nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒08‒05
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A nonlinear product differentiation model à la Cournot: a new look to the newspapers industry By Mercedes Esteban Bravo; José Manuel Vidal-Sanz
  2. The dynamics of pharmaceutical regulation and R&D investments By Rosella Levaggi; Michele Moretto; Paolo Pertile
  3. Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market By Andreoli-Versbach, Patrick; Franck, Jens-Uwe
  4. Competition in the portuguese economy: Estimated price-cost margins under imperfect labour markets By João Amador; Ana Cristina Soares
  5. Optimal Licensing of Uncertain Patents in the Shadow of Litigation By Rabah Amir; David Encaoua; Yassine Lefouili

  1. By: Mercedes Esteban Bravo; José Manuel Vidal-Sanz
    Abstract: In this work, we develop a new model for competition in markets with differentiated products. In addition, we present a consumer model designed to produce a flexible nonlinear inverse demand system that resembles the classical Multinomial Logit model, and discuss several extensions. We characterize firms competition in quantities based on the inverse demand system. The model is applied to the Spanish newspaper industry. This is a highly competitive two-sided market whose revenues are generated from sales and to a larger extent from advertising driven by its circulation. We then characterize the Perfect Equilibrium by conditional moment conditions, and estimate the parameters using the Generalized Method of Moments
    Keywords: Newspapers, Differentiated products, Dynamic equilibrium, Generalized method of moments, Advertising expenditure, Time series, Persistence, Cointegration, Structural changes
    Date: 2013–07
  2. By: Rosella Levaggi (; Michele Moretto (; Paolo Pertile (Department of Economics (University of Verona))
    Abstract: The paper uses a real option approach to investigate the potential impact of performance-based risk-sharing agreements for the reimbursement of new drugs in comparison with standard cost-effectiveness thresholds. The results show that the exact definition of the risk-sharing agreement is key in determining its economic effects. In particular, despite the concerns expressed by some authors, the incentive for a firm to invest in R&D may be the same or even greater than under cost-effectiveness thresholds, if the agreement is sufficiently mild in defining the conditions under which the product is not (fully) reimbursed to the firm. In this case, patients would benefit from earlier access to innovations. The price for this is less value for money for the insurer at the time of adoption of the innovation.
    Keywords: pharmaceutical regulation, real options, R&D, risk-sharing
    JEL: I18 L51 C61
    Date: 2013–08
  3. By: Andreoli-Versbach, Patrick; Franck, Jens-Uwe
    Abstract: This article studies dynamic pricing strategies in the Italian gasoline market before and after the market leader unilaterally announced its commitment to adopt a sticky-pricing policy. Using daily Italian firm level prices and weekly average EU prices, we show that the effect of the new policy was twofold. First, it facilitated price alignment and coordination on price changes. After the policy change, the observed pricing pattern shifted from cost-based to sticky-leadership pricing. Second, using a dif-in-dif estimation and a synthetic control group, we show that the causal effect of the new policy was to significantly increase prices through sticky-leadership pricing. Our paper highlights the importance of price-commitment by a large firm in order to sustain (tacit) collusion.
    Keywords: tacit collusion; leadership pricing; sticky pricing; endogenous commitment
    JEL: K21 K42 L13 L41 L71
    Date: 2013–07
  4. By: João Amador; Ana Cristina Soares
    Abstract: This article estimates price-cost margins for the Portuguese markets in a context of imperfect competition in the labour market. The database used includes virtually the universe of Portuguese firms for the period 2005-2009. The results strongly reject the hypothesis of perfect competition in both labour and product markets. Estimated price-cost margins are very heterogeneous across markets and the average for the overall economy ranges between 25 and 28 per cent, depending on the variables used to weight each market. In addition, the tradable sector presents a lower price-cost margin than the non-tradable sector. According to the methodology used, workers’ bargaining power in the Portuguese economy is approximately 13 per cent, without a clear distinction between tradable and non-tradable sectors. Finally, workers’ bargaining power is highly and positively correlated with price-cost margins across markets.
    JEL: L50 L60 O50
    Date: 2013
  5. By: Rabah Amir (University of Arizona - University of Arizona); David Encaoua (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Yassine Lefouili (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: The paper investigates the choice of a licensing mechanism by the holder of a patent whose validity may be challenged. Focusing fi…rst on weak patents, i.e. patents that have a high probability of being invalidated by a court if challenged, we show that the patent holder fi…nds it optimal to use a per-unit royalty contract if the strategic effect of an increase in a potential licensees unit cost on the equilibrium industry profi…t is positive. The latter condition ensures the superiority of the per-unit royalty mechanism independently of whether the patent holder is an industry insider or outsider, and is shown to hold in a Cournot (resp. Bertrand) oligopoly with homogeneous (resp. differentiated) products under general assumptions on the demands faced by fi…rms. We then examine the optimal licensing of patents that are uncertain but not necessarily weak. As a byproduct of our analysis, we contribute to the oligopoly literature by offering some new insights of independent interest regarding the effects of cost variations on Cournot and Bertrand equilibria.
    Keywords: Licensing mechanisms, Uncertain patents, Patent litigation, Cost comparative statics.
    Date: 2013–05–24

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