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on Industrial Organization |
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Issue of 2010‒11‒27
seven papers chosen by |
| By: | Marie-Laure Cabon-Dhersin (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan); Nicolas Drouhin (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan) |
| Abstract: | This paper analyzes price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game implying a convex short term cost function in the second stage of the game. We show that the collusive outcome is the only predictable issue of the whole game i.e. the unique non Pareto-dominated pure strategy Nash Equilibrium. Technically, this paper bridges the capacity constraint literature on price competition with the one of convex cost function, solving the Bertrand Paradox in the line of Edgeworth's research program. |
| Keywords: | Price competition, collusion, convex cost, Bertrand Paradox, capacity constraint, constant returns-to-scale. |
| JEL: | L13 D43 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10079&r=ind |
| By: | Yonghong An (Johns Hopkins University); Michael R Baye (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Yingyao Hu (Johns Hopkins University); John Morgan (University of California - Berkeley) |
| Abstract: | This paper (1) presents a general model of online price competition, (2) shows how to structurally estimate the underlying parameters of the model when the number of competing firms is unknown or in dispute, (3) estimates these parameters based on UK data for personal digital assistants, and (4) uses these estimates to simulate the competitive effects of horizontal mergers. Our results suggest that competitive effects in this online market are more closely aligned with the simple homogeneous product Bertrand model than might be expected given the observed price dispersion and number of firms. Our estimates indicate that so long as two firms remain in the market post merger, the average transaction price is roughly unaffected by horizontal mergers. However, there are potential distributional effects; our estimates indicate that a three-to-two merger raises the average transaction price paid by price sensitive "shoppers" by 2.88 percent, while lowering the average transaction price paid by consumers "loyal" to a particular firm by 1.37 percent. |
| JEL: | L0 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:iuk:wpaper:2010-17&r=ind |
| By: | Tomaso Duso (Humboldt University and Wissenschaftszentrum Berlin (WZB)); Lars-Hendrik Röller (European School of Management and Technology (ESMT) and Humboldt University Berlin); Jo Seldeslachts (University of Amsterdam) |
| Abstract: | This paper tests whether upstream R&D cooperation leads to downstream collusion. We consider an oligopolistic setting where firms enter in research joint ventures (RJVs) to lower production costs or coordinate on collusion in the product market. We show that a sufficient condition for identifying collusive behavior is a decline in the market share of RJV-participating firms, which is also necessary and sufficient for a decrease in consumer welfare. Using information from the US National Cooperation Research Act, we estimate a market share equation correcting for the endogeneity of RJV participation and R&D expenditures. We find robust evidence that large networks between direct competitors – created through firms being members in several RJVs at the same time – are conducive to collusive outcomes in the product market which reduce consumer welfare. By contrast, RJVs among non-competitors are efficiency enhancing. |
| Keywords: | Research Joint Ventures, Innovation, Collusion, NCRA |
| JEL: | K21 L24 L44 O32 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:343&r=ind |
| By: | Paul Heidhues (ESMT European School of Management and Technology); Botond Koszegi (University of California, Berkeley) |
| Abstract: | We study the properties of a profit-maximizing monopolist's optimal price distribution when selling to a loss-averse consumer, where (following Koszegi and Rabin (2006)) we assume that the consumer's reference point is her recent rational expectations about the purchase. If it is close to costless for the consumer to observe the realized price of the product, then – in a pattern consistent with several recently documented facts regarding supermarket pricing – the monopolist chooses low and variable “sale” prices with some probability and a high and sticky “regular” price with the complementary probability. Realizing that she will buy at the sale prices and hence that she will purchase with positive probability, the consumer chooses to avoid the painful uncertainty in whether she will get the product by buying also at the regular price. If it is more costly for the consumer to observe the realized price, then – in a pattern consistent with the pricing behavior of some other retailers (e.g. movie theaters) – the monopolist chooses a sticky price and holds no sales. In this case, a sale is less tempting and hence less effective in generating an expectation to purchase with positive probability. We also show that ex-ante competition for loyal consumers leads to sticky pricing while ex-post competition leads to marginal-cost pricing, and discuss several other extensions of the model. |
| Keywords: | reference-dependent utility, gain-loss utility, loss aversion, sticky prices, sales, supermarket pricing |
| JEL: | D11 D43 D81 L13 |
| Date: | 2010–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-10-008&r=ind |
| By: | Alexander Raskovich (Economic Analysis Group, Antitrust Division, U.S. Department of Justice); Nathan H. Miller |
| Abstract: | We model a “new economy” industry where innovation is sequential and monopoly is persistent but the incumbent turns over periodically. In this setting we analyze the effects of “extraction” (e.g., price discrimination that captures greater surplus) and “extension” (conduct that simply delays entry of the next incumbent) on steady-state equilibrium innovation, welfare and growth. We find that extraction invariably increases innovation and welfare growth rates, but extension causes harm under plausible conditions. This provides a rationale for the divergent treatment of single-firm conduct under U.S. law. Our analysis also suggests a rule-of-thumb, consistent with antitrust practice, that innovation proxies welfare. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:doj:eagpap:201005&r=ind |
| By: | Jung, Hyun-Joon and Nahm, Jae (Department of Economics, Korea University, Seoul, Republic of Korea) |
| Abstract: | Between 2005 and 2008, there had been active mergers between cable system operators in Korean. By analyzing subscription fees changes between 2004 and 2008 in a panel data set, we evaluate the merger effects. We find that mergers had occurred in relatively low prices areas; the price increase was much higher in areas where merger had occurred than in areas where competition between multiple SO had remained. |
| Keywords: | Merger effects, Difference in Difference, Cable Industry |
| JEL: | C21 L41 L52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:iek:wpaper:1015&r=ind |
| By: | Laurent Granier (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Sébastien Trinquard (UNOCAM - Union nationale des organismes d'assurance maladie complémentaire - UNOCAM) |
| Abstract: | In 2009, Sanofi-Aventis, whose generic subsidiary is Winthrop, merges with the generic firm, Zentiva. This paper fills the gap in the theoretical literature concerning mergers in pharmaceutical markets. To prevent generic firms from increasing their market share, some brand-name firms produce generics themselves, called pseudo- generics. We develop a Cournot duopoly model by considering the pseudo-generics production as a mergers' catalyst. We show that a brand-name company always has an incentive to purchase its competitor. The key insight of this paper is that the brand-name laboratory can increase its merger gain by producing pseudo-generics beforehand. In some cases, pseudo-generics would not otherwise be produced and this production is then a predatory strategy. |
| Keywords: | Mergers; Pharmaceutical Market; Predation; Pseudo-Generics |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00537018_v1&r=ind |