nep-ind New Economics Papers
on Industrial Organization
Issue of 2012‒05‒08
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Mixed Oligopoly and Entry By John Bennett; Manfredi La manna
  2. Vertical relations and number of channels in quality-differentiated markets By E. Bacchiega; O. Bonroy
  3. Optimal collusion with limited liability By Billette de Villemeur, Etienne; Flochel, Laurent; Versaevel, Bruno
  4. Collusion and the Political Differentiation of Newspapers By Filistrucchi, L.; Antonielli, M.
  5. Competition Between Mail and Electronic Substitutes in the Financial Sector: A Hotelling Approach By Cremer, Helmuth; De Donder, Philippe; Dudley, Paul; Rodriguez, Frank
  6. Abuse of Dominance and Licensing of Intellectual Property By Rey, Patrick; Salant, David
  7. A Tariff-Tax Reform under Oligopoly and Free Entry By Kenji Fujiwara; Ryoma Kitamura

  1. By: John Bennett; Manfredi La manna
    Abstract: We analyze a mixed oligopoly with free entry by private firms. It is assumed that a state-owned enterprise (SOE) maximizes an increasing function of output, subject to a break-even constraint. We first show that, because of instability, the industry cannot contain more than one SOE. Then we establish an irrelevance result: if the SOE's cost disadvantage relative to private firms is not too large, then aggregate output, aggreagte costs and welfare are the same with and without the SOE. However, for this range of cost disadvantage an SOE monopoly yields higher welfare. Implications for privatization policy are suggested.
    Date: 2012–02
    URL: http://d.repec.org/n?u=RePEc:edb:cedidp:12-01&r=ind
  2. By: E. Bacchiega; O. Bonroy
    Abstract: Double marginalization causes inefficiencies in vertical markets. This paper argues that such inefficiencies may be beneficial to final consumers in markets producing vertically differentiated goods. The rationale behind this result is that enhancing efficiency in high-quality supply chains through vertical integration may drive out of the market low-quality ones, thus affecting market structure. As a consequence, restoring-efficiency vertical integration may reduce consumer surplus, even in the absence of foreclosure strategies by the newly integrated firms. From a policy standpoint, our paper suggests that input and/or customer foreclosure should not be considered as the only source of antitrust concern when assessing the effects of vertical integration.
    JEL: L13 L22 L4
    Date: 2012–04
    URL: http://d.repec.org/n?u=RePEc:bol:bodewp:wp823&r=ind
  3. By: Billette de Villemeur, Etienne; Flochel, Laurent; Versaevel, Bruno
    Abstract: Collusion sustainability depends on firms' aptitude to impose sufficiently severe punishments in case of deviation from the collusive rule. We extend results from the literature on optimal collusion by investigating the role of limited liability. We examine all situations in which either structural conditions (demand and technology), financial considerations (a profitability target), or institutional circumstances (a regulation) set a lower bound, possibly negative, to firms' profits. For a large class of repeated games with discounting, we show that, absent participation and limited liability constraints, there exists a unique optimal penal code. It commands a severe single-period punishment immediately after a firm deviates from the collusive stage-game strategy. When either the participation constraint or the limited liability constraint bind, there exists an infinity of multi-period punishment paths that permit firms to implement the optimal collusive strategy. The usual front-loading scheme is only a specific case and an optimal punishment profile can take the form of a price asymmetric cycle. We characterize the situations in which a longer punishment does not perform as a perfect substitute for more immediate severity. In this case the lowest discount factor that permits collusion is strictly higher than without the limited liability constraint, which hinders collusion.
