nep-ind New Economics Papers
on Industrial Organization
Issue of 2012‒06‒25
thirteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Quality Competition and a Demand Spillover Effect: A Case of Product Differentiated Duopoly By Tsuyoshi Toshimitsu
  2. Product innovation in a vertically differentiated model By L. Filippini; C. Vergari
  3. Patent licensing with Bertrand competitors By Stefano Colombo; Luigi Filippini
  4. The Stackelberg Model as a Partial Solution to the Problem of Pricing in a Network By Jolian McHardy; Michael Reynolds; Stephen Trotter
  5. Is a “Firm” a Firm? A Stackelberg Experiment By Andreas Hildenbrand
  6. Market Structure and Market Performance in E-Commerce By Hackl, Franz; Kummer, Michael E; Winter-Ebmer, Rudolf; Zulehner, Christine
  7. Making 1+1=1. The Central Role of Identity in Merger Math By Bouchikhi, Hamid; Kimberly, John R.
  8. A note on acquisition of complements in a vertically differentiated market By O. Tarola; C. Vergari
  9. Bargaining failures and merger policy By Burguet, Roberto; Caminal, Ramon
  10. Does merger simulation Work? A “natural experiment” in the Swedish analgesics market By Jonas BJÖRNERSTEDT; Frank VERBOVEN
  11. Competition in the Portuguese Economy:An overview of classical indicators By Ana Cristina Soares; João Amador
  12. Spatial Price Competition in the Non-Alcoholic Beverage Industry in the United States By Dharmasena, Senarath; Capps, Oral, Jr.
  13. Price Discrimination with Asymmetric Firms: The Case of the U.S. Carbonated Soft Drinks Market By Liu, Yizao; Shen, Shu

  1. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Employing the price-quality competition model in a horizontally differentiated products market, we analyze how a demand spillover effect associated with upgrading the quality level of a product affects the strategic relationship between firms and the property of a subgame perfect Nash equilibrium. In particular, we show that the strategic relationship depends on the degree of a demand spillover effect. Then, we consider the cases of second-best policy and cooperative quality choice. Furthermore, we illustrate that there exists a natural Stackelberg equilibrium under asymmetric demand spillover effects that is Pareto superior to other equilibria. Finally, we examine an optimal policy with international R&D rivalry.
    Keywords: demand spillover effect, quality choice, product differentiation, Bertrand duopoly, a natural Stackelberg equilibrium, cooperative investment, optimal investment policy
    JEL: L12 L13
    Date: 2012–06
  2. By: L. Filippini; C. Vergari
    Abstract: We study the licensing incentives of an independent input producer owning a patented product innovation which allows the downstream firms to improve the quality of their final goods. We consider a general two-part tariff contract for both outside and incumbent innovators. We find that technology diffusion critically depends on the nature of market competition (Cournot vs. Bertrand). Moreover, the vertical merger with either downstream firm is always privately profitable and it is welfare improving for large innovations: this implies that not all profitable mergers should be rejected.
    JEL: L15 L13 L24
    Date: 2012–06
  3. By: Stefano Colombo (DISCE, Università Cattolica); Luigi Filippini (DISCE, Università Cattolica)
    Abstract: We study optimal licensing contracts in a differentiated Bertrand duopoly, and show that per-unit contracts are preferred to ad valorem contracts by the patentee, while welfare is higher under the ad valorem contract. The difference between Cournot and Bertrand case is explained in terms of quantity effect and profits effect.
    Keywords: Two-part contracts; patent licensing, ad valorem royalties; Bertrand
    JEL: D45
    Date: 2012–04
  4. By: Jolian McHardy (Department of Economics, University of Sheffield); Michael Reynolds (School of International Studies, University of Bradford); Stephen Trotter (Centre for Economic Policy, University of Hull)
    Abstract: We consider an application of the Stackelberg leader-follower model in prices in a simple two-firm network as a possible way to help resolve externalities that can be harmful to firm profit and welfare. Whilst independent pricing on the network yields lower profit and sometimes even lower welfare than monopoly pricing, we show that by allowing the firms to collude on some prices in a first-stage and set remaining prices independently (competitively) in a second stage, both profit and welfare gains can be made.
    Keywords: Stackelberg; pricing; network
    JEL: L11 L14 L51
    Date: 2012–06
  5. By: Andreas Hildenbrand (University of Giessen)
    Abstract: Industrial organization is mainly concerned with the behavior of large firms. Experimental industrial organization therefore faces a problem: How can firms be brought into the laboratory? The main approach relies on framing: Call individuals “firms”! This experimental approach is not in line with modern industrial organization, according to which a firm’s market behavior is also determined by its organizational structure. In this paper, a Stackelberg experiment is considered in order to answer the question whether framing individual decision making as organizational decision making or implementing an organizational structure is more effective in generating profit-maximizing behavior. Firms are either represented by individuals or by teams. I find that teams’ quantity choices are more in line with the assumption of profit maximization than individuals’
    Keywords: industrial organization, Stackelberg game, individual behavior, team behavior, framing, experimental economics.
