nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒07‒20
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price vs. Quantity in duopoly with strategic delegation: Role of network externalities By Trishita Bhattacharjee; Rupayan Pal
  2. OPTIMAL RESOURCE ALLOCATION IN GENERAL COURNOTCOMPETITIVE EQUILIBRIUM By Ervik, Inger Sommerfelt; Soegaard, Christian
  3. Empire-building and Price competition By Pietri , Antoine; Tazdaït , Tarik; Vahabi , Mehrdad
  4. The Welfare Effects of Regulating the Number of Market Segments in Linear Demand Markets By Yann Braouezec
  5. Competition and the Efficiency of Markets for Technology By Allain, Marie-Laure; Henry, Emeric; Kyle, Margaret
  6. Reputation and Entry By Butler, Jeffrey V.; Carbone, Enrica; Conzo, Pierluigi; Spagnolo, Giancarlo
  7. Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud By Michael Luca; Georgios Zervas
  8. Reputation and Prices on the e-Market:Evidence from a Major French Platform By Jolivet, Grégory; Jullien, Bruno; Postel-Vinay, Fabien

  1. By: Trishita Bhattacharjee (Indira Gandhi Institute of Development Research); Rupayan Pal (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines the implications of network externalities on equilibrium outcomes in a differentiated products duopoly under strategic managerial delegation through relative performance based incentive contracts. It shows that Miller and Pazgal (2001)'s equivalence result does not go through in the presence of network externalities. Instead, Singh and Vives (1984)'s rankings of equilibrium outcomes under Cournot and Bertrand hold true under relative performance based delegation contracts as well, if there are network externalities. However, when firms can choose whether to compete in price or in quantity, there are two pure strategy Nash equilibria and one mixed strategy Nash equilibrium. Interestingly, in pure strategy Nash equilibria asymmetric competition occurs, where a firm competes in price and its rival firm competes in quantity. Further, the mixed strategy Nash equilibrium probability of a firm to compete in terms of price increases with the strength of network effects and is always greater than the probability to compete in terms of price.
    Keywords: Symmetric competition, Price competition, Network externalities, Quantity competition, Relative performance contract, Strategic delegation
    JEL: D43 L22 L13 D21
    Date: 2013–05
    URL: http://d.repec.org/n?u=RePEc:ind:igiwpp:2013-010&r=ind
  2. By: Ervik, Inger Sommerfelt (Department of Economics, University of Bergen); Soegaard, Christian (Department of Economics, University of Warwick)
    Abstract: Conventional economic theory stipulates that output in Cournot competition is too low relative to that which is attained in perfect competition. We revisit this result in a General Cournot-competitive Equilibrium model with two industries that dier only in terms of productivity. We show that in general equilibrium, the more ecient industry produces too little and the less ecient industry produces too much compared to an optimal scenario with perfect competition.
    Keywords: Cournot oligopoly; GOLE (General Oligopolistic Equilibrium); industrial policy
    JEL: D50 H21 L13
    Date: 2013–06–20
    URL: http://d.repec.org/n?u=RePEc:hhs:bergec:2013_005&r=ind
  3. By: Pietri , Antoine; Tazdaït , Tarik; Vahabi , Mehrdad
    Abstract: This paper is among the first to theoretically examine the relevance of price competition in the protection market by focusing on the competition between empires. By distinguishing absolute and differential protection rents, we first define coercive rivalry and price competition among empires and then establish three types of empires: early empires of domination (like Akkadian empire), territorial empires (like Russian empire), and merchant empires (like Venetian empire). Empires are structured on the basis of two types of hierarchies that determine their protection costs: ‘top-down’ and ‘bottom-up.’ We systematically study the impact of asymmetrical protection costs on price competition in the light of Bertrand equilibria. We provide an economic rationale for the use of violence throughout history in conformity with the findings of economic historians.
    Keywords: Absolute and differential protection rents; Bertrand equilibrium; Empires of domination; Merchant empires; Territorial Empires
    JEL: D74 H11 H56 L13 P16
    Date: 2013–03
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:48225&r=ind
  4. By: Yann Braouezec (IESEG School of Management (LEM-CNRS))
    Abstract: We consider a model in which the monopolist faces N different markets while the regulator chooses the number k of prices, where k is an integer between 1 and N. The monopolist thus faces a combinatorial optimization problem, the solution of which is called the optimal profit policy. We show that the number of discriminatory prices that maximizes the social welfare is never higher than a threshold k < N. This result thus allows us to disentangle the good aspect of third-degree price discrimination, the so-called output effect, from the bad one, that we call the pure profit effect. Further results are provided for the specific case of parallel demands. Finally, non-linear demands are briefly considered.
