nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒11‒13
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price competition between subsidized organizations By Bouckaert J.; De Borger B.
  2. Initial Allocation Effects in Permit Markets with Bertrand Output Oligopoly By Calford, Evan M.; Heinzel, Christoph; Betz, Regina
  3. Downstream mergers in a vertically differentiated unionized oligopoly By Borja Mesa Sánchez
  4. Vertical mergers, foreclosure and raising rivals' costs: Experimental evidence By Normann, Hans-Theo
  5. Legal and illegal cartels in Germany between 1958 and 2004 By Haucap, Justus; Heimeshoff, Ulrich; Schultz, Luis Manuel
  6. Deregulation of shopping hours: The impact on independent retailers and chain stores By Wenzel, Tobias
  7. Quality and welfare in a mixed duopoly with regulated prices: The case of a public and a private hospital By Herr, Annika
  8. Calling party pays or receiving party pays? The diffusion of mobile telephony with endogenous regulation By Dewenter, Ralf; Kruse, Jörn

  1. By: Bouckaert J.; De Borger B.
    Abstract: Many firms and organizations compete for customers while at the same time receiving substantial funding from outside sources, such as government subsidies. In this paper, we study the effects of two commonly observed, alternative subsidy systems on the behavior of price-competing firms. Specifically, we compare an open-ended per-unit price subsidy with a closed-ended subsidy, allocated according to the firms’ market shares. We find that, holding the total subsidy budget constant, the open-ended subsidy results in fiercer price competition, lower prices, higher output, and lower profits than the closed-ended, market-share based alternative. Second, the open system yields higher overall welfare for relatively modest subsidies and limited substitutability between goods; the closed system performs better at relatively high subsidy levels and when goods are closer substitutes. Third, a market-share based subsidy makes collusive behavior between firms much harder. Our results, therefore, suggest a potential trade-off between short-run and long-run objectives: subsidies designed to widen participation may stimulate collusive behavior. These findings may have important
    Date: 2010–08
  2. By: Calford, Evan M.; Heinzel, Christoph; Betz, Regina
    Abstract: We analyse the eciency eects of the initial permit allocation given to rms with market power in both permit and output market. We examine two models: a long- run model with endogenous technology and capacity choice, and a short-run model with xed technology and capacity. In the long run, quantity pre-commitment with Bertrand competition can yield Cournot outcomes also under emissions trading. In the short run, Bertrand output competition reproduces the eects derived under Cournot competition, but displays higher pass-through prots. In a second-best setting of overallocation, a tighter emissions target tends to improve permit-market eciency in the short run.
    Keywords: Emissions trading, Initial permit allocation, Bertrand competition, EU ETS, Endogenous technology choice, Kreps and Scheinkman, Resource /Energy Economics and Policy, L13, Q28, D43,
    Date: 2010–03
  3. By: Borja Mesa Sánchez (Dpto. Fundamentos del Análisis Económico)
    Abstract: In the context of an international unionized oligopoly, with vertical differentiation and downstream and upstream firms locked in a bilateral monopoly, the pattern of downstream mergers is investigated. In such a setting, a downstream merger leads to a reduction in the price of the inputs. Such reduction is greater the more homogeneous the participants’ products are. However, it turns out that most of the market structure equilibria consist of mergers among differentiated producers. I find that firms’ strategic behaviour impedes mergers between similar producers, avoiding that input prices fall to their marginal costs. Given that firms can be harmed by rivals’ mergers, through the important reduction in input prices that those trigger, an scenario of preemptive mergers emerges. A brief social welfare analysis is also presented. It is shown that the market structure outcome is never socially optimal, neither in terms of consumer surplus nor social welfare. Nevertheless, the optimum could be achieved if antitrust authorities block some strategic mergers, precisely those involving more than two firms.