    JEL: C72 C91 C92 D43 L13
    Date: 2012
  6. By: Hackl, Franz; Kummer, Michael E; Winter-Ebmer, Rudolf; Zulehner, Christine
    Abstract: We investigate the causal effect of market structure on market performance in the consumer electronics. We combine data from Austria's largest online site for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics. We observe input prices of firms, and all their moves in the entry and the pricing game over the whole product lifecycle. Using this information for 70 digital cameras, we generate instrumental variables for the number of firms in the market based on the shops' entry decisions on other product markets in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price leader.
    Keywords: Market Performance; Market Structure; Markup; Price Dispersion; Product Lifecycle; Retailing
    JEL: D43 L11 L13 L81
    Date: 2012–06
  7. By: Bouchikhi, Hamid (ESSEC Business School); Kimberly, John R. (The Wharton School
    Abstract: When trying to pull off a successful deal many senior executives focus their attention on economic synergies (1+1>2) and ignore that psychological synergies (1+1=1) are required to reap the financial benefits of mergers and acquisitions. The authors discuss common mistakes firms make in the management of identity issues and offer four approaches that managers can follow to achieve identity integration.
    Keywords: Identity; Integration; Mergers and acquisitions
    Date: 2012–01–01
  8. By: O. Tarola; C. Vergari
    Abstract: This note is concerned with the e¤ects of joint ownership of complements when they are vertically differentiated. We provide strong arguments for the positive nature of network integration among firms, while showing at the same time that, in some circumstances, anti-competitive consequences can be observed under acquisition.
    JEL: L1 L4
    Date: 2012–06
  9. By: Burguet, Roberto; Caminal, Ramon
    Abstract: In this paper we study the optimal ex-ante merger policy in a model where merger proposals are the result of strategic bargaining among alternative candidates. We allow for firm asymmetries and, in particular, we emphasize the fact that potential synergies generated by a merger may vary substantially depending on the identity of the participating firms. The model demonstrates that, under some circumstances, relatively inefficient mergers may take place. That is, a particular merger may materialize despite the existence of an alternative merger capable of generating higher social surplus and even higher profits. Such bargaining failures have important implications for the ex-ante optimal merger policy. We show that a more stringent policy than the ex-post optimal reduces the scope of these bargaining failures and raises expected consumer surplus. We use a bargaining model that is flexible, in the sense that its strategic structure does not place any exogenous restriction on the dendogenous likelihood of feasible mergers.
    Keywords: bargaining; endogenous mergers; merger policy; synergies
    JEL: L13 L41
    Date: 2012–05
    Abstract: We exploit a natural experiment associated with a large merger in the Swedish market for analgesics (painkillers). We confront the predictions from a merger simulation study, as conducted during the investigation, with the actual merger effects over a two-year comparison window. The merger simulation model is based on a constant expenditures specification for the nested logit model (as an alternative to the typical unit demand specification). The model predicts a large price increase of 34% by the merging firms, because there is strong market segmentation and the merging firms are the only competitors in the largest segment. The actual price increase after the merger is of a similar order of magnitude: +42% in absolute terms and +35% relative to the “control group” of non-merging rivals. These findings suggest strong support for merger simulation and structural models of competition more generally. But a closer look at a wider range of merger predictions leads to more nuanced conclusions. First, both merging firms raised their prices by a similar percentage, while the simulation model predicted a larger price increase for the smaller firm. Second, the merging firms’ market shares dropped (as predicted), but one of the outsider firms’ market share also dropped (because it raised prices by a larger amount than predicted).
    Date: 2012–06
  11. By: Ana Cristina Soares; João Amador
    Abstract: This article offers an extensive overview of competition indicators in the Portuguese economy in the period 2000-2009. The article covers qualitative competition indicators as well as classical<br />profitability and concentration measures, focusing on the differences between tradable and non-tradable sectors. The analysis carried out is distinct from that of competition authorities, aiming to set an overall scenario for competition developments. The article concludes that, although there are apparently no widespread problems, there is substantial room for improvements in business competition environment in several markets, notably in the non-tradable area.
    JEL: L10 L60 O50
    Date: 2012
  12. By: Dharmasena, Senarath; Capps, Oral, Jr.
    Keywords: non-alcoholic beverages, spatial price competition, Nielsen data, Demand and Price Analysis, Industrial Organization, Marketing, C21, D11, L11,
    Date: 2012–06
  13. By: Liu, Yizao; Shen, Shu
    Abstract: This paper investigates the relationship between price discrimination and vertical product differentiation, using National Brands and Private Labels in the Carbonated Soft Drink market as a case study. We decompose prices difference into quantity dis- count and cost difference across packagings and recover marginal cost by a structural demand model of consumer preference and firm behavior. Our results suggest that in the carbonated soft drinks market, both national brands and private labels offers quantity discount to consumers: consumers pay lower unit prices when buying larger packed soft drinks. In addition, the price curvature parameter is lower for private la- bels, implying that the price schedule is more curved for private label soft drinks than national brands. This means in the CSD market, private labels have more ability to perform price discrimination, segment consumers, and generate high revenues, com- paring to national brands. This result, to some extent, explains the growing market shares of private label soft drinks and the significant percentage of total sales from private labels goods for retailers, such as Wal-Mart and Target.
    Keywords: Consumer/Household Economics, Industrial Organization, Marketing,
    Date: 2012

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