nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒05‒24
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The empirical content of Cournot competition By Laurens CHERCHYE; Thomas DEMUYNCK; Bram DE ROCK
  2. Minimum Quality Standard Under Cournot Competition and Pollution By L. Lambertini; A. Tampieri
  3. Oligopoly as a Socially Embedded Dilemma. An Experiment By Christoph Engel; Lilia Zhurakhovska
  4. Antitrust Law and the Promotion of Democracy and Economic Growth By Niels Petersen
  5. Market Power in the Carbonated Soft Drink Industry By Allender, William J.; Richards, Timothy J.

  1. By: Laurens CHERCHYE; Thomas DEMUYNCK; Bram DE ROCK
    Abstract: We consider the testable implications of the Cournot model of market competition. Our approach is nonparametric in that we abstain from imposing any functional specification on market demand and firm cost functions. We derive necessary and sufficient conditions for (reduced form) equilibrium market price and quantity functions to be consistent with the Cournot model. In addition, we present identification results for the corresponding inverse market demand function and the firm cost functions. Finally, we use our approach to derive testable restrictions for the models of perfect competition, collusion and conjectural variations. This identifies the conditions under which these different models are empirically distinguishable from the Cournot model.
    Date: 2011–05
    URL: http://d.repec.org/n?u=RePEc:ete:ceswps:ces11.11&r=ind
  2. By: L. Lambertini; A. Tampieri
    Abstract: We extend the analysis carried out by Valletti (2000) by considering an environmental externality in a vertically differentiated duopoly where firms compete à la Cournot with fixed costs of quality improvement. We show that, if the weight of the external effect is high enough, the resulting minimum quality standard is indeed binding.
    JEL: L13 L51 Q50
    Date: 2011–05
    URL: http://d.repec.org/n?u=RePEc:bol:bodewp:wp749&r=ind
  3. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Lilia Zhurakhovska (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: From the perspective of competitors, competition may be modeled as a prisoner’s dilemma. Setting the monopoly price is cooperation, undercutting is defection. Jointly, competitors are better off if both are faithful to a cartel. Individually, profit is highest if only the competitor(s) is (are) loyal to the cartel. Yet collusion inflicts harm on the opposite market side and, through the deadweight loss, on society at large. Moreover, almost all legal orders combat cartels. Through the threat with antitrust intervention, gains from cooperation are uncertain. In the field, both qualifications combine. To prevent participants from using their world knowledge about antitrust, we experimentally test them on a neutral matrix game, with either a negative externality on a third participant, uncertainty about gains from cooperation, or both. Uncertainty dampens cooperation, though only slightly. Surprisingly, externalities are immaterial. If we control for beliefs, they even foster cooperation. If we combine both qualifications and do not control for beliefs, we only find an uncertainty effect. If we add beliefs as a control variable, we only find that externalities enhance cooperation, even if gains from collusion are uncertain. Hence the fact that the dilemma of oligopolists is socially embedded matters less than one might have expected.
    Keywords: Oligopoly, Collusion, experiment, Uncertainty, negative externalities, prisoner’s dilemma
    JEL: D43 K21 L13 L41 C72 D81 K42 C91 D62 H23
    Date: 2011–01
    URL: http://d.repec.org/n?u=RePEc:mpg:wpaper:2011_01&r=ind
  4. By: Niels Petersen (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: There is a considerable debate in the legal literature about the purpose of antitrust institutions. Some argue that antitrust law merely serves the purpose of economic growth, while others have a broader perspective on the function of antitrust, maintaining that the prevention of economic concentration is an important means to promote democratization and democratic stability. This contribution seeks to test the empirical assumptions of this normative debate. Using panel data of 154 states from 1960 to 2007, it analyzes whether antitrust law actually has a positive effect on democracy and economic growth. The paper finds that antitrust law has a strongly positive effect on the level of GDP per capita and economic growth. However, there is no significant positive effect on the level of democracy. It is suggested that these results might be due to the current structure of existing antitrust laws, which are designed to promote economic efficiency rather than to prevent economic concentration.
    Date: 2011–01
    URL: http://d.repec.org/n?u=RePEc:mpg:wpaper:2011_03&r=ind
  5. By: Allender, William J.; Richards, Timothy J.
    Abstract: We investigate the strategic pricing for leading brands sold in the carbonated soft drink (CSD) market in the context of a flexible demand specification (i.e. random parameter nested logit) and a structural pricing equation. Our approach does not rely upon the often used ad hoc linear approximations to demand and profit-maximizing first-order conditions. We estimate the structural pricing equation using four different estimators (i.e. OLS, LIML, 2SLS, and GMM) and compare the implied deviation from Bertrand-Nash competition. Our results suggest that retailers, on average, price CSD brands below their cost, likely a result of the competitive retailing environment. We also find CSD wholesalers price their brands significantly more cooperatively than Bertrand-Nash would suggest, thus inflating profits.
    Keywords: Market Power, Carbonated Soft Drinks, Econometrics, LIML, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Industrial Organization,
    Date: 2011
    URL: http://d.repec.org/n?u=RePEc:ags:aaea11:104222&r=ind

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