    Keywords: Monopoly, third-degree price discrimination, market segmentation, mixed-integer programming problem, regulation, principle of optimal partitioning
    JEL: D42 L11 L50
    Date: 2013–06
    URL: http://d.repec.org/n?u=RePEc:ies:wpaper:e201311&r=ind
  5. By: Allain, Marie-Laure; Henry, Emeric; Kyle, Margaret
    Abstract: The sale of R&D projects through licensing facilitates the division of labor between research and development activities. This vertical specialization can improve the overall efficiency of the innovative process. However, these gains depend on the timing of the sale: the buyer of an R&D project should assume development at the stage at which he has an efficiency advantage. We show that in an environment where the seller is overconfident about the value of the project, she may delay the sale to the more efficient firm in order to provide verifiable information about its quality, though this delay implies higher total development costs for the project. We obtain a condition for the equilibrium timing of licensing and examine how factors such as the intensity of competition between potential buyers influence it. We show that a wide array of different explanations, based on differences in information, beliefs or risk profiles, lead to the same qualitative results. We present empirical evidence from pharmaceutical licensing contracts that is consistent with our theoretical predictions.
    Date: 2013–07
    URL: http://d.repec.org/n?u=RePEc:ide:wpaper:27400&r=ind
  6. By: Butler, Jeffrey V. (EIEF); Carbone, Enrica (Second University of Naples "SUN"); Conzo, Pierluigi (University of Turin); Spagnolo, Giancarlo (Stockholm School of Economics - SITE, University of "Tor Vergata" & CEPR)
    Abstract: There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new firms in public procurement markets. In this paper we report results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We implement a repeated procurement model with reputation for quality and the possibility of entry in which the entrant may start off with positive reputation. Our results suggest that while some past-performance based reputational mechanisms can reduce the frequency of entry, appropriately designed mechanisms significantly stimulate it. We find that our reputational mechanism increases quality but not prices, so that the introduction of this kind of mechanism may generate large welfare gains for the buyer.
    Keywords: Cross-border procurement; Entry; Feedback mechanisms; Incomplete contracts; Limited enforcement; Incumbency; Multidimensional competition; Outsourcing; Past performance; Procurement; Quality assurance; Small business subsidies; Reputation; Vendor rating
    JEL: H57 L14 L15
    Date: 2013–05–15
    URL: http://d.repec.org/n?u=RePEc:hhs:kkveco:2013_003&r=ind
  7. By: Michael Luca (Harvard Business School, Negotiation, Organizations & Markets Unit); Georgios Zervas (Boston University)
    Abstract: Review sites have become increasingly important sources of information for consumers. Because these reviews affect sales, businesses have the incentive to game the system by leaving positive reviews for themselves, or negative reviews for their competitors. Such review fraud undermines the trustworthiness of consumer reviews, and constitutes a major risk factor for review sites. In this paper, we investigate review fraud on the popular consumer review site Yelp. We construct a novel data set to analyze this problem, combining restaurant reviews with Yelp's algorithmic indicator of fake reviews. Using this imperfect indicator as a proxy, we develop an empirical methodology to identify the points in the life-cycle of a business during which review fraud is most prevalent. We find that a restaurant's changing reputation affects its decision to engage in review fraud. Specifically, a restaurant is more likely to seek a positive fake review when its reputation is weak, i.e., when it has few reviews, or it has recently received bad reviews. Consistent with theory, we find that chains are less likely than independent restaurants to engage in review fraud. We then turn our attention to negative review fraud, and find that increased competition by similar restaurants the driving force behind it.
    Date: 2013–07
    URL: http://d.repec.org/n?u=RePEc:hbs:wpaper:14-006&r=ind
  8. By: Jolivet, Grégory (University of Bristol); Jullien, Bruno (TSE,IDEI); Postel-Vinay, Fabien (University of Bristol and Sciences Po)
    Abstract: The broad aim of this paper is to gain some insight into the quantitative importance of reputation in e-commerce. We use an exhaustive data set from one of France’s largest e-commerce platforms, PriceMinister.com, to estimate a statistical causal effect of a seller’s reputation (and size) on transaction prices for a uniquely large range of product categories (books, CDs, video games or DVDs), product conditions (used or new) and seller types (individual or professional sellers). We go beyond the results currently available in the empirical literature by tackling the issue of seller unobserved heterogeneity and the weak exogeneity of reputation (and size) in price equations. Our results show large-scale empirical evidence of a significant, positive and strong effect of seller reputation on prices
    Date: 2013–07
    URL: http://d.repec.org/n?u=RePEc:ide:wpaper:27408&r=ind

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