nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒11‒21
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price Controls and Consumer Surplus By Bulow, Jeremy; Klemperer, Paul
  2. Multimarket Competition and Welfare Effects of Price discrimination. By Iñaki Aguirre
  3. Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and . By Iñaki Aguirre
  4. Insider Trading with Different Market Structures By Wassim Daher; Fida Karam; Leonard J. Mirman
  5. Decomposing First Mover Advantages in the Mobile Telecommunications Industry By JP Eggers; Michal Grajek; Tobias Kretschmer
  6. Mergers and Innovation in the Pharmaceutical Market By Comanor, William S.; Scherer, F. M.
  7. Cross-Selling, Switching Costs and Imperfect Competition in British Banks By Zhao, Tianshu; Matthews, Kent; Murinde, Victor
  8. Sources of Heterogeneity in the Efficiency of Indian Pharmaceutical Firms By Mainak Mazumdar; Meenakshi Rajeev; Subhash Ray

  1. By: Bulow, Jeremy (Stanford University); Klemperer, Paul (Oxford University)
    Abstract: Price controls lead to misallocation of goods and encourage rent-seeking. The misallocation effect alone is enough to ensure that consumer surplus is always reduced by a price control in an otherwise-competitive market with convex demand if supply is more elastic than demand; or when demand is log-convex (e.g., constant-elasticity) even if supply is inelastic. The same results apply both when rationed goods are allocated by costless lottery among interested consumers, and when costly rent-seeking and/or partial de-control mitigates the allocative inefficiency. The results are best understood using the fact that in any market, consumer surplus equals the area between the demand curve and the industry marginal revenue curve.
    JEL: D45 D60 D61
    Date: 2011–10
  2. By: Iñaki Aguirre (UPV/EHU)
    Abstract: The paper investigates the effects on welfare of price discrimination when a multimarket seller faces competition in one of its two markets. Whit respect to uniform pricing, price discrimination changes competition in such a way, that even with linear demands, price discrimination can be welfare-improving, both under strategic substitutes and strategic complements.
    Keywords: Price discrimination, multimsarket competition, welfare analysis
    JEL: L13 L41
    Date: 2011–11–15
  3. By: Iñaki Aguirre (UPV/EHU)
    Abstract: Based on a pioneering work by Ippolito (1980) we construct a simple model wich allows the welfare effects of third-degree price discrimination to be well understood and explained. The decomposition of the change in welfare into a misallocation effect and an output effect has advantages over the well-established analysis by Schamalensee (1981) and Varian (1985). In particular, our approach provides a graphic analysis which clarifies the welfare analysis of third-degree price discrimination.
    JEL: D42 L12 L13
    Date: 2011–11–11
  4. By: Wassim Daher (Gulf University for Science and Technology (GUST) - Department of Mathematics and Natural Sciences, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Fida Karam (Gulf University for Science and Technology (GUST) - Department of Economics and Finance); Leonard J. Mirman (University of Virginia - Department of Economics)
    Abstract: We study an extension of Jain and Mirman (1999) with two insiders under three different market structures : (i) Cournot competition among the insiders, (ii) Stackelberg game between the insiders and (iii) monopoly in the real market and Stackelberg in the financial market. We show how the equilibrium outcomes are affected by each of the market structure. Finally we perform a comparative statics analysis between the models.
    Keywords: Insider trading, Cournot, Stackelberg, correlated signals, Kyle model.
    Date: 2011–08
  5. By: JP Eggers; Michal Grajek; Tobias Kretschmer
    Abstract: We study first-mover advantages and organizational pre-entry experience in a market with highly heterogeneous consumers – the global mobile telecoms industry. Specifically, we consider the fact that early consumers will be different from later ones. We suggest that early entrants will attract higher-value consumers, which results in first-mover advantages. This effect will be enhanced if these firms have acquired prior technical experience. Conversely, later, mass-market adopters are attracted by established (domestic) brand names. Our empirical results from the global telecommunications industry support our assertions and provide importation insight for the study of first-mover advantages in high-technology industries.
    Keywords: First-mover advantage; Mobile telecommunications; Consumer-centric; Pre-entry experience; Firm pre-entry experience
    Date: 2011
  6. By: Comanor, William S. (UCLA and University of CA, Santa Barbara); Scherer, F. M. (Harvard University)
    Abstract: The U.S. pharmaceutical industry has experienced in recent years two dramatic changes: stagnation in the growth of new molecular entities approved for marketing, and a wave of mergers linking inter alia some of the largest companies. This paper explores possible links between these two phenomena and proposes alternative approach to merger policy. It points to the high degree of uncertainty encountered in the discovery and development of new pharmaceutical entities and shows how optimal strategies entail the pursue of parallel research and development paths. Uncertainties afflict both success rates and financial gains contingent upon success. A new model simulating optimal strategies given prevalent market uncertainties is presented. Parallelism can be sustained both within individual companies' R&D programs and across competing companies. The paper points to data showing little parallelism of programs within companies and argues that inter-company mergers jeopardize desirable parallelism across companies.
    Date: 2011–11
  7. By: Zhao, Tianshu; Matthews, Kent (Cardiff Business School); Murinde, Victor
    Abstract: This paper attempts to evaluate the competitiveness of British banking in the presence of cross-selling and switching costs during 1993-2008. It presents estimates of a model of banking behaviour that encompasses switching costs as well as cross-selling of loans and off-balance sheet transactions. The evidence from panel estimation of the model lends support to our theoretical priors on the cross-selling behaviour of British banks, which helps explain the rapid growth of non-interest income during the last two decades. We also find that the consumer faced high switching costs in the loan market in the latter part of the sample period, as a result of lower competitiveness.
    JEL: G21 L13
    Date: 2011–11
  8. By: Mainak Mazumdar (Centre De Science Humaines); Meenakshi Rajeev (Institute for Social and Economic Change); Subhash Ray (University of Connecticut)
    Abstract: Using the non parametric approach of Data Envelopment Analysis (DEA) this paper examines firm’s heterogeneity in the Indian pharmaceutical industry by measuring their input and output efficiencies for the period 1991 to 2005. The analysis establishes that even though firms have been able to make efficient use of inputs like labor and raw material the output efficiency of the firms reveals a declining trend. The phenomenon can be attributed to the differences in the size of firms and the presence of economies of scale in production. Further analysis reveals the importance of firm specific factors like its strategies and structure for variation in output efficiency. We find firms that are vertically integrated with down-stream raw-material industry are more efficient. We also find that R&D is a possible strategic option for firms to gain higher efficiency but only for the large sized firms.
    Keywords: Patents, Pareto-Koopmans Efficiency, Data Envelopment Analysis (DEA)
    JEL: L65 C61
    Date: 2011–11

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