nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒09‒16
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Effect of Monopoly Regulation on the Timing of Investment By Jörg Borrmann; Gert Brunekreeft
  2. Organizational design of multi-product multi-market firms By Joaquín Coleff
  3. The Spatial Agent-based Competition Model (SpAbCoM) By Graupner, Marten
  4. Price setting in a leading Swiss online supermarket By Martin Berka; Michael B. Devereux; Thomas Rudolph
  5. The construction of a low cost airline network By Hüschelrath, Kai; Müller, Kathrin; Bilotkach, Volodymyr
  6. Low cost carriers and the evolution of the US airline industry By Hüschelrath, Kai; Müller, Kathrin
  7. Why Mergers Fail By Ralph M. Sonenshine

  1. By: Jörg Borrmann; Gert Brunekreeft
    Abstract: This paper contributes a theoretical analysis of the effects of different types of regulation on the timing of monopoly investment in a setting with lumpy investment outlays. Concentrating on the case where investment increases the regulatory asset base, we distinguish between price-based regulation and cost-based regulation. Under cost-based regulation, investment triggers a change of regulated prices, whereas, under price-based regulation, investment does not affect them. To motivate investment, we focus on wear and tear leading to replacement investment and on demand growth resulting in expansion investment. Our main conclusion is that cost-based regulation accelerates investment compared to price-based regulation.
    Keywords: Cost-based regulation, Expansion investment, Investment timing, Monopoly, Price-based regulation, Replacement investment
    JEL: D42 G00 L51
    Date: 2011–05
  2. By: Joaquín Coleff
    Abstract: In this paper, we seek to understand how a multi-product multi-market firm (for example, a multinational firm) designs its organizational structure and compensation scheme when its profitability is conditioned by how market information flows within the company. By modifying its organizational structure–centralizing or decentralizing decision making–and changing the weights of its compensation scheme, the firm can shape how information flows and is represented, changing the firm’s profitability. We find that, when being multi-product (having to allocate a scarce resource between markets), the headquarters links the organizational design of decision rights between different product markets. The headquarters decentralizes decision rights in products with higher returns to product differentiation while it centralizes decision rights in products with lower returns to product differentiation. As centralization is complementary with product standardization and decentralization is complementary with product differentiation, the organizational design conditions the firm’s market policy. The relation among product’s decision rights remains even when the headquarters cannot control how local managers allocate resources in their own local divisions. Our results are robust to different generalizations. Our paper therefore, contributes to the literature on organizational design by analyzing the case of multi-product multi-market firms.
    Keywords: : Multinational, Multi-product, Organization Design, Resource Scarcity, Cheap Talk
    JEL: D2 D8 L2 G34
    Date: 2011–05
  3. By: Graupner, Marten
    Abstract: The paper presents a detailed documentation of the underlying concepts and methods of the Spatial Agent-based Competition Model (SpAbCoM). For instance, SpAbCoM is used to study firms' choices of spatial pricing policy (GRAUBNER et al., 2011a) or pricing and location under a framework of multi-firm spatial competition and two-dimensional markets (GRAUBNER et al., 2011b). While the simulation model is briefly introduced by means of relevant examples within the corresponding papers, the present paper serves two objectives. First, it presents a detailed discussion of the computational concepts that are used, particularly with respect to genetic algorithms (GAs). Second, it documents SpAbCoM and provides an overview of the structure of the simulation model and its dynamics. -- Das vorliegende Papier dokumentiert die zugrundeliegenden Konzepte und Methoden des Räumlichen Agenten-basierten Wettbewerbsmodells (Spatial Agent-based Competition Model) SpAbCoM. Anwendungsbeispiele dieses Simulationsmodells untersuchen die Entscheidung bezüglich der räumlichen Preisstrategie von Unternehmen (GRAUBNER et al., 2011a) oder Preissetzung und Standortwahl im Rahmen eines räumlichen Wettbewerbsmodells, welches mehr als einen Wettbewerber und zweidimensionalen Marktgebiete berücksichtigt. Während das Simulationsmodell in den jeweiligen Arbeiten kurz anhand eines Beispiels eingeführt wird, dient das vorliegende Papier zwei Zielen. Zum Einen sollen die verwendeten computergestützten Konzepte, hier speziell Genetische Algorithmen (GA), detailliert vorgestellt werden. Zum Anderen besteht die Absicht dieser Dokumentation darin, einen Überblick über die Struktur von SpAbCoM und die während einer Simulation ablaufenden Prozesse zu gegeben.
