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on Industrial Organization |
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Issue of 2012‒08‒23
nine papers chosen by |
| By: | Anthony Creane (Department of Economics, Michigan State University); Thomas D. Jeitschko (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) |
| Abstract: | In markets for experience or credence goods adverse selection can drive out higher quality products and services. This negative implication of asymmetric information about product quality for trading and welfare, poses the question of how such markets first originate. We consider a market in which sellers make observable investment decisions to enter a market in which each seller's quality becomes private information. Entry has the tendency to lower prices, which may lead to adverse selection. The implied price collapse limits the amount of entry so that high prices are sustained in equilibrium, which results in above normal profits. The analysis suggests that rather than observing the canonical market collapse, markets with asymmetric information about product quality may instead be characterized by above normal profits even in markets with low measures of concentration and less entry than would be expected. |
| Keywords: | adverse selection, asymmetric information, quality, experience goods, cre- dence goods, entry, entry barriers |
| JEL: | D8 D4 L1 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:doj:eagpap:201206&r=ind |
| By: | Mitraille, Sébastien (Université de Toulouse, Toulouse Business School); Moreaux, Michel (Toulouse School of Economics (IDEI and LERNA)) |
| Abstract: | Two-period Cournot competition between n identical firms producing at constant marginal cost and able to store before selling has pure strategy Nash-perfect equilibria, in which some firms store to exert endogenously a leadership over rivals. The number of firms storing balances market share gains, obtained by accumulating early the output, with losses in margin resulting from increased sales and higher operation costs. This number and the industry inventories are non monotonic in n. Concentration (HHI) and aggregate sales increase due to the strategic use of inventories. |
| JEL: | D43 L13 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26044&r=ind |
| By: | Takao Ohkawa (Faculty of Economics, Ritsumeikan University); Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Makoto Okamura (Faculty of Economics, Ritsumeikan University); Kozo Harimaya (Faculty of Business Administration, Ritsumeikan University) |
| Abstract: | We address the following question: Why do most large firms select limited liability as their business organizational form in the real world? We construct a two-stage game. In the first stage, each of the oligopolistic firms chooses its business organizational form, while in the second stage, each behaves in a Cournot fashion. The following conclusions are established. (1) Even if an unlimited liability firm is viable, all firms become limited liability entities in equilibrium. (2) The equilibrium industry configuration, where all firms become limited liability entities, achieves efficiency in the second-best sense. |
| Keywords: | business organizational form, limited liability, unlimited liability, Cournot oligopoly |
| JEL: | G32 K22 L13 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:91&r=ind |
| By: | Roberto Roson (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | This paper draws upon Feenstra and Ma (2007, 2008), to develop a model of asymmetric competition between multiproduct firms. The model is used to analyze how cost asymmetry affects the equilibrium, with determination of quantity/price as well as product scope per firm. By treating the number of firms as a continuous variable, the model is extended to account for the endogenous determination of the number of firms in a long-run, monopolistically competitive equilibrium, with free entry by heterogeneous firms. |
| Keywords: | Multiproduct firm, monopolistic competition, product scope, cost asymmetry. |
| JEL: | D43 L11 L13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2012_14&r=ind |
| By: | Hernán, Roberto; Kujal, Praveen |
| Abstract: | We study incentives to vertically integrate in an industry with vertically differentiated downstream firms. Vertical integration by one of the firms increases production costs for the rival. Increased production costs negatively affects quality investment both by the integrated firm and the unintegrated rival. Quality investment by both firms decreases under any (vertical integration) scenario. The decrease in quality invesment by both firms softens competition among downstream firms. By integrating first, a firm always produces the high quality good and earns higher profits. A fully integrated industry, with increased product differentiation, is observed in equilibrium. Due to increase in firm profits, social welfare under this structure is greater than under no integration. |
