nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒12‒19
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Entry deterrence through cooperative R&D over-investment By Christin, Clémence
  2. Trading Away Wide Brands for Cheap Brands By Swati Dhingra
  3. Platform Competition under Asymmetric Information By Hanna Halaburda; Yaron Yehezkel

  1. By: Christin, Clémence
    Abstract: In this paper, we highlight new conditions under which R&D agreements may have anti-competitive effects. We focus on cases where two firms compete with each other and with a competitive fringe. R&D activities need a specific input available to all firms on a common market, the price of which increases with demand for the input. In such a context, if a firm increases its R&D expenses, it increases the cost of R&D for its rivals. This induces exit from the fringe and may increase the final price. Therefore, by contrast to the case where the cost of R&D for one firm is independent of its rivals' R&D decisions, cooperation between strategic firms on the upstream market may induce more R&D by strategic firms, in order to exclude firms from the fringe and increase the final price. --
    Keywords: Competition policy,Research and Development Agreements,Collusion,Entry deterrence
    JEL: L13 L24 L41
    Date: 2011
    URL: http://d.repec.org/n?u=RePEc:zbw:dicedp:38&r=ind
  2. By: Swati Dhingra
    Abstract: Firms face competing needs to expand product variety and reduce production costs. Trade policy affects firm investments in product variety and production processes differently. Access to larger markets enables innovation to reduce costs. Although firm scale increases, foreign competition reduces markups. Firms react by narrowing their product varieties to recapture these lost markups. I provide a theory detailing this conflicting impact of trade policy and address welfare gains from trade. Accounting for firm heterogeneity, I show support for the theoretical predictions with firm-level innovation data from Thailand's manufacturing sector which experienced unilateral home tariff changes during 2003-2006.
    Keywords: brands, trade, manufacturing, heterogeneous firms, Thailand
    JEL: F10 F14 M37 N80
    Date: 2011–12
    URL: http://d.repec.org/n?u=RePEc:cep:cepdps:dp1103&r=ind
  3. By: Hanna Halaburda (Strategy Unit, Harvard University); Yaron Yehezkel (The Recanati Graduate School of Business Administration, Tel Aviv University)
    Abstract: In the context of platform competition in a two-sided market, we study how ex-ante uncertainty and ex-post asymmetric information concerning the value of a new technology affects the strategies of the platforms and the market outcome. We find that the incumbent dominates the market by setting the welfare-maximizing quantity when the difference in the degree of asymmetric information between buyers and sellers is significant. However, if this difference is below a certain threshold, then even the incumbent platform will distort its quantity downward. Since a monopoly incumbent would set the welfare-maximizing quantity, this result indicates that platform competition may lead to a market failure: Competition results in a lower quantity and lower welfare than a monopoly. We consider two applications of the model. First, we consider multi-homing. We find that multi-homing solves the market failure resulting from asymmetric information. However, if platforms can impose exclusive dealing, then they will do so, which result in market inefficiency. Second, the model provides a new argument for why it is usually entrants, not incumbents, that bring major technological innovations to the market.
    Keywords: asymmetric information, platform competition, exclusive dealing, technology adoption
    JEL: L15 L41
    Date: 2011–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1105&r=ind

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