    Keywords: mergers, vertical differentiation, unionized oligopoly
    JEL: J51 L13 L15 L41 L44
    Date: 2010–10
  4. By: Normann, Hans-Theo
    Abstract: The hypothesis that vertically integrated firms have an incentive to foreclose the input market because foreclosure raises its downstream rivals' costs is the subject of much controversy in the theoretical industrial organization literature. A powerful argument against this hypothesis is that, absent commitment, such foreclosure cannot occur in Nash equilibrium. The laboratory data reported in this paper provide experimental evidence in favor of the hypothesis. Markets with a vertically integrated firm are signifiantly less competitive than those where firms are separate. While the experimental results violate the standard equilibrium notion, they are consistent with the quantalresponse generalization of Nash equilibrium. --
    Keywords: experimental economics,foreclosure,quantal response equilibrium,raising rival's costs,vertical integration
    JEL: C72 C90 D43
    Date: 2010
  5. By: Haucap, Justus; Heimeshoff, Ulrich; Schultz, Luis Manuel
    Abstract: This paper offers a new and broad insight into the landscape of German cartels, utilizing a unique dataset of all illegal horizontal cartels detected by the German Federal Cartel Office (FCO) between 1958 and 2004 and all legal cartels authorized during the same time period. We also provide the first comparison of legal and illegal cartels in Germany. Legal cartels tend to last longer and to have more members than illegal cartels, while there are little differences with respect to the industries involved. The construction industries are the most cartelized sectors in Germany (29.8% of all legal cartels, 43.2% of all illegal cartels) followed by manufacture of metals and machinery (21.9% of all legal cartels, 30.6% of all illegal cartels). How the number of cartel members affects the duration of cartels is ambiguous. Cartels with no more than 12 members tend to last longer than cartels with more than 12 members. However, cartels with 5 to 12 members also tend to last longer than cartels with less than 5 members. --
    Date: 2010
  6. By: Wenzel, Tobias
    Abstract: This paper studies shopping hour decisions by retail chains and independent competitors. We use a Salop-type model where retailers compete in prices and shopping hours. Our results depend significantly on efficiency differences between retail chain and independent retailer. If the efficiency difference is small, the independent retailer may choose longer shopping hours than the retail chain and may gain from deregulation at the expense of the retail chain. The opposite result emerges when the efficiency difference is large. Then, the retail chain may benefit whereas the independent retailer loses from deregulation. --
    Keywords: business hours,retailing,deregulation
    JEL: L13 L51 L81
    Date: 2010
  7. By: Herr, Annika
    Abstract: Hospital markets are often characterised by price regulation and the existence of different ownership types. Using a Hotelling framework, this paper analyses the effect of heterogeneous objectives of the hospitals on quality differentiation, profits, and overall welfare in a price regulated duopoly with exogenous symmetric locations. In contrast to other studies on mixed duopolies, this paper shows that in this framework privatisation of the public hospital may increase overall welfare. This holds if the public hospital is similar to the private hospital or less efficient and competition is low. The main driving force is the single regulated price which induces under-(over-)provision of quality of the more (less) efficient hospital compared to the first-best. However, if the public hospital is sufficiently more efficient and competition is fierce, a mixed duopoly outperforms both a private and a public duopoly due to an equilibrium price below (above) the price of the private (public) duopoly. This medium price discourages overprovision of quality of the less efficient hospital and - together with the non-profit objective - encourages an increase in quality of the more efficient public hospital. --
    Keywords: mixed oligopoly,price regulation,quality,hospital competition
    JEL: L13 I18 H42
    Date: 2010
  8. By: Dewenter, Ralf; Kruse, Jörn
    Abstract: This paper analyzes the impact on mobile telephony diffusion patterns of the two predominant payment regimes, calling party pays (CPP) and receiving party pays (RPP), for mobile termination services. By applying instrumental variable techniques to panel data we account for a possible interdependency of penetration rates and regulatory interventions. For this purpose we use data on political and institutional factors to instrument endogenous regulatory decisions. We conclude from our empirical analysis that there is no significant impact of either RPP or CPP on penetration rates. Therefore an application of RPP in order to obviate regulation of termination fees would be feasible. --
    Keywords: mobile telephony markets,calling-party-pays,mobile termination fees,endogenous regulation
    JEL: L1 L5 L96
    Date: 2010

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