nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒03‒02
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price setting with menu cost for multi-product firms By Fernando Alvarez; Francesco Lippi
  2. Large buyers, preferential treatment and cartel stability By Manel Antelo; Lluis Bru
  3. Gaming in Combinatorial Clock Auctions By Maarten Janssen; Vladimir Karamychev

  1. By: Fernando Alvarez (University of Chicago); Francesco Lippi (University of Sassari and EIEF)
    Abstract: We model the decisions of a multi-product firm that faces a fixed “menu” cost; once it is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm’s decisions in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The size of the output response and its duration increase with the number of products, they more than double as the number of products goes from 1 to ten, quickly converging to the ones of Taylor’s staggered price model.
    Date: 2013
  2. By: Manel Antelo (Departmento de Fundamentos da Análise Económica, Universidade de Santiago de Compostela); Lluis Bru (Department d'Economia de l'Empresa, Universitat de les Illes Baleares)
    Abstract: Bilateral deals for large clients or key account management (henceforth KAM) is traditionally justified in terms of the importance of a long-term association between a firm and such clients. However, in this paper we offer a different rationale for a seller to apply KAM to its large buyers. When facing large buyers, a firm can use KAM to deal with such buyers but not to small individual buyers in order to segment the market, charge higher prices to non-KAM buyers, and increase its profits. Paradoxically, the implementation of KAM by the seller makes it advantageous for customers to belong to a buyer group, thereby eliminating the instability that would otherwise plague the creation of the group. The formation of a buyer group thus ultimately depends on the pressure it puts upon the seller to resort to KAM to segment the market.
    Keywords: Buyer group, key account management, cartel stability
    JEL: L20 L21
    Date: 2013–01
  3. By: Maarten Janssen (University of Vienna); Vladimir Karamychev (Erasmus University Rotterdam)
    Abstract: In recent years, Combinatorial Clock Auctions (CCAs) have been used around the world to allocate frequency spectrum for mobile telecom licenses. CCAs are claimed to significantly reduce the scope for gaming or strategic bidding. In this paper, we show, however, that CCAs significantly enhance the possibilities for strategic bidding. Real bidders in telecom markets are not only interested in the spectrum they win themselves and the price they pay for that, but also in the price competitors pay for that spectrum. Moreover, budget constraints play an important role. When these considerations are taken into account, CCAs provide bidders with significant gaming possibilities, resulting in high auction prices and problems associated with multiple equilibria and bankruptcy (given optimal bidding strategies).
    Keywords: Combinatorial auctions; Telecom markets; Raising rivals' cost
    JEL: D44 L96
    Date: 2013–02–11

This nep-ind issue is ©2013 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.