nep-ind New Economics Papers
on Industrial Organization
Issue of 2012‒07‒29
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Endogenous Market Structures and Welfare By Federico Etro
  2. On welfare losses due to imperfect competition By Ritz, R.A.
  3. Coarse correlated Equilibria in Linear Duopoly Games By Indrajit Ray; Sonali Sen Gupta
  4. Upward Pricing Pressure in Two-Sided Markets By Affeldt, P.; Filistrucchi, L.; Klein, T.J.
  5. Competition and Ideological Diversity: Historical Evidence from US Newspapers By Matthew Gentzkow; Jesse M. Shapiro; Michael Sinkinson
  6. Competition and the Social Cost of Regulation in the Postal Sector By Martin Maegli; Christian Jaag

  1. By: Federico Etro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: I characterize microfounded endogenous market structures with Bertrand and Cournot competition and perform welfare analysis generalizing the Mankiw-Whinston condition for excess entry. The impact of market leaders on welfare is reconsidered, with a number of policy implications about strategic investments, vertical contracts, bundling, mergers and more. The neutrality of consumer surplus holds only when utility is homothetic. Under quantity competition, aggressive (accommodating) leaders increase consumer surplus if the elasticity of utility is decreasing (increasing) in consumption. This provides general rules to evaluate mergers and abuse of dominance issues in antitrust policy.
    Keywords: Endogenous entry, oligopoly, welfare
    JEL: L1
    Date: 2012
  2. By: Ritz, R.A.
    Abstract: Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important - yet thus far unquantifed - impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n4, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets).
    Keywords: Delegation, forward trading, managerial incentives, market structure, welfare losses.
    JEL: D43 D61 L13 L22 L41
    Date: 2012–07–23
  3. By: Indrajit Ray; Sonali Sen Gupta
    Abstract: For duopoly models, we analyse the concept of coarse correlated equilibrium using simplesymmetric devices that the players choose to commit to in equilibrium. In a linear duopoly game, we prove that Nash-centric devices, involving a sunspot structure, are simple symmetric coarse correlated equilibria. Any small unilateral perturbation from such a structure fails to be an equilibrium.
    Keywords: Duopoly, Coarse Correlation, Simple devices, Sunspots
    Date: 2012–07
  4. By: Affeldt, P.; Filistrucchi, L.; Klein, T.J. (Tilburg University, Tilburg Law and Economics Center)
    Abstract: Abstract: Pricing pressure indices have recently been proposed as alternative screening devices for horizontal mergers involving differentiated products. We extend the concept of Upward Pricing Pressure (UPP) proposed by Farrell and Shapiro (2010) to two-sided markets. Examples of such markets are the newspaper market, where the demand for advertising is related to the number of readers, and the market for online search, where advertising demand depends on the number of users. The formulas we derive are useful for screening mergers among two-sided platforms. Due to the two-sidedness they depend on four sets of diversion ratios that can either be estimated using market-level demand data or elicited in surveys. In an application, we evaluate a hypothetical merger in the Dutch daily newspaper market. Our results indicate that it is important to take the two-sidedness of the market into account when evaluating UPP.
    Keywords: Merger evaluation;two-sided markets;network effects;UPP.
    JEL: L13 L40 L82
    Date: 2012
  5. By: Matthew Gentzkow; Jesse M. Shapiro; Michael Sinkinson
    Abstract: We use data on US newspapers from the early 20th century to study the economic incentives that shape ideological diversity in the media. We show that households prefer newspapers whose political content agrees with their own ideology, that newspapers with the same political content are closer substitutes than newspapers with different political content, and that newspapers seek both to cater to household tastes and to differentiate from their competitors. We estimate a model of newspaper demand, entry and affiliation choice that captures these forces. We show that competitive incentives greatly enhance the extent of ideological diversity in local news markets, and we evaluate the impact of policies designed to increase such diversity.
    JEL: L11 L52 L82
    Date: 2012–07
  6. By: Martin Maegli; Christian Jaag
    Abstract: Increased direct and indirect competition in the postal sector represents a great challenge to the traditional business model of postal operators. It is often put forward that regulatory institutions need to evolve in parallel and coherently with developments in the market place in order to allow postal operators cope with these challenges. Regulatory institutions are intended to remedy market failures and reduce transaction costs. However, they also cause governance costs, including costs resulting from distorted investment and innovation, if these institutions do not respond adequately to changes in consumer preferences and technologies. This paper analyzes of the impact of regulatory institutions on investment and innovation in the postal sector.
    Keywords: Regulation, Postal market, Governance, Institutions
    JEL: L41 L52
    Date: 2012–07

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