nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒09‒24
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Aggregate Oligopoly Games with Entry By Anderson, Simon P; Erkal, Nisvan; Piccinin, Daniel
  2. Social awareness and duopoly competition By nada, BELHADJ; GABSZEWICZ, Jean J.; TAROLA, Ornella
  3. The equivalence of bundling and advance sales By Alexei Alexandrov; Özlem Bedre-Defolie

  1. By: Anderson, Simon P; Erkal, Nisvan; Piccinin, Daniel
    Abstract: We use cumulative reaction functions to compare long-run market structures in aggregative oligopoly games. We first compile an IO toolkit for aggregative games. We show strong neutrality properties across market structures. The aggregator stays the same, despite changes in the number of firms and their actions. The IIA property of demands (CES and logit) implies that consumer surplus depends on the aggregator alone, and that the Bertrand pricing game is aggregative. We link together the following results: merging parties' profits fall but consumer surplus is unchanged, Stackelberg leadership raises welfare, monopolistic competition is the market structure with the highest surplus.
    Keywords: aggregative games; contests; Cournot; entry; IIA property; leadership; Logit/CES; mergers; monopolistic competition; oligopoly theory; R&D; strategic substitutes and complements
    JEL: D43 L13
    Date: 2013–06
  2. By: nada, BELHADJ (ISG, University of Tunis); GABSZEWICZ, Jean J. (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium.); TAROLA, Ornella (DISSE, University of Rome “La Sapienza”)
    Abstract: Human actions are often guided both by individual rationality and by social norms. In this paper we explore how duopoly market competition values the variants of a product, when these variants embody at different levels the requirements derived from some social norm. In a model where preferences of consumers depend partially on the levels of compliance of the variants with the social norm, we characterize the equilibrium path along which firms choose sequentially their level of compliance and their price.
    Keywords: social norms, others regarding preferences, vertical product differentiation
    JEL: D11 L13 Q58
    Date: 2013–09–11
  3. By: Alexei Alexandrov (Consumer Financial Protection Bureau Washington DC); Özlem Bedre-Defolie (ESMT)
    Abstract: We show that a monopolist's problem of optimal advance selling strategy can be mathematically transformed into a problem of optimal bundling strategy if four conditions hold: i. consumers and the firm agree on the probability of the states occurring, ii. the firm pre-commits to the spot prices to be charged in the advance selling stage, iii. consumers are risk-neutral, and iv. consumers and the firm do not have time preferences or when they do have time preferences, they discount future at the same rate. The result allows both researchers and practitioners to apply the insights from the well-developed vast literature on bundling to advance selling problems. In particular, we show that advance selling is more profitable than spot selling when consumer valuations across the states are independent or negatively dependent or positively dependent up to a point. We furthermore illustrate the effect of advance selling on the spot prices and consumer welfare: When the firm offers advance selling discounts, sets higher spot prices, so consumers who do not buy in advance are worse off due to the firm offering advance selling discounts. We extend our analysis to the cases of more than two states and competition only in one of the states. We also show how advance selling can be used as an entry deterrence strategy.
    Keywords: Advance selling, bundling, price discrimination
    JEL: L11 D42
    Date: 2013–09–11

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