wei Ding (University of Bonn); Cuihong Fan (Shanghai University of Finance and Economics); Elmar G. Wolfstetter (Humboldt University of Berlin)
    Abstract: We consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target. Two auction rules are considered: standard first-price and profit-share auctions, supplemented by entry fees. Since non-merged firms benefit from a merger if the synergies are low, bidders are subject to a positive externality. Nevertheless, pooling does not occur; and the profit-share auction is strictly more profitable than the first-price auction, regardless of whether firms observe the synergy parameter or only the winning bid before they play the oligopoly game.
    Keywords: Horizontal mergers, takeovers, auctions, externalities, oligopoly
    JEL: G34 D44 H23 L13 D43
    Date: 2010–10
  7. By: Rouziès, Dominique; Hulland, John; Barclay, Donald W
    Abstract: Building on social capital theory, the authors view the marketing and sales interface as a set of inter-group ties and investigate how firms (1) generate value from inter-group relationships and (2) develop the social capital embedded in these relationships. Their findings suggest that social capital enhances, but can also limit, a firm’s performance depending on the characteristics of its customers. Their results also demonstrate that managing the marketing and sales interface at different levels of customer concentration is critical to the success of a firm’s performance.
    Keywords: Marketing organization; sales organization; interface; social capital theory.
    JEL: L14 L25 M31
    Date: 2010–10–15
  8. By: Doval, E; Doval, O
    Abstract: Brand purpose is to increase shareholders’ wealth and making profit. Considering the organizations economic environment changes and the fall of the most markets, the paper is focused on the general forces impeding the brand development and on finding some tools to strengthen the brands.
    Keywords: marketing strategy; brand’s vision; brand management
    JEL: M31 M19
    Date: 2010–02–15

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