nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒12‒11
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The end of the Bertrand Paradox ? By Marie-Laure Cabon-Dhersin; Nicolas Drouhin
  2. Predation enforcement options: An evaluation using a Cournot framework By Hüschelrath, Kai; Weigand, Jürgen
  3. Endogenous quality choice under upstream market power By Borja Mesa Sánchez
  4. A methodology for the evaluation of competition policy By Hüschelrath, Kai; Leheyda, Nina
  5. Antitrust immunity for airline alliances By Bilotkach, Volodymyr; Hüschelrath, Kai
  6. E-Commerce and Digital Divide: Impact on Consumers By T.P. Rama Rao
  7. Supply and demand for telecommunication infrastructure By Veith, Tobias

  1. By: Marie-Laure Cabon-Dhersin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Nicolas Drouhin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    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.
    Date: 2010–10
  2. By: Hüschelrath, Kai; Weigand, Jürgen
    Abstract: The paper characterises the building blocks of a framework to enforce antipredation rules and subsequently evaluates selected enforcement options in a Cournot-type duopoly predation model. Differentiating between a no rule approach, an ex ante approach and two ex post approaches, it is shown that an ex post approach typically maximises overall welfare. However, an ex ante approach can be the preferred option in cases where the entrant has a large cost advantage over the incumbent. --
    Keywords: competition policy,monopolisation,predation,enforcement
    JEL: K21 L41
    Date: 2010
  3. By: Borja Mesa Sánchez (Dpto. Fundamentos del Análisis Económico)
    Abstract: This paper analyzes how the existence of upstream market power affects endogenous quality choice in a setting where two downstream firms are locked in a bilateral monopoly with their own input suppliers. The main result is that the degree of product differentiation is reduced as upstream market power increases. This holds under Bertrand and Cournot competition, although differentiation is higher in the former. If competition takes place in a Cournot fashion and downstream firms have no bargaining power at all, they choose no differentiation. I also show the effects of an upstream and a downstream merger. When input suppliers merge to monopoly, the quality choice is not affected by the upstream market power and differentiation always emerges. When the downstream segment is shaped by a monopoly, goods become homogeneous unless input suppliers have weak bargaining power. If input prices are high enough before the downstream merger, a downstream monopoly leads to an increase in social welfare.
    Keywords: vertical differentiation, endogenous quality choice, horizontal mergers
    JEL: L11 L13 L15 L41
    Date: 2010–11
  4. By: Hüschelrath, Kai; Leheyda, Nina
    Abstract: The paper develops a methodology for the evaluation of competition policy. Based on the existing literature and experiences with policy evaluations in other areas of economic activity, the three-step / nine-building-blocks methodology provides guidance for evaluation projects and also assists in the identification of avenues for further academic research. --
    Keywords: Competition Policy,Evaluation,Merger control,Cartel enforcement
    JEL: L41 K21
    Date: 2010
  5. By: Bilotkach, Volodymyr; Hüschelrath, Kai
    Abstract: The market developments in international air transportation have led to the dominance of three global airline alliances - Star, SkyTeam and oneworld. At the same time, members of these alliances receive increasingly more freedom in coordinating various aspects of joint operations, including scheduling and pricing decisions, as well as the right to form revenue-sharing joint ventures in international markets. Although the significant consumer benefits generated by airline cooperation are undisputed, the recent developments raise antitrust concerns. Against this background, the paper compares the key competitive effects of airline alliances and antitrust immunity with the economic lines of reasoning in recent policy actions to develop recommendations for a full-fledged assessment of antitrust immunity for airline alliances. --
    JEL: L41 L93 K21
    Date: 2010
  6. By: T.P. Rama Rao
    Abstract: This paper discusses the concerns on the digital divide and illustrates, through case studies, how the recent developments in the Information and Communication Technology can be gainfully employed in social development and in bridging the digital divide. It also addresses the phenomenon of E-Commerce and identifies the efforts made by different industry groups, international organizations and ministries in addressing the concerns related to E-Commerce and consumer protection.
    Keywords: Information and Communication Technology, E-Commerce, international organizations, ministries, consumer protection
    Date: 2010
  7. By: Veith, Tobias
    Abstract: The interplay of infrastructure supply and demand is of central interest in line with Web 2.0. As the role of customers turns from a service users' role to an information providers' role, the traffic on existing lines increases and, simultaneously, customers' demand for high-quality infrastructure. On the other hand, infrastructure providers carry investment risks but can hardly internalize the value provided for service providers. In consequence, politicians have to think about how to initiate adequate investment incentives. Using a two-equation estimation approach, a direct competition effect (more service competition increases the supply of infrastructure) can be disentangled from an indirect effect (more service competition increases the demand for infrastructure quality and, as a consequence, increases the supply of infrastructure). While the direct investment effect is only partially confirmed, the analysis provides evidence for an indirect investment effect for both fix and mobile infrastructure investments. Taking into account cross effects between fix line infrastructure markets and mobile phone infrastructure markets even broadens the view: While the indirect own-market competition effect is still found, the estimation results confirm the idea of asymmetric substitutability between telecommunication infrastructures. --
    Keywords: telecommunications,infrastructure supply and demand
    JEL: K23 L13 L43 L96
    Date: 2010

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