nep-ind New Economics Papers
on Industrial Organization
Issue of 2012‒10‒20
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Horizontal Product Differentiation: Disclosure and Competition By Maarten C. W. Janssen; Mariya Teteryanikova
  2. Monopoly Pricing in the Presence of Social Learning By Bar Ifrach; Costis Maglaras; Marco Scarsini
  3. Is a "firm" a firm? A Stackelberg experiment By Hildenbrand, Andreas
  4. Group Coupons: Interpersonal Bundling on the Internet By Yongmin Chen; Tianle Zhang
  5. Multi-market Collusion with Territorial Allocation By ADITYA BHATTACHARJEA; UDAY BHANU SINHA

  1. By: Maarten C. W. Janssen; Mariya Teteryanikova
    Abstract: The unraveling argument says that when a rm may produce dierent qualities and quality is unknown to consumers, the rm has an incentive to disclose the private information as in any pool of rms there is a best quality rm and this rm has an incentive to disclose. Recent literature has established that this argument does not carry over to an environment where the product is not vertically, but horizontally dierentiated. This paper argues that with horizontally dierentiated products, competition restores the unraveling argument. In a duopoly market we show that all equilibria of the disclosure game have rms fully disclosing the variety they produce.
    JEL: D43 D82 M37
    Date: 2012–07
  2. By: Bar Ifrach (Management Science and Engineering, Stanford University); Costis Maglaras (Columbia Business School, Columbia University); Marco Scarsini (Dipartimento di Economia e Finanza, LUISS)
    Abstract: A monopolist offers a product to a market of consumers with heterogeneous quality preferences. Although initially uninformed about the product quality, they learn by observing past purchase decisions and reviews of other consumers. Our goal is to analyze the social learning mechanism and its effect on the seller's pricing decision. Consumers follow an intuitive non-Bayesian decision rule and, under some conditions, eventually learn the product's quality. We show how the learning trajectory can be approximated in settings with high demand intensity via a mean-field approximation that highlights the dynamics of this learning process, its dependence on the price, and the market heterogeneity with respect to quality preferences. Two pricing policies are studied: a static price, and one with a single price change. Finally, numerical experiments suggest that pricing policies that account for social learning may increase revenues considerably relative to policies that do not.
    Keywords: learning, information aggregation, bounded rationality, pricing, optimal pricing
    JEL: D49 D83
    Date: 2012–08
  3. By: Hildenbrand, Andreas
    Abstract: Industrial organization is mainly concerned with the behavior of large firms, especially when it comes to oligopoly theory. Experimental industrial organization therefore faces a problem: How can firms be brought into the laboratory? The main approach relies on framing: Call individuals firms! This experimental approach is not in line with modern industrial organization, according to which a firm's market behavior is also determined by its organizational structure. In this paper, a Stackelberg experiment is considered in order to answer the question whether framing individual decision making as organizational decision making or implementing an organizational structure is more effective in generating profit-maximizing behavior. Firms are either represented by individuals or by teams. Teams are organized according to Alchian and Demsetz's (1972) contractual view of the firm. I find that teams' quantity choices are more in line with the assumption of profit maximization than individuals' choices. Compared to individuals, teams appear to be less inequality averse. --
    Keywords: industrial organization,Stackelberg game,individual behaviour,team behaviour,framing,experimental economics
    JEL: C72 C91 C92 D43 L13
    Date: 2012
  4. By: Yongmin Chen (Department of Economics, University of Colorado, Boulder); Tianle Zhang (Faculty of Business, Hong Kong Polytechnic University)
    Abstract: Sellers sometimes offer goods for sale under both a regular price and a discount for group purchase if the consumer group reaches some minimum size. This selling practice, which we term interpersonal bundling, has been popularized on the Internet by companies such as Groupon. We explain why interpersonal bundling is a profitable strategy in the presence of demand uncertainty, and how it may further boost profits by stimulating product information dissemination. Other reasons for its profitability are also discussed. We provide sufficient conditions for interpersonal bundling to dominate separate selling, and identify factors that determine the size of its profit advantage.
    Keywords: Interpersonal Bundling, Group Coupon, Group Discount, Demand Uncertainty
    JEL: D4 L1 M3
    Date: 2012–09
  5. By: ADITYA BHATTACHARJEA (Department of Economics, Delhi School of Economics, Delhi, India); UDAY BHANU SINHA (Department of Economics, Delhi School of Economics, Delhi, India)
    Abstract: This paper develops a supergame model of collusion between price-setting oligopolists located in different markets separated by trade costs. The firms produce a homogenous good and sustain collusion based on territorial allocation of markets. We first show, in a more general framework than some earlier literature, that a reduction in trade costs can paradoxically increase the sustainability of collusion. Then we prove a new paradox where the scope for collusion may be enhanced by an increase in the number of firms. We discuss several implications for trade and antitrust policy in this context.
    Keywords: Multimarket contact, collusion, trade costs, territorial allocation, cartels
    Date: 2012–10

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