nep-ind New Economics Papers
on Industrial Organization
Issue of 2012‒09‒22
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Simple Model of Bertrand Duopoly with Noisy Prices By Kaminski, Bogumil; Latek, Maciej
  2. ‘Everything must go!’- Cournot as a Stable Convention within Strategic Supply Function Competition By Michal Król
  3. Price Competition and Consumer Confusion By Ioana Chioveanu; Jidong Zhou
  4. Explicit vs. tacit collusion: The impact of communication in oligopoly experiments By Fonseca, Miguel A.; Normann, Hans-Theo
  5. Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks By Naoaki Minamihashi
  6. Market Access and Information Technology Adoption: Historical Evidence from the Telephone in Bavaria By Florian Ploeckl

  1. By: Kaminski, Bogumil; Latek, Maciej
    Abstract: We examine a market in which consumers are forced to rely on noisy price signals to select between homogeneous products. The noise originates either from firms' price obfuscation or consumers' bounded information processing capabilities. Standard models and empirical experiments of markets with noise or price obfuscation show that it leads to higher prices detrimental to consumers' welfare. This paper identifies conditions under which an opposite result can be expected. In particular, it shows that a moderate level of noise is beneficial to consumers in a market with a cost leader.
    Keywords: noisy pricing; bounded rationality; Bertrand oligopoly; game theory
    JEL: L13 C02 D43 C72
    Date: 2012–09–14
  2. By: Michal Król
    Date: 2012
  3. By: Ioana Chioveanu; Jidong Zhou
    Abstract: This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the comparability of price offers, and may cause consumer confusion and lower price sensitivity. In equilibrium, firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. The nature of equilibrium depends on whether frame differentiation or frame complexity is more confusing. Moreover, an increase in the number of competitors induces firms to rely more on frame complexity and this may boost industry profits and lower consumer surplus.
    Date: 2012–07
  4. By: Fonseca, Miguel A.; Normann, Hans-Theo
    Abstract: We explore the difference between explicit and tacit collusion by investigating the impact communication has in experimental markets. For Bertrand oligopolies with various numbers of firms, we compare pricing behavior with and without the possibility to communicate among firms. We find strong evidence that talking helps to obtain higher profits for any number of firms, however, the gain from communicating is nonmonotonic in the number of firms, with medium-sized industries having the largest additional profit from talking. We also find that industries continue to collude successfully after communication is disabled. Communication supports fims in coordinating on collusive pricing schemes, and it is also used for conflict mediation. --
    Keywords: cartels,collusion,communication,experiments,repeated games
    JEL: C7 C9 L4 L41
    Date: 2012
  5. By: Naoaki Minamihashi
    Abstract: Can regulation solve problems arising from a natural monopoly? This paper analyzes whether “unbundling,” referring to regulations that enforce sharing of natural monopolistic infrastructure, prevents entrants from building new infrastructure. It models and estimates a dynamic entry game to evaluate the effects of regulation, using a dataset for construction of fiber-optic networks in Japan. The counterfactual exercise shows that forced unbundling regulation leads to a 24% decrease in the incidence of new infrastructure builders. This suggests, therefore, that when a new technology is being diffused, regulation to remove a natural monopoly conversely involves risks that regulated monopolists’ shares will increase.
    Keywords: Market structure and pricing; Productivity
    JEL: K23 L43 L96
    Date: 2012
  6. By: Florian Ploeckl
    Abstract: Information technology, like the telephone, influences market access; this paper answers the question about a reverse effect, does market access affect information technology, in particular its adoption? Using the introduction of the telephone in Bavaria, I demonstrate with a rank, order and stock effects diffusion model how market access affects the diffusion of local telephone exchanges over towns as well as the rate of adoption of telelphone lines within towns. The results of a duration analysis show that market access speeds up the diffusion, a spatial correlation specification demonstrates that this is not just a geographic effect. The rate of adoption within towns is also affected by the adoption of lines in other towns, the results indicate that about 4% of all lines are due to the ability to call outside your local exchange network. Market access is therefore shown to impact the adoption of technology.
    Keywords: Information technology adoption, Market access, Spatial diffusion, Bavaria, Telephone
    JEL: L92 N73 N93 O33
    Date: 2012

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