nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒05‒24
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Limits of Price Discrimination By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. Imitation by price and quantity setting firms in a differentiated market By Peeters R.J.A.P.; Khan A.
  3. Monotone Comparative Statics under Monopolistic Competition By Peter Arendorf Bache; Anders Laugesen
  4. Spinoffs and Clustering By Russell Golman; Steven Klepper
  5. Optimal quality choice under uncertainty on market development By Tamini, Lota
  6. Dark Sides of Patent Pools with Compulsory Independent Licensing By Akifumi Ishihara; Noriyuki Yanagawa
  7. Forward Contracting and the Welfare Effects of Mergers By Nathan H. Miller

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, Princeton University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market.
    Keywords: First degree price discrimination, Second degree price discrimination, Third degree price discrimination, Private information, Privacy, Bayes correlated equilibrium
    JEL: C72 D82 D83
    Date: 2013–05
    URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:1896&r=ind
  2. By: Peeters R.J.A.P.; Khan A. (GSBE)
    Abstract: We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a (Salop) circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium of the underlying game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a ``mutually non-aggressive'' outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market clearing always results endogenously.
    Keywords: Noncooperative Games;
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:dgr:umagsb:2013022&r=ind
  3. By: Peter Arendorf Bache (Department of Economics and Business, Aarhus University); Anders Laugesen (Department of Economics and Business, Aarhus University)
    Abstract: We let heterogeneous firms face decisions on an arbitrary number of complementary activities in a monopolistically-competitive industry. The key insight is that firm-level complementarities may manifest themselves much more clearly at the industry level than at the firm level of analysis. The response of an individual firm to exogenous changes in the parameters of its profit maximisation problem is ambiguous due to indirect effects through changes in industry competition. Only in special cases are firm-level comparative statics monotone. Turning to the industry level, we provide sufficient conditions for firstorder stochastic dominance shifts in the equilibrium distributions of all activities regardless of the ambiguities prevailing at the firm level. Our results apply to many well-known models of international trade and provide strong, novel, and testable predictions. A technical contribution is to apply powerful supermodular optimisation techniques in a context of monopolistic competition.
    Keywords: Complementary Activities, Firm Heterogeneity, Supermodularity, Monotone Comparative Statics International Trade
    JEL: D21 F12 L22
    Date: 2013–05–15
    URL: http://d.repec.org/n?u=RePEc:aah:aarhec:2013-10&r=ind
  4. By: Russell Golman; Steven Klepper
    Abstract: Geographic clustering of industries is typically attributed to localized, pecuniary or non-pecuniary externalities. Recent studies across innovative industries suggestthat explosive cluster growth is associated with the entry and success of spinoff firms. We develop a model to explain the patterns regarding cluster growth and spinoff formation and performance, without relying on agglomeration externalities. Clustering naturally follows from spinoffs locating near their parents. In our model, firms grow and spinoffs form through the discovery of new submarkets based on innovation. Rapid and successful innovation creates more opportunities for spinoff entry and drives a region’s growth.
    Keywords: Agglomeration, Clusters, Entry, Innovation, Spinoffs
    JEL: L25 O31 R12 R30
    Date: 2013–05
    URL: http://d.repec.org/n?u=RePEc:egu:wpaper:1309&r=ind
  5. By: Tamini, Lota
    Abstract: This paper analyzes the impact of risk and ambiguity aversion - Knightian uncertainty - on the choice of optimal quality and timing of market entry in the agri-food sector. Irreversibility of the investment in product development is introduced in a continuous-time stochastic model applying the real option literature. We consider a market characterized by a duopoly with a Stackelberg-Nash game for quality choice. When the follower provides a higher- quality good, the level of quality is decreasing in ambiguity aversion while it is a non-monotonic function of the level of risk. For low levels of risk, the increase of product quality is an efficient response. Up to certain threshold level of risk, risk and ambiguity aversion reduce the optimal quality level and increase the value of waiting when the follower supplies a higher-quality good. The implication is that risk and ambiguity aversion allow the leader to make a sustainable monopoly pro…t. When the follower supplies a lower-quality good, there is no value for it to wait. It should therefore provide the lowest-quality good possible. In a vertically integrated supply chain rms provide higher quality, and the di¤erence between vertically integrated and non-integrated …rms is increasing in risk and ambiguity aversion.
    Keywords: Quality, Duopoly, Real option, Vertical integration, Risk, Knightian uncertainty., Industrial Organization, Institutional and Behavioral Economics, Livestock Production/Industries, D81, L12, L15,
    Date: 2012–12
    URL: http://d.repec.org/n?u=RePEc:ags:spaawp:148589&r=ind
  6. By: Akifumi Ishihara (Kyoto University); Noriyuki Yanagawa (The University of Tokyo)
    Abstract: This paper examines roles of patent pools with compulsory independent licensing. A seminal work by Lerner and Tirole (2004) have shown that requiring independent licensing or compulsory independent licensing is a useful tool to select only desirable patent pools. In this paper, however, we are going to show that their argument is not always true, If there are users who demand only a part of the pooled technologies, the compulsory independent licensing gives a tool for price discrimination for the patent holders, and that is welfare decreasing under some conditions. Moreover, the compulsory independent licensing may promote entry deterrence when there are lower grade entrants. Even in this sense, compulsory independent licensing decreases social welfare. The welfare under the patent pool with independent licensing may become lower than that under the competitive licensing.
    Date: 2013–05
    URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf318&r=ind
  7. By: Nathan H. Miller (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)
    Abstract: I extend the oligopoly model of Allaz and Vila (1993) to explore how forward contracting affects the adverse welfare consequences of horizontal mergers. I derive a welfare statistic that, within the context of the model, is free of structural parameters. The statistic allows for conclusions that generalize across different cost and demand conditions. I then show that exogenous forward contracting mitigates welfare loss but that endogenous forward contracting exacerbates welfare loss provided the relevant industry is sufficiently concentrated.
    Date: 2013–05
    URL: http://d.repec.org/n?u=RePEc:doj:eagpap:201301&r=ind

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