nep-ind New Economics Papers
on Industrial Organization
Issue of 2012‒02‒27
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competition and Illicit Quality By Victor Manuel Bennett; Lamar Pierce; Jason A. Snyder; Michael W. Toffel
  2. Brand Management and Strategies Against Counterfeits By Yi Qian
  3. Private antitrust enforcement revisited: The role of private incentives to report evidence to the antitrust authority By Tim Reuter
  4. When Economics Faces the Economy: John Bates Clark and the 1914 Antitrust Legislation By Luca Fiorito

  1. By: Victor Manuel Bennett (USC Marshall School of Business); Lamar Pierce (Washington University in St. Louis); Jason A. Snyder (Anderson School of Management, University of California at Los Angeles); Michael W. Toffel (Harvard Business School, Technology and Operations Management Unit)
    Abstract: Competition among firms can have many positive outcomes, including decreased prices and improved quality. Yet competition can have a darker side when firms can gain competitive advantage through illicit and corrupt activities. In this paper, we argue that competition can lead organizations to provide illicit quality that satisfies customer demand but violates laws and regulations and that this outcome is particularly likely when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, we show that increased competition is associated with greater inspection leniency, a form of illicit quality that customers value but is illegal and socially costly. Firms with greater numbers of local competitors pass customers at considerably higher rates and are more likely to lose customers they fail to pass, suggesting that the alternatives that competition provides to customers intensify pressure to illegally provide leniency. We also show that, at least in contexts when pricing is restricted, firms use illicit quality as an entry strategy.
    Date: 2012–02
  2. By: Yi Qian
    Abstract: In this paper, I provide a theory for the brand-protection strategies to counterfeiting under weak intellectual property rights. My theoretical framework has general implications for endogenous sunk cost investments as a means of deterring counterfeiters. My model incorporates two layers of asymmetric information that counterfeits can incur: counterfeiters fooling consumers, and buyers of counterfeits fooling other consumers. Brands have a number of different tools at their disposal to maintain a separating equilibrium in the face of counterfeits. One of the theoretical predictions of this study is that counterfeit entry would induce incumbent brand to introduce new products. This helps to explain the innovation strategies that authentic firms employ in response to entry by their counterfeiters in the real world. Authentic prices rise if and only if the counterfeit quality is lower than a threshold level. In addition, the model demonstrates how authentic producers could invest in self-enforcement to increase counterfeiters' incentives to separate themselves. Better channel management through company stores and other costly devices are forms of non-price signals and complement a company's own enforcements against counterfeits. These predictions are validated using a unique panel data collected from Chinese shoe companies covering the years 1993-2004. Data further reveal that companies with worse relationships with the government invest more in various self-enforcement strategies, which are effective in reducing counterfeit sales, and that the set of strategies are complements rather than substitutes.
    JEL: D21 D22 D4 K42 L26
    Date: 2012–02
  3. By: Tim Reuter (Department of Economics, University of Konstanz, Germany)
    Abstract: It is commonly believed that the possibility to sue privately for antitrust damages decreases the number of type II errors in enforcement at the cost of creating more type I errors. We extend the analysis by taking into account the fact that private parties often submit evidence during public prosecution. Such parties consider private suit as a partial substitute for public prosecution, as both imply desistance of the violation. The trial option might induce these parties to be less willing to contribute evidence to public cases. Private trials crowd out public prosecution and can have ambiguous effects on the number of enforcement errors.
    Keywords: private and public enforcement, damages, antitrust litigation
    JEL: K21 K41 K42 L41
    Date: 2012–02–13
  4. By: Luca Fiorito
    Keywords: B15, B31 JEL Classification: The aim of this paper is to analyze John Bates Clark’s influence in the passing of the Clayton and Federal Trade Commission Acts (1914). Specifically, it is argued and documented that Clark was important in this process in two ways. First, he exercised an “indirect” influence by discussing in academic journals and books problems concerning trusts, combinations, and the necessary measures to preserve the working of competitive markets. At least as importantly, if not more so, Clark took an active role in the reform movement both contributing to draft proposals for the amendment of existing antitrust legislation and providing help and advice during the Congressional debates which led to the passing of the FTC and Clayton Acts.
    Date: 2012

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