| Keywords: | Vertical integration; Quality investment; Market power; Product differentiation; |
| JEL: | L15 L22 L42 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:ner:carlos:info:hdl:10016/14968&r=ind |
| By: | Joseph E. Harrington, Jr. |
| Abstract: | The 2010 Horizontal Merger Guidelines propose a form of coordinated effects, referred to as "parallel accommodating conduct," that is claimed not to involve the usual evaluation of the ability of firms to detect compliance and punish non-compliance with respect to supracompetitive prices. That claim is argued here to be false. Where the concept of parallel accommodating conduct is valid and constructive is in identifying coordinated effects that do not involve firms having an agreement. These issues are explored here in the context of a more general examination of how firms coordinate on and implement supracompetitive outcomes. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:jhu:papers:601&r=ind |
| By: | Ajay Bhaskarabhatla (Erasmus University Rotterdam); Enrico Pennings (Erasmus University Rotterdam) |
| Abstract: | We formulate a simple model of optimal defensive disclosure by a monopolist facing uncertain antitrust enforcement and test its implications using unique data on defensive disclosures and patents by IBM during 1955-1989. Our results indicate that stronger antitrust enforcement leads to more defensive disclosure, that quality inventions are disclosed defensively, and that defensive disclosure served as an alternative but less successful mechanism to patenting at IBM in appropriating returns from R&D. |
| Keywords: | Antitrust; Defensive Disclosure; Patent; IBM |
| JEL: | K21 L40 M10 O32 O34 |
| Date: | 2012–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120010&r=ind |
| By: | Andreas Haller; Christian Jaag; Urs Trinkner |
| Abstract: | This paper explains the potentially excessive termination charges and low quality levels in the international parcel market with a stylized game theoretic model. Within this model it is possible to elaborate the distortions currently in place. The model incorporates quality to account for empirical findings on consumer preferences which indicate that quality of service is a crucial issue in the international parcel market. |
| Keywords: | International parcel market, Termination charges, Remuneration system |
| JEL: | L14 L87 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:chc:wpaper:0033&r=ind |
| By: | García-Gallego, Aurora; Georgantzís, Nikolaos; Hernán, Roberto; Kujal, Praveen |
| Abstract: | We report results from experimental water markets in which owners of two different sources of water supply water to households and farmers. The final water quality consumed by each type of consumer is determined through mixing of qualities from two different resources. We compare the standard duopolistic market structure with an alternative market clearing mechanism inspired by games with confirmed strategies (which have been shown to yield collusive outcomes). As in the static case, complex dynamic markets operating under a confirmed proposals protocol yield less efficient outcomes because coordination among independent suppliers has the usual effects of restricting output and increasing prices to the users. Our results suggest that, when market mechanisms are used to allocate water to its users, the rule of thumb used by competition authorities can also serve as a guide towards water market regulation.----------------------------- ---------------------------------------- --- |
| Abstract: | Se presentan resultados de un experimento con mercados acuíferos en el que los propietarios de agua de distinta calidad la ofrecen a hogares y agricultores. La calidad finalmente consumida por cada tipo de consumidor se determina a partir de una mezcla de las dos calidades. Se compara el duopolio estándar con una forma alternativa de cerrar el mercado que está inspirada en los juegos con propuestas confirmadas, que consiguen resultados relativamente más colusivos. Como en el caso estático, los mercados dinámicos y complejos que operan bajo un protocolo de propuestas confirmadas son menos eficientes porque la coordinación entre oferentes independientes tiene los efectos de restringir el output y de provocar un crecimiento de los precios. Nuestros resultados sugieren que cuando los mecanismos de mercado se utilizan para distribuir el agua a sus usuarios, la regla utilizada por parte de las autoridades de la competencia puede servir también como guía para la regulación de los mercados acuíferos. |
| Keywords: | Allocation of water; Dynamic duopoly; Endogenous water quality; Games with confirmed proposals; Calidad endógena del agua; Duopolio dinámico; Juegos con propuestas confirmadas; |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:ner:carlos:info:hdl:10016/14981&r=ind |