nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒11‒01
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Bundling Revisited: Substitute Products and Inter-Firm Discounts By Mark Armstrong
  2. Do Exclusivity Arrangments Harm Consumers? By Jihui Chen
  3. Exploding Offers and Buy-Now Discounts By Mark Armstrong; Jidong Zhou
  4. Firm Entry and Exit in Local Markets: Market Pull and Unemployment Push By Marcus Dejardin; Martin Carree
  5. EU Competition Policy Revisited: Economic Doctrines Within European Political Work By Matthieu MONTALBAN (GREThA, CNRS, UMR 5113); Sigfrido RAMIREZ-PEREZ (Università Bocconi); Andy SMITH (Centre Emile Durkheim - IEP-Bordeaux)
  6. Postal and Regulatory Reform in Intermodal Competition By Christian Jaag; Helmut Dietl

  1. By: Mark Armstrong
    Abstract: This paper extends the standard model of bundling to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand-alone products. When products are partial substitutes, this typically gives an integrated firm a greater incentive to offer a bundle discount (relative to the standard model with additive preferences), while product substitutability is often the sole reason why separate sellers wish to offer inter-firm discounts. When separate sellers negotiate their inter-firm discount, they can use the discount to relax competition.
    Keywords: Bundling, Price discrimination, Oligopoly, Collusion
    JEL: L11 L13 L42
    Date: 2011
  2. By: Jihui Chen (Department of Economics, Illinois State University; Department of Strategy and Policy, National University of Singapore)
    Abstract: This paper explores welfare implications of exclusivity arrangements, e.g. iPhone?s part- nership with wireless carriers. Two ?rms compete in a primary good market, while a monop- olistic ?rm o¤ers a value-adding good. The primary good can be consumed alone, while the value-adding good must be consumed with the primary good. The monopolistic ?rm forms an exclusivity partnership with one of the primary good providers. Buyers are able to consume the value-adding good only if they patronize the monopolistic ?rm?s exclusive partner. This practice allows the monopolistic ?rm to extract surplus from the primary good market. Sur- prisingly, consumers bene?t from the exclusivity arrangement. However, overall social welfare declines, despite improvements to consumer welfare.
    Keywords: exclusivity, consumer welfare, market efficiency, hotelling
    JEL: L1 L2 L4 L5
    Date: 2011–10
  3. By: Mark Armstrong; Jidong Zhou
    Abstract: A common sales tactic is for a seller to encourage a potential customer to make her purchase decision quickly, before she can investigate rival deals in the market. We consider a market with sequential consumer search in which firms can achieve this either by making an exploding offer (which permits no return once the consumer leaves) or by offering a buy-now discount (which makes the price paid for immediate purchase lower than the regular price). We show that firms often have an incentive to use these sales techniques, regardless of their ability to commit to their selling policy. We examine the impact of these sales techniques on market performance. Inducing consumers to buy quickly not only reduces the quality of the match between consumers and products, but may also raise market prices.
    Keywords: Consumer search, Oligopoly, Price discrimination, High-presure selling, Exploding offers, Buy-now discounts, Costly recall
    JEL: D18 D83 L13
    Date: 2011
  4. By: Marcus Dejardin; Martin Carree
    Abstract: Firm entry and exit flows in the retailing and consumer services may be viewed as market equilibrating processes. Local markets with considerable market room and high unemployment ought to be characterized by high subsequent entry rates and low exit rates. However, lack of entrepreneurial alertness may inhibit this. We examine the relationship and obtain empirical results for a range of selected industries in 563 Belgian municipalities. We show that, over a three-year period, (net) entry is positively affected by the presence of local 'market room' and also by future market pull. We find 'unemployment push' effect on entry in easy-to-enter industries, but also a significant effect of unemployment on exit.
    Keywords: Entrepreneurship; Entry; Exit; Entrepreneurship; Unemployment
    JEL: L80 M13 R12
    Date: 2011–10
  5. By: Matthieu MONTALBAN (GREThA, CNRS, UMR 5113); Sigfrido RAMIREZ-PEREZ (Università Bocconi); Andy SMITH (Centre Emile Durkheim - IEP-Bordeaux)
    Abstract: European Union competition policy is often described as neoliberal, without this leading to more investigation. This paper highlights how the European Competition policy doctrine has been shaped, how the ordoliberal movement and the Chicago school ideas have been implemented and supported by the political work of some key actors. We show that, contrary to what is sometimes said in literature, ordoliberal actors were neither hegemonic nor leaders between Rome Treaty and the eighties, even if some neoliberal principles were introduced in antitrust law. These laws are much more a compromise between French and German representatives, and between neo-mercantilists and ordoliberals. However, things have dramatically changed since the eighties, when both (1) new political work from members of the Commission introduced in the European competition policy elements of Chicago School doctrine to complete the European market and (2) some decisions from the ECJ clarified the doctrine of EU Competition law. Nowadays, European competition policy is a mix between an ordoliberal spirit and some Chicago School doctrinal elements.
    Keywords: competition, policy, European Union, neoliberalism, ordoliberalism, political work
    JEL: L4 N4
    Date: 2011
  6. By: Christian Jaag; Helmut Dietl
    Abstract: This paper argues that transforming the postal business model goes hand in hand with a transformation in the definition of universal service obligation. Whilst postal operators need to fully embrace the unique competitive space created by electronic substitution, at the intersection between the physical and digital, regulatory frameworks also must be adapted towards a technology-neutral definition of universal service.
    Keywords: Regulation, Postal market, Substitution, Intermodal competition
    JEL: L50 L87
    Date: 2011–10

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