nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒12‒23
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Testable implications for the Bresnahan-Lau model of market competition By Laurens CHERCHYE; Thomas DEMUYNCK; Bram DE ROCK
  2. Price Competition on Graphs By Adriaan R. Soetevent
  3. A Test of Monopoly Price Dispersion Under Demand Uncertainty By Humphreys, Brad; Soebbing, Brian
  4. Mergers and Partial Ownership By Foros, Øystein; Kind, Hans Jarle; Shaffer, Greg
  5. Price Spikes in Electricity Markets: A Strategic Perspective By Joseph Mullins; Liam Wagner; John Foster
  6. Automobile engine variants and price discrimination By Øyvind THOMASSEN

  1. By: Laurens CHERCHYE; Thomas DEMUYNCK; Bram DE ROCK
    Abstract: We derive necessary and sufficient testable implications on the reduced form price and quantity functions for the Bresnahan-Lau model of market competition. The conditions are twofold. A first condition relates to the fact that the reduced form price function should correspond to an inverse demand function. The second condition captures that the degree of competition must be invariant to changes in the exogenous variables.
    Date: 2010–04
  2. By: Adriaan R. Soetevent (University of Amsterdam)
    Abstract: This paper extends Hotelling's model of price competition with quadratic transportation costs from a line to graphs. I propose an algorithm to calculate firm-level demand for any given graph, conditional on prices and firm locations. One feature of graph models of price competition is that spatial discontinuities in firm-level demand may occur. I show that the existence result of D'Aspremont et al. (1979) does not extend to simple star graphs. I conjecture that this non-existence result holds more generally for all graph models with two or more firms that cannot be reduced to a line or circle.
    Keywords: spatial competition; Hotelling; graphs
    JEL: D43 L10 R12
    Date: 2010–12–13
  3. By: Humphreys, Brad (University of Alberta, Department of Economics); Soebbing, Brian (University of Alberta, Physical Education and Recreation)
    Abstract: Dana (2001) developed a model of price dispersion under demand uncertainty. The model predicts that, in the face of uncertain demand and inflexible prices, monopolists maximizes pro fits using ex ante price discrimination. We test the predictions of this model using a unique data set from Major League Baseball (MLB). Estimation of a two-way fixed effects model indicate that ticket price dispersion changes systematically with demand uncertainty in MLB, verifying the predictions of the model.
    Keywords: price dispersion; demand uncertainty; sports
    JEL: D42 L12 L83
    Date: 2010–12–07
  4. By: Foros, Øystein (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Shaffer, Greg (University of Rochester and University of East Anglia)
    Abstract: In this paper we compare the profitability of a merger between two firms (one firm fully acquires another) and the profitability of a partial ownership arrangement between the same two firms in which the acquiring firm obtains corporate control over the pricing decisions of the acquired firm. We find that joint profit can be higher in the latter case because it may result in a greater dampening of competition with respect to an outside competitor. We also derive comparative statics on the prices of the acquiring firm, the acquired firm, and the outside firm and use them to explain puzzling features of the pay-TV markets in Norway and Sweden.
    Keywords: Media economics; Mergers; Corporate Control; Financial Control
    JEL: G34
    Date: 2010–12–11
  5. By: Joseph Mullins (School of Economics, The University of Queensland); Liam Wagner (School of Economics, The University of Queensland); John Foster (School of Economics, The University of Queensland)
    Abstract: This paper aims to analyze the issue of price spikes in electricity markets through the lens of noncooperative game theory. The case we consider is Australia’s long established National Electricity Market (NEM). Specifically, we adapt von der Fehr and Harbord’s multi-unit auction model to settings that more closely reflect the structure of the NEM, showing that price spikes can be related to a specifiable threshold in demand.
    Keywords: Electricity Markets, Spot Price Behaviour, Non-Cooperative Game Theory.
    JEL: C72 Q40
    Date: 2010–12
  6. By: Øyvind THOMASSEN
    Abstract: Using a structural model of demand for automobile engine variants, this paper finds that there is second-degree price discrimination: markups increase with engine size. Still, average markups are lower than when models have just one engine. The paper develops the first empirical demand framework suitable for markets with variants. There is an unobserved product characteristic and a consumer-specific logit term for classes of products, but both are fixed across variants. Fixed effects control for unobservables. The literature’s assumption of orthogonality between unobserved and observed product characteristics is not needed.
    Keywords: second-degree price discrimination, automobiles, discrete-choice demand models
    JEL: L11 L62 C25
    Date: 2010–04

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