    Keywords: Collusion; Oligopoly; Limited Liability
    JEL: L13 D43 C72
    Date: 2012–04–30
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:38481&r=ind
  4. By: Filistrucchi, L.; Antonielli, M. (Tilburg University, Tilburg Law and Economics Center)
    Abstract: Abstract: We analyse a newspaper market where two editors first choose the political position of their newspaper, then set cover prices and advertising tariffs. We build on the work of Gabszewicz, Laussel and Sonnac (2001, 2002), whose model of competition among newspaper publishers we take as the stage game of an infinitely repeated game, and investigate the incentives to collude and the properties of the collusive agreements in terms of welfare and pluralism. We analyse and compare two forms of collusion: in the first, publishers cooperatively select both prices and political position; in the second, publishers cooperatively select prices only. We show that collusion on prices reinforces the tendency towards a Pensée Unique discussed in Gabszewicz, Laussel and Sonnac (2001), while collusion on both prices and the political line would tend to mitigate it. Our findings question the rationale for Joint Operating Agreements among US newspapers, which allow publishers to cooperate in setting cover prices and advertising tariffs but not the editorial line. We also show that, whatever the form of collusion, incentives to collude first increase, then decrease as advertising revenues per reader increase.
    Keywords: collusion;newspapers;two-sided markets;indirect network effects;pluralism;spatial competition.
    JEL: L41 L82 D43 K21
    Date: 2012
    URL: http://d.repec.org/n?u=RePEc:dgr:kubtil:2012014&r=ind
  5. By: Cremer, Helmuth (Toulouse School of Economics (GREMAQ, IDEI and Institut universitaire de France)); De Donder, Philippe (Toulouse School of Economics (GREMAQ-CNRS and IDEI)); Dudley, Paul (Head of Regulatory Economics, Royal Mail Group); Rodriguez, Frank (Associate, Oxera)
    Abstract: We build a model where two banks compete for the patronage of consumers by offering them, among other services and products, two forms of transactional media: paper statements and electronic substitutes. Both banks and both products are horizontally di¤erentiated and modeled à la Hotelling(1929). Assuming symmetry of consumer preferences (over banks and, independently, over the two transactional media) and of bankss costs, we obtain that the unique pro…t-maximizing symmetrical prices reect both the transactional media marginal costs and the intensity of competition between banks. Most notably, the intensity of consumers preferences for one variant of transactional medium over another has no inuence on the pro…t-maximizing media prices. Also, there is total pass-through of increases in input prices (such as mail price for paper statements) into prices paid by …nal consumers.
    Date: 2012–03–13
    URL: http://d.repec.org/n?u=RePEc:ide:wpaper:25794&r=ind
  6. By: Rey, Patrick (TSE); Salant, David (TSE)
    Abstract: We examine the impact of the licensing policies of one or more upstream owners of essential intellectual property (IP hereafter) on the variety offered by a downstream industry, as well as on consumers and social welfare. When an upstream monopoly owner of essential IP increases the number of licenses, it enhances product variety, adding to consumer value, but it also intensifies downstream competition, and thus dissipates profits. As a result, the upstream IP monopoly may want to provide too many or too few licenses, relatively to what maximizes consumer surplus or social welfare. With multiple owners of essential IP, royalty stacking increases aggregate licensing fees and thus tends to limit the number of licensees, which can also reduce downstream prices for consumers. We characterize the conditions under which these reductions in downstream prices and variety is beneficial to consumers or society.
    Keywords: Intellectual property, licensing policy, vertical integration, patent pools.
    JEL: L4 L5 O3
    Date: 2012–04
    URL: http://d.repec.org/n?u=RePEc:tse:wpaper:25803&r=ind
  7. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University); Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University)
    Abstract: Constructing a model of oligopoly with free entry, this paper examines the effects of a tariff reduction accompanied with a unit of consumption tax increase on welfare, government revenue, and market access. We show that the suggested policy reform reduces welfare while enhancing government revenue and market access by inducing further excess entry. Some implications of this finding are discussed in comparison with the case with a fixed number of firms, which involves a welfare loss and an ambiguous effect on government revenue and market access.
    Keywords: tariff-tax reform, oligopoly, free entry, welfare, government revenue, market access.
    JEL: F12 F13
    Date: 2012–04
    URL: http://d.repec.org/n?u=RePEc:kgu:wpaper:88&r=ind

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