nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒02‒05
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Welfare effects of outsourcing in duopolistic markets By König, Jan
  2. Competition and Critical Mass By Bos Jaap W.B.; Ling Chan Yee; Kolari James W; Yuan Jiang
  3. Information Disclosure in Procurement Auctions with Horizontally Di¤erentiated Suppliers By Domenico Colucci; Nicola Doni; Vincenzo Valori
  4. Anti-piracy policy and quality differential in markets for information goods By Francisco Martínez-Sánchez; Javier M. López Cuñat
  5. An Examination of Frank Wolak’s Model of Market Power and its Application to the New Zealand Electricity Market By Lewis Evans; Graeme Guthrie
  6. A Critique of Wolak’s Evaluation of the NZ Electricity Market: Introduction and Overview By Lewis Evans; Seamus Hogan; Peter Jackson
  7. A Critique of Wolak’s Evaluation of the NZ Electricity Market: The Incentive to Exercise Market Power with Elastic Demand and Transmission Loss By Seamus Hogan; Peter Jackson

  1. By: König, Jan
    Abstract: This paper shows the strategic aspects of international outsourcing in a duopolistic market. Due to different costs of integrated production and outsourcing, the choice of a firm influences the strategy of the competitor via the output price. Therefore, the resulting market constellation depends on the fixed costs and the difference between marginal costs. We show that the three market constellations, both firms produce integrated, both use outsourcing and the firms operate with different strategies are possible. Also the welfare effects of the different outcomes are analysed. If the optimal firms decision is characterized by different strategies, this constellations for given costs is pareto superior to a constellation with equal strategies. On the other hand, for given costs, a resulting constellation of equal strategies can be pareto inferior or pareto superior to a constellation with different strategies. --
    Keywords: strategic outsourcing,oligopoly,welfare effects
    JEL: D43 L13 L22 L23 L24
    Date: 2010
    URL: http://d.repec.org/n?u=RePEc:zbw:fubsbe:201034&r=ind
  2. By: Bos Jaap W.B.; Ling Chan Yee; Kolari James W; Yuan Jiang (METEOR)
    Abstract: Empirical literature and related legal practice using concentration as a proxy for competition measurement are prone to a fallacy of division, as concentration measures are appropriate for perfect competition and perfect collusion but not intermediate levels of competition. Extending the classic Cournot-type competition model of Cowling and Waterson (1976) and Cowling (1976) used to derive the Hirschman-Herfindahl Index (HHI) of market concentration, we propose an adaptation of this model that allows collusive rents for all, none, or some of the firms in a market. Application of our model and new critical mass measures to data for U.S. commercial banks in the period 1984-2004 confirms that concentration measures are unreliable competition metrics. Our results lead us to conclude that critical mass is a promising new market power metric for competition analyses. Policy and future research implications are briefly discussed.
    Keywords: microeconomics ;
    Date: 2010
    URL: http://d.repec.org/n?u=RePEc:dgr:umamet:2010063&r=ind
  3. By: Domenico Colucci (Università degli Studi di Firenze,); Nicola Doni (Università degli Studi di Firenze, Dipartimento di Scienze Economiche); Vincenzo Valori (Università degli Studi di Firenze, Dipartimento di Matematica per le Decisioni)
    Abstract: This work studies a model of multidimensional auction in which a buyer needs to procure a given good from either of two potential suppliers whose quality is the buyer's private information and whose production costs are heterogeneous. Costs asymmetries constitute a novelty in this framework and extend e.g. the model of Gal-Or et al. (2007). We compare the outcomes of different procurement policies from the viewpoint of both efficiency and the buyer's payoff. A trade-off between efficiency and rent-extraction emerges. The buyer will maximize her expected utility by selecting a first score auction and either concealing or privately revealing suppliers'quality - the optimal choice depending on the degree of heterogeneity in suppliers' costs and qualities. However, neither of these auction mechanisms will be efficient: efficiency calls for a second score auction or a first score auction with public disclosure of suppliersquality. The findings hinge on the equivalence between auction models and models of horizontal differentiation and take advantage of results for asymmetric auctions developed by Maskin & Riley (2000).
    Keywords: multidimensional auctions, procurement policies, endogenous information, horizontal di¤erentiation, asymmetric auctions.
    JEL: D44 D82 H57
    Date: 2011
    URL: http://d.repec.org/n?u=RePEc:frz:wpaper:wp2011_04.rdf&r=ind
  4. By: Francisco Martínez-Sánchez (Universidad de Alicante); Javier M. López Cuñat (Universidad de Alicante)
    Abstract: In this paper we analyze the strategic decisions of the government, the incumbent and the pirate in a market where the good is piratable. We show that deterred or accommodated piracy can occur in equilibrium, but pure monopoly cannot occur for any anti-piracy policy. We also show that the initial quality differential between the original and the pirated product is essential to explain the effects of an increase in the quality of pirated product on both the level of piracy and the optimal monitoring rate. Assuming a one-stage entry process and a sufficiently high quality differential, we prove that the incumbent always prefers to move first and make a credible commitment to a price. However, this is not true with a two-stage entry process.
    Keywords: for-profit piracy, quality, monitoring, price competition.
    JEL: K42 L13 L86
    Date: 2011–01
    URL: http://d.repec.org/n?u=RePEc:ivi:wpasad:2011-02&r=ind
  5. By: Lewis Evans; Graeme Guthrie
    Abstract: This paper is the second in a symposium of papers that examine the 2009 report by Frank Wolak into the New Zealand electricity market. In this paper, we discuss the Report’s measures of the ability and incentives of generators to exercise unilateral market power. We show that the construction and interpretation of these measures are highly sensitive to some key assumptions, particularly those concerning the elasticity of demand for electricity in the wholesale market and the amount of transmission loss on the national grid.
    Keywords: Electricity markets; market power
    JEL: L41 L13
    Date: 2011–01–23
    URL: http://d.repec.org/n?u=RePEc:cbt:econwp:11/10&r=ind
  6. By: Lewis Evans; Seamus Hogan (University of Canterbury); Peter Jackson
    Abstract: This paper is the first in a symposium of papers that examine the 2009 report by Frank Wolak into the New Zealand electricity market. The Wolak report concluded that there had been a cumulative total of $4.3b (NZD) of overcharging in the New Zealand wholesale market over a period of seven years. In this paper, we introduce the Wolak findings in the context of the salient features of the New Zealand market, and explain that this headline figure is highly sensitive to some (quite unrealistic) assumptions about the structure of this market. The papers that follow this introduction (Hogan and Jackson, 2011, and Evans and Guthrie, 2011) examine Wolak’s methodology and its empirical application.
    Keywords: Wolak Report; electricity markets; market power
    JEL: L41 L13
    Date: 2011–01–01
    URL: http://d.repec.org/n?u=RePEc:cbt:econwp:11/08&r=ind
  7. By: Seamus Hogan (University of Canterbury); Peter Jackson
    Abstract: This paper is the second in a symposium of papers that examine the 2009 report by Frank Wolak into the New Zealand electricity market. In this paper, we discuss the Report’s measures of the ability and incentives of generators to exercise unilateral market power. We show that the construction and interpretation of these measures are highly sensitive to some key assumptions, particularly those concerning the elasticity of demand for electricity in the wholesale market and the amount of transmission loss on the national grid.
    Keywords: Wolak Report; electricity markets; market power
    JEL: L41 L13
    Date: 2011–01–01
    URL: http://d.repec.org/n?u=RePEc:cbt:econwp:11/09&r=ind

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