nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒09‒22
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The dynamics of a differentiated duopoly with quantity competition By Fanti, Luciano; Gori, Luca
  2. Quantity Precommitment and Price Matching By Norovsambuu Tumennasan
  3. Strategic loyalty reward in dynamic price Discrimination By Bernard Caillaud; Romain De Nijs
  4. A Simplified Mixed Logit Demand Model with an Application to the Simulation of Entry By Sergio Aquino de Souza
  5. (Weak) Correlation and Sunspots in Duopoly By Indrajit Ray; Sonali Sen Gupta
  6. Delegation to Independent Regulators and the Ratchet Effect By Joanne Evans; Paul Levine; Neil Rickman; Francesc Trillas
  7. Retailing regulation via parking taxation By Jacques Thépot

  1. By: Fanti, Luciano; Gori, Luca
    Abstract: We analyse the dynamics of a Cournot duopoly game with heterogeneous players to investigate the effects of micro-founded differentiated products demand. The present analysis, which modifies and extends Zhang et al. (2007) (Zhang, J., Da, Q., Wang, Y., 2007. Analysis of nonlinear duopoly game with heterogeneous players. Economic Modelling 24, 138–148) and Tramontana, F., (2010) (Tramontana, F., 2010. Heterogeneous duopoly with isoelastic demand function. Economic Modelling 27, 350–357), reveals that a higher degree of product differentiation may destabilise the market equilibrium. Moreover, we show that a cascade of flip bifurcations may lead to periodic cycles and ultimately chaotic motions. Since a higher degree of product differentiation implies weaker competition, then a theoretical implication of our findings, that also constitute a policy warning for firms, is that a fiercer (weaker) competition tends to stabilise (destabilise) the unique positive Cournot-Nash equilibrium of the economy.
    Keywords: Bifurcation; Chaos; Cournot; Oligopoly; Product differentiation
    JEL: L13 D43 C62
    Date: 2011–09–17
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:33477&r=ind
  2. By: Norovsambuu Tumennasan (School of Economics and Management, Aarhus University, Denmark)
    Abstract: We revisit the question of whether price matching is anti-competitive in a capacity constrained duopoly setting. We show that the effect of price matching depends on capacity. Specifically, price matching has no effect when capacity is relatively low, but it benefits the firms when capacity is relatively high. Interestingly, when capacity is in an intermediate range, price matching benefits only the small firm but does not affect the large firm in any way. Therefore, one has to consider capacity seriously when evaluating if price matching is anti-competitive. If the firms choose their capacities simultaneously before pricing decisions, then the effect of price matching is either pro-competitive or ambiguous. We show that if the cost of capacity is high, then price matching can only (weakly) decrease the market price. On the other hand, if the cost of capacity is low, then the effect of price matching on the market price is ambiguous due to the multiplicity of equilibria. Therefore, this paper challenges the widely accepted belief that price matching is an anti-competititive practice if the firms choose their capacities simultaneously before pricing decisions.
    Keywords: Price matching, capacity constraint, quantity precommitment
    JEL: L00
    Date: 2011–09–12
    URL: http://d.repec.org/n?u=RePEc:aah:aarhec:2011-13&r=ind
  3. By: Bernard Caillaud (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA); Romain De Nijs (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: This paper proposes a dynamic model of duopolistic competition under behaviorbased price discrimination with the following property: in equilibrium, a firm may reward its previous customers although long term contracts are not enforceable. A firm can offer a lower price to its previous customers than to its new customers as a strategic means to hamper its rival to gather precise information on the young generation of customers for subsequent profitable behavior-based pricing. The result holds both with myopic and forward-looking, impatient enough consumers.
    Keywords: Price discrimination ; Dynamic pricing ; Loyalty reward
    Date: 2011–09
    URL: http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00622291&r=ind
  4. By: Sergio Aquino de Souza
    Abstract: The key contribution of this paper is to show how to incorporate more information into the empirical strategy in order to avoid the need of valid instruments, which are difficult to find in many instances. I use information on price elasticity to propose a methodology that is able to determine the parameters of a simplified Mixed Logit Model. I also apply this methodology to the ready-to-eat cereal industry and simulate the competitive and welfare effects of the introduction of new products.
    Keywords: Discrete-Choice, Demand Models, Competition
    JEL: L11 D12
    Date: 2011
    URL: http://d.repec.org/n?u=RePEc:fea:wpaper:04-2011&r=ind
  5. By: Indrajit Ray; Sonali Sen Gupta
    Abstract: For duopoly models, we consider the notion of weak correlation using simple symmetric devices that the players choose to commit to in equilibrium. In a linear duopoly game, we prove that Nashcentric devices involving a sunspot structure are simple symmetric weak correlated equilibria. Any small perturbation from such a structure fails to be an equilibrium.
    Keywords: Duopoly, weak Correlation, Simple device, Sunspots
    JEL: C72
    Date: 2011–09
    URL: http://d.repec.org/n?u=RePEc:bir:birmec:11-14&r=ind
  6. By: Joanne Evans (University of Surrey); Paul Levine (University of Surrey); Neil Rickman (University of Surrey and CEPR); Francesc Trillas (Universitat Autonoma de Barcelona)
    Abstract: Dynamic principal-agent settings with asymmetric information but no commitment are well known to create a ratchet effect. Here, the most efficient agents must be provided with extra 'information rent' as an incentive to relinquish their informational advantage over an uninformed principal; this causes welfare to fall. We study this problem in the case of regulatory procurement and show that delegation by the government to an independent regulator whose preferences differ from the government's can overcome this inefficiency, and we provide 'conservative' conditions under which this happens. Our solution reflects several aspects of many modern regulatory settings: government commitment to a particular regulator, the provision of independence to that regulator, and heterogeneity across available regulators. Our results also provide an analogy with the literatures on the benefits of delegation to independent principals in other settings, such as monetary policy, financial regulation and trade and hence contribute to this broader research agenda.
    Keywords: delegation; ratchet effect; procurement
    JEL: L51
    Date: 2011–09
    URL: http://d.repec.org/n?u=RePEc:sur:surrec:0911&r=ind
  7. By: Jacques Thépot (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper explores the idea to regulate retailing industry through a tax on the store parking size. In Western economies, retailers use common resources (land use, road networks) contributing to the store accessibility that they do not pay for. This kind of free riding gives gross merchandisers and hypermakets a competitive advantage which establishes undue market power while creating, presumably, inefficiencies when social cost is taken into account. Hence the idea to tax the parking, which is a proxy measure of the accessibility resources used by the retailer. By using a standard model of horizontal differentiation, we explore the impact of parking taxation in a monopoly and in duopoly and we characterize optimal taxation policies.
    Keywords: spatial competition, optimal taxation, parking
    JEL: L13 H20 H40 R10
    Date: 2011
    URL: http://d.repec.org/n?u=RePEc:lar:wpaper:2011-06&r=ind

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