nep-ind New Economics Papers
on Industrial Organization
Issue of 2012‒09‒30
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Quantity Competition vs. Price Competition under Optimal Subsidy in a Mixed Duopoly By Marcella Scrimitore
  2. Brand Name and Private Label Price Setting by a Monopoly Store By Jeffrey M. Perloff; Jeffrey LaFrance; Hayley H. Chouinard
  4. Competition versus Collusion: The Impact of Consumer Inertia By Bos Iwan; Peeters Ronald; Pot Erik
  5. Methodology for Constructing Wireless Broadband Price Baskets By OECD
  6. Competition and the railroads: A European perspective By Knieps, Günter
  7. The effects of price regulation of pharmaceutical industry margins: A structural estimation for anti-ulcer drugs in France. By Pierre Dubois;; Laura Lasio;

  1. By: Marcella Scrimitore
    Abstract: This paper reconsiders the literature on the irrelevance of privatization in mixed markets, addressing both quantity and price competition in a duopoly with differentiated products. By allowing for partially privatizing a state-controlled firm, we explore competition under different timings of firms’ moves and derive the conditions under which an optimal subsidy allows to achieve maximum efficiency. We show that, while the ownership of the controlled firm is irrelevant when firms play simultaneously, it matters when firms compete sequentially, requiring the leader to be publicly-owned for an optimal subsidy to restore the first-best allocation, irrespective of the mode of competition. The paper also focuses on the extent to which a subsidy is needed to attain the social optimum, highlighting the equivalence between a price (quantity) game with public leadership or simultaneous moves and a quantity (price) game with private leadership.
    Keywords: Cournot, Bertrand, privatization, optimal subsidy.
    JEL: H21 H44 L13
    Date: 2012–09–15
  2. By: Jeffrey M. Perloff; Jeffrey LaFrance; Hayley H. Chouinard
    Abstract: A monopoly that sells to brand-name loyal customers and to price-sensitive customers must decide whether to carry both name-brand and a private-label products and how much to charge. The monopoly may charge either more or less for the brand name if it carries a private label, and the price differential between the products is sensitive to cost and taste parameters.
    Keywords: brand name, private label, monopoly, pricing
    JEL: L2 D3 D4
    Date: 2012–09
  3. By: Bradley J. Ruffle (BGU); Oscar Volij (BGU)
    Abstract: Kingston (1976) and Anderson (1977) show that the probability that a given contestant wins a best-of-2k+1 series of asymmetric, zero-sum, binary-outcome games is, for a large class of assignment rules, independent of which contestant is assigned the advantageous role in each component game. We design a laboratory experiment to test this hypothesis for four simple role-assignment rules. Despite the fact that play does not uniformly conform to the equilibrium, our results show that the four assignment rules are observationally equivalent at the series level: the fraction of series won by a given contestant and all other series outcomes do not differ across the four rules.
    Keywords: experimental economics, two-sided competitions, best-of series
    JEL: C90 D02 L83
    Date: 2012
  4. By: Bos Iwan; Peeters Ronald; Pot Erik (METEOR)
    Abstract: We consider a model of dynamic price competition to analyze the impact of consumer inertia on theability of firms to sustain high prices. Three main consequences are identified: (i) maintaininghigh prices does not require punishment strategies when firms are sufficiently myopic, (ii) ifbuyers are sufficiently inert, then high prices can be sustained for all discount factors, and(iii) the ability to maintain high prices may depend non-monotonically on the level of thediscount factor. These results provide a number of valuable insights with regard to competitiveand collusive pricing behavior. For example, our findings suggest that measures aiming at loweringthe degree of consumer inertia may in fact facilitate collusion in network industries.
    Keywords: microeconomics ;
    Date: 2012
  5. By: OECD
    Abstract: The OECD has adopted a new basket methodology for benchmarking wireless broadband prices. It adds to the existing baskets for voice, leased lines and fixed broadband services and reflects the increasing importance of wireless broadband for laptops, tablets and smartphones.
    Date: 2012–09–04
  6. By: Knieps, Günter
    Abstract: The reform of European railroads is a time-consuming process strongly charac-terized by its path-dependency. Firstly, a short outline of the historical roots of the controversial debates on the role of the state and the markets, and the organi-zation of competition in European railroad industries is provided. Secondly, the opening of the market for train services in the context of the liberalization of European transport markets since 1985 is characterized and the regulatory pre-conditions for competition on the tracks are presented. Thirdly, the evolution of track access regulation in Europe during the last decades is analyzed, differenti-ating between the period of negotiated third party access since 1991, the intro-duction of ex ante regulation by the first railroad infrastructure package in 2001, and the danger of overregulation posed by the recent Draft Directive of July 2012 establishing a single European railway area. Fourthly, the role of competi-tion on the markets for rail services and the reform process of interoperability requirements are considered. Finally, competition on the markets for rail ser-vices and public subsidies for rail infrastructures as well as subsidies for train services are evaluated. --
    Date: 2012
  7. By: Pierre Dubois;; Laura Lasio;
    Abstract: The objective of this paper is to study the effects of price regulation on competition in the pharmaceutical industry. We provide a method allowing to identify margins in an oligopoly price competition game even when prices may not be freely chosen by Â…firms. We use our identiÂ…cation strategy to study the effects of regulatory constraints on prices in the pharmaceutical industry which is heavily regulated in particular in France. We use data from the US, Germany and France to identify country speciÂ…c demand models and then recover price cost margins under the regulated price setting constraints on the French market. To do so, we estimate a structural model on the market for anti-ulcer drugs in France that allows us to explore the drivers of demand, to identify whether regulation really affects margins and prices and to relate regulatory reforms to industry pricing equilibrium. We provide the fiÂ…rst structural estimation of price-cost margins on a regulated market with price constraints and show how to identify unknown possibly binding constraints thanks to three different markets (US, German and France) with varying regulatory constraints. The identiÂ…ed margins show that margins have increased over time in France but that fiÂ…rms were specially constrained in price setting after 2004.
    Keywords: empirical IO, regulation, price constraints, pharmacy, antiulcer drugs.
    JEL: L10 I18
    Date: 2012–07

This nep-ind issue is ©2012 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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.