nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒10‒09
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Monopolistic competition: Critical evaluation the theory of monopolistic competition with specific reference to the seminal 1977 paper by Dixit and Stiglitz By Josheski, Dushko; Koteski, Cane; Lazarov, Darko
  2. Optimal Manipulation Rules in a Mixed Duopoly By Corrado Benassi; Alessandra Chirco; Marcella Scrimitore
  3. Pricing and Efficiency in the Market for IP Addresses By Benjamin Edelman; Michael Schwarz
  4. Covert networks and antitrust policy By Roldan, Flavia

  1. By: Josheski, Dushko; Koteski, Cane; Lazarov, Darko
    Abstract: This paper revisits the D-S (Dixit-Stiglitz) model. It’s a simple general monopolistic model with n monopolistic goods, and a numeraire good Labour ( w=1); aggregation for all goods in the economy. We have considered in our paper constant elasticity of substitution case(CES).On the supply side, the assumption is that the labour is perfectly mobile factor of production across the sectors, so as a result in our model there is single wage rate which we denote as in the other sectors than monopolistic there is constant returns to scale and we can specify the production function: The Dixit-Stiglitz model of monopolistic competition works only when n is large; from the functions of the productions best when one applies linear production function. Under increasing returns to scale monopolistic competition will lead to a greater degree of product differentiation than it is socially optimal.
    Keywords: Monopolistic competition; CES; Dixit-Stiglitz model; product differentiation
    JEL: B21 D43
    Date: 2011–09–29
  2. By: Corrado Benassi (Dipartimento di Scienze Economiche, Alma Mater Studiorum - Università di Bologna; The Rimini Centre for Economic Analysis (RCEA)); Alessandra Chirco (Dipartimento di Scienze Economiche e Matematico-Statistiche, Università del Salento); Marcella Scrimitore (Dipartimento di Scienze Economiche e Matematico-Statistiche, Università del Salento; The Rimini Centre for Economic Analysis (RCEA))
    Abstract: We study the optimal manipulation rules of a public firm’s objective function in a mixed duopoly with imperfect product substitutability. We compare the solutions under quantity and price competition, and the way in which they are affected by the degree of product substitutability. This allows us to show that partial privatization, strategic delegation and other specific government’s commitments on the objective function of the public management can be looked at as special cases of these optimal rules, and to evaluate the viability of these policies under the two modes of competition. In this framework, we also discuss the equivalence between manipulation of the objective function and Stackelberg leadership.
    Keywords: Mixed oligopoly, strategic manipulation, partial privatization
    JEL: D43 L13 L32
    Date: 2011–09
  3. By: Benjamin Edelman (Harvard Business School, Negotiation, Organizations & Markets Unit); Michael Schwarz (Yahoo! Research Labs)
    Abstract: We consider market rules for the transfer of IP addresses, numeric identifiers required by all computers connected to the Internet. Excessive fragmentation of IP address blocks causes growth in the Internet's routing table, which is socially costly, so an IP address market should discourage subdividing IP address blocks more than necessary. Yet IP address transfer rules also need to facilitate purchase by the networks that need the addresses most, from the networks who value them least. We propose a market rule that avoids excessive fragmentation while almost achieving social efficiency, and we argue that implementation of this rule is feasible despite the limited powers of central authorities. We also offer a framework for the price trajectory of IPv4 addresses. In a world with- out uncertainty, the unit price of IPv4 is constant before the first time when all blocks of IPv4 addresses are in use and decreasing after that time. With uncertainty, the price before that time is a martingale, and the price trajectory afterwards is a supermartingale.
    Date: 2011–09
  4. By: Roldan, Flavia (IESE Business School)
    Abstract: This paper studies the effectiveness of two different antitrust policies by characterizing the network structure of market-sharing agreements that arises under those settings. Market-sharing agreements prevent firms from entering each other's market. The set of these agreements defines a collusive network, which is pursued by antitrust authorities. This article shows that under a constant probability of inspection and a penalty equal to a firm's limited liability, firms form collusive alliances where all of them are interconnected. In contrast, when the antitrust policy reacts to prices in both dimensions - probability of inspection and penalty - firms form collusive cartels where they are not necessarily fully interconnected. This implies that more competitive structures can be sustained in the second case than in the first case. Notwithstanding, antitrust laws may have a pro-competitive effect in both scenarios, as they give firms in large alliances more incentives to cut their agreements at once.
    Keywords: market-sharing; economic networks; antitrust authority; oligopoly;
    JEL: D43 K21 L41
    Date: 2011–07–07

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