    Keywords: Agent-based modelling,genetic algorithms,spatial pricing,location model.,Agent-basierte Modellierung,Genetische Algorithmen,räumliche Preissetzung,Standortmodell.
    JEL: Y90
    Date: 2011
  4. By: Martin Berka; Michael B. Devereux; Thomas Rudolph
    Abstract: We study a newly released data set of scanner prices for food products in a large Swiss online supermarket. We find that average prices change about every two months, but when we exclude temporary sales, prices are extremely sticky, changing on average once every three years. Non-sale price behavior is broadly consistent with menu cost models of sticky prices. When we focus specifically on the behavior of sale prices, however, we find that the characteristics of price adjustment seems to be substantially at odds with standard theory.
    Keywords: Pricing ; Profit
    Date: 2011
  5. By: Hüschelrath, Kai; Müller, Kathrin; Bilotkach, Volodymyr
    Abstract: The paper investigates the construction of a low cost airline network by analyzing JetBlue Airways' entry decisions into nonstop domestic U.S. airport-pair markets between 2000 and 2009. Adopting duration models with time-varying covariates, we find that JetBlue consistently avoided concentrated airports and targeted concentrated routes; network economies also affected entry positively. For non-stop entry into a route that has not been served on a non-stop basis before, our analysis reveals that the carrier focused on thicker routes and secondary airports, thereby avoiding direct confrontation with network carriers. Non-stop entry into existing non-stop markets, however, shows that JetBlue concentrated on longer-haul markets and avoided routes already operated by either other low cost carriers or network carriers under bankruptcy protection. --
    Keywords: Airline industry,network,entry,low cost carrier
    JEL: L11 L23 L93
    Date: 2011
  6. By: Hüschelrath, Kai; Müller, Kathrin
    Abstract: The article studies the evolution of the U.S airline industry from 1995 to 2009 using T-100 traffic data and DB1B fare data from the U.S. Department of Transportation. Based on a differentiation in market size and major players, entry and exit, concentration, fares, service, costs and profits, the article provides a fresh look on recent developments in the structure, conduct and performance of the domestic U.S. airline industry in light of both the substantial growth of low cost carriers and severe internal and external shocks such as merger and bankruptcy activity or the recent recession. Unlike previous studies, a consistent split of the analysis in network carriers and low cost carriers is introduced. In general, we find that the competitive interaction between network carriers and low cost carriers increased substantially throughout the last decade and must be considered as the main driver of competition in the domestic U.S. airline industry. --
    Keywords: Airline industry,deregulation,network carrier,low cost carrier
    JEL: L40 L93
    Date: 2011
  7. By: Ralph M. Sonenshine
    Abstract: A number of empirical studies have shown that negative abnormal returns often result shortly after a once promising merger is consummated. There are few consistent explanations, however, as to why so many mergers result in such poor performance. This paper sheds light on this issue by examining the effect that structural factors (including market concentration and R&D intensity) have on post-merger abnormal returns. The paper also attempts to assess how differences in valuation among bidders, along with the presence of multiple bidders, influencethe performance of the merged firm. Our findings show that firm value is positively impacted in the first one to three years post merger by acquiring related assets, but that participating in a merger wave in these years has a negative influence. Over longer periods of time these effects are not evident and instead post-merger performance is impacted foremost by intangible asset intensity.
    Keywords: Mergers, Challenges, Abnormal Returns, Research and Development (R&D), Market Concentration
    Date: 2011–07

This nep-ind issue is ©2011 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.