nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒10‒30
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Managerial Incentives and Stackelberg Equilibria in Oligopoly By Marcella Scrimitore
  2. On Price Taking Behavior in a Nonrenewable Resource Cartel-Fringe Game By BENCHEKROUN, Hassan; WITHAGEN, Cees
  3. Sorting and decentralized price competition. By Eeckhout, Jan; Kircher, Philipp
  4. Pricing, Advertising, and Market Structure with Frictions By Gomis-Porqueras, Pedro; Julien, Benoit; Wang, Chengsi
  5. Optimal Leniency Programs in Antitrust By Andrea Pinna
  6. Time Series Analysis of Global Airline Passengers Transportation Industry By Radoslaw R. Okulski; Almas Heshmati

  1. By: Marcella Scrimitore
    Abstract: The paper investigates both quantity and price oligopoly games in markets with a variable number of managerial and entrepreneurial firms which defines market structure. Following Vickers (Economic Journal, 1985) which establishes an equivalence between the equilibrium under unilateral delegation and the Stackelberg quantity equilibrium, the outcomes of these games are compared with the ones in sequential multi-leaders and multi-followers games. The profitability of a managerial/entrepreneurial attitude vs leadership/followership is shown to critically depend upon the kind of strategy, price or quantity, and upon the assumed market structure. Indeed, the latter turns out to be crucial in determining the equivalence result that is shown to be contingent on the assumption that just one leader or one managerial firm operate in the market. A welfare analysis finally highlights the differences between the delegation and the sequential games, focusing on the impact of market structure and imperfect substitutability on the equilibria of the two games.
    Keywords: Strategic delegation, sequential games, quantity and price competition, welfare analysis.
    JEL: C72 L13 L22
    Date: 2010–10–19
  2. By: BENCHEKROUN, Hassan; WITHAGEN, Cees
    Abstract: We consider a nonrenewable resource game with one cartel and a set of fringe members. We show that (i) the outcomes of the closed-loop and the open-loop nonrenewable resource game with the fringe members as price takers (the cartel-fringe game à la Salant 1976) coincide and (ii) when the number of fringe firms becomes arbitrarily large, the equilibrium outcome of the closed-loop Nash game does not coincide with the equilibrium outcome of the closed-loop cartel-fringe game. Thus, the outcome of the cartel-fringe open-loop equilibrium can be supported as an outcome of a subgame perfect equilibrium. However the interpretation of the cartel-fringe model, where from the outset the fringe is assumed to be price-taker, as a limit case of an asymmetric oligopoly with the agents playing Nash-Cournot, does not extend to the case where firms can use closed-loop strategies.
    Keywords: cartel-fringe, dominant firm versus fringe, price taking, nonrenewable resources, dynamic games, open-loop versus closed-loop strategies
    JEL: D43 Q30 L13
    Date: 2010
  3. By: Eeckhout, Jan; Kircher, Philipp
    Abstract: Econometrica publishes original articles in all branches of economics - theoretical and empirical, abstract and applied, providing wide-ranging coverage across the subject area. It promotes studies that aim at the unification of the theoretical-quantitative and the empirical-quantitative approach to economic problems and that are penetrated by constructive and rigorous thinking. It explores a unique range of topics each year - from the frontier of theoretical developments in many new and important areas, to research on current and applied economic problems, to methodologically innovative, theoretical and applied studies in econometrics.
    Date: 2010–04–08
  4. By: Gomis-Porqueras, Pedro; Julien, Benoit; Wang, Chengsi
    Abstract: This paper develops a model of pricing and advertising in a matching environment with capacity constrained sellers and uncoordinated buyers. Sellers' search intensity attracts buyers only probabilistically through costly informative advertisement. Equilibrium prices and profit maximizing advertising levels are derived and their properties analyzed. The model generates an inverted U-shape relationship between individual advertisement and market tightness which is robust to alternative advertising technologies. The well known empirical fact in the IO literature reflects the trade-off between price and market tightness-matching effects. Finally, in this environment we can alleviate the discontinuity problem, allowing for unique symmetric equilibrium price to be derived.
    Keywords: Directed searching; Advertising; Pricing;Market structure
    JEL: L11 L13 M37
    Date: 2010–10–16
  5. By: Andrea Pinna
    Abstract: This paper analyses the incentive structure underlying the adoption of leniency programs in antitrust enforcement. The enforcement of competition law is treated as the delegation of the economic activity from the government to private firms. The model contributes to the debate over desirability of granting leniency to more than one cartelists. For this purpose, I introduce a probability of conviction that depends on authority-specific characteristics. This results in the optimal number of leniencies being specific to national authorities and market structures. The model confirms a result widely acknowledged in the antitrust literature - a program that merely reduces sanctions to the first reporter is ineffective.
    Keywords: Antitrust; Leniency; Deterrence
    JEL: K21 L13 L14
    Date: 2010
  6. By: Radoslaw R. Okulski (Technology Management, Economics, and Policy Program (TEMEP), Seoul National University); Almas Heshmati (Department of Food and Resource Economics, College of Life Sciences and Biotechnology, Korea University)
    Abstract: Technological developments and the global economic crisis are two types of developments that have affected the commercial airline industry in the last decade. This paper investigates time series analysis of the airline industry. The research has been conducted and is being presented, in a number of steps. First, a new, large database covering the global airline industry was assembled. Second, as part of the descriptive analysis of the industry and modeling a number of statistical tests are investigated. Third, the passenger airline transportation services models are estimated, to investigate their transportation entry and exit activities, as well as issues of heterogeneity and autocorrelation. Finally, we predict future developments within the industry. The empirical results are based on a large panel of 130 airlines observed monthly from January 2001 to April 2009. The airline produce two services of passenger and goods separately or jointly. The results show that specialized passenger companies cannot obtain sufficient revenues to stay at the market for long time. Airlines reduce costs through adding additional products. The worst performed joint service airlines¡¯ result of carrying passengers is much better than the result of specialized best practice airlines. In order to gain profit and improved survival rate, airlines specialized in passenger transportation must diversify their practice to carry both goods and passengers together.
    Keywords: Airlines, time series analysis, ARIMA model, forecasts, information technology.
    JEL: C22 C53 D21 L20 L93
    Date: 2010–07

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.