New Economics Papers
on Industrial Organization
Issue of 2012‒09‒03
eight papers chosen by

  1. Upward Pricing Pressure in Two-Sided Markets By Pauline Affeldt; Lapo Filistrucchi; Tobias J. Klein
  2. On two-part tariff competition in a homogeneous product duopoly By Griva, Krina; Vettas, Nikolaos
  3. Suggested retail prices with downstream competition By Simona Fabrizi; Steffen Lippert; Clemens Puppe; Stephanie Rosenkranz
  4. Cartel overcharges and the deterrent effect of EU competition law By Smuda, Florian
  5. Competition between wireless service providers sharing a radio resource By Patrick MAILLÉ; Bruno Tuffin; Jean-Marc Vigne
  6. Competitive dynamics across industries: An analysis of inter-industry competition in German passenger transportation By Albers, Sascha; Heuermann, Caroline
  7. Impact on retail prices of non-neutral wholesale prices for content providers By Giuseppe D'ACQUISTO; Patrick MAILLÉ; Maurizio Naldi; Bruno Tuffin
  8. Dynamic market selection in EU business services By Henk Kox; George van Leeuwen (Statistics Netherlands)

  1. By: Pauline Affeldt; Lapo Filistrucchi (Università degli Studi di Firenze,); Tobias J. Klein
    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
  2. By: Griva, Krina; Vettas, Nikolaos
    Abstract: We explore the nature of two-part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage rates. Competition in only one price component (the fixed fee or the rate) may allow both firms to enjoy positive profits if the other price component has been set at levels different enough for each firm. Endogenous market segmentation emerges, with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm. We therefore characterize how fixing one price component indirectly introduces an element of product differentiation to an otherwise homogeneous product market. We also examine the crucial role that non-negativity constraints play for the nature of market equilibrium.
    Keywords: Market segmentation; Non-linear pricing; Two-part tariffs
    JEL: D43 L13
    Date: 2012–08
  3. By: Simona Fabrizi; Steffen Lippert; Clemens Puppe; Stephanie Rosenkranz
    Abstract: We analyze vertical relationships between a manufacturer and competing retailers when consumers have reference-dependent preferences. Consumers adopt the manufacturer's suggested retail price as their reference price and perceive losses when purchasing above the suggested price and gains when purchasing below it. In equilibrium, retailers undercut price suggestions and the manufacturer suggests a retail price if consumers are sufficiently bargain-loving and perceive retailers as sufficiently undifferentiated. The manufacturer engages in resale price maintenance otherwise. Consumers can be worse off with suggested retail prices than with resale price maintenance, prompting a rethinking of the current legal treatment of suggested retail prices.
    Keywords: suggested or recommended retail prices, resale price maintenance, reference-dependent preferences, vertical restraints, competition law and policy
    JEL: D03 D43 K21 L42
    Date: 2012–08
  4. By: Smuda, Florian
    Abstract: This paper examines cartel overcharges for the European market. Using a sample of 191 overcharge estimates and several parametric and semi-parametric estimation procedures, the impact of different cartel characteristics and the market environment on the magnitude of overcharges is analyzed. The mean and median overcharge rates are found to be 20.70 percent and 18.37 percent of the selling price and the average cartel duration is 8.35 years. Certain cartel characteristics and the geographic region of cartel operation influence the level of overcharges considerably. Furthermore, empirical evidence suggests that the currently existing fine level of the EU Guidelines is too low to achieve optimal deterrence. --
    Keywords: cartels,overcharges,Europe,fines,deterrence,damages
    JEL: L13 L41 L44
    Date: 2012
  5. By: Patrick MAILLÉ (RSM - Département Réseaux, Sécurité et Multimédia - Institut Télécom - Télécom Bretagne - Université européenne de Bretagne); Bruno Tuffin (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1); Jean-Marc Vigne (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1)
    Abstract: We present a model of competition on prices between two telecommunication service providers sharing an access resource, which can for example be the same WiFi spectrum. We obtain a two-level game corresponding to two time scales of decisions: at the smallest time scale, users play an association game by choosing their provider (or none) depending on price, provider reputation and congestion level, and at the largest time scale, providers compete on prices. We show that the association game always has an equilibrium, but that several can exist. The pricing game is then solved by assuming that providers are risk- averse and try to maximize the minimal revenue they can get at a user equilibrium. We illustrate what can be the outcome of this game and that there are situations for which providers can co-exist.
    Keywords: Game theory, Wireless networks, Pricing, Shared spectrum
    Date: 2012
  6. By: Albers, Sascha; Heuermann, Caroline
    Abstract: Whereas analyses of competitive dynamics have hitherto focused on analysing the effects of intra-industry interaction on firm performance, we explore and analyse competition between actors that stem from different industries. This inter-industry focus is novel and interesting, as it allows the exploration of competitive parameters between rivals that differ substantially in their resource endowments, organisational structures, practices and cognitive schemes. The inter-industry focus is also important, since many industries are converging and thus instil competitive interaction between actors that were traditionally separated by industry boundaries. The empirical context for this study is the competitive interaction between airlines and railways in Germany. Based on expert interviews and grounded theory analysis, we shed light onto hitherto neglected facets of awareness, motivation and capability as drivers of competitive actions. We thereby contribute to both competitive dynamics as well as transport strategy literatures. --
    Keywords: strategy,competitive dynamics,air transport,railway
    JEL: L10 L91 M19
    Date: 2012
  7. By: Giuseppe D'ACQUISTO (Garante per la protezione dei dati personali - Garante per la protezione dei dati personali); Patrick MAILLÉ (RSM - Département Réseaux, Sécurité et Multimédia - Institut Télécom - Télécom Bretagne - Université européenne de Bretagne); Maurizio Naldi (DISP - Dipartimento di Informatica, Sistemi e Produzione [Roma] - Università degli Studi di Roma "Tor Vergata"); Bruno Tuffin (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1)
    Abstract: The impact of wholesale prices is examined in a context where the end customer access both free content and payper-use content, delivered by two different providers through a common network provider. We formulate and solve the game between the network provider and the pay-per-use content provider, where both use the price they separately charge the end customer with as a leverage to maximize their profits. In the neutral case (the network provider charges equal wholesale prices to the two content providers), the benefits coming from wholesale price reductions are largely retained by the pay-peruse content provider. When the free content provider is charged more than its pay-per-use competitor, both the network provider and the pay-per-use content provider see their profit increase, while the end customer experiences a negligible reduction in the retail price.
    Keywords: Network neutrality, Game theory, Pricing
    Date: 2012
  8. By: Henk Kox; George van Leeuwen (Statistics Netherlands)
    Abstract: <p>European business services has witnessed about two decades of virtual productivity stagnation. The paper investigates whether this is caused by weak dynamic market selection. The time pattern of scale-related inefficiencies is used as an indicator for the effectiveness of market selection.</p><p>We use a DEA method to construct the productivity frontier by sub-sector and size class, for business services in 13 EU countries. From this we derive scale economies and their development over time. Between 1999 and 2005 we observe a persistence of scale inefficiencies and X-inefficiencies, with scale efficiency falling rather than growing over time. This indicates malfunctioning competitive selection.</p><p>The time pattern of inefficiencies is significantly explained by regulatory policies that hamper entry and exit dynamics and labour adjustment, and by a lack of import penetration. The results suggest that policy reform and more market openness may have positive productivity effects. This holds for business services itself, but also wider, because of business services’ large role in intermediary production inputs.</p>
    JEL: L1 L5 D2 L8
    Date: 2012–08

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.