nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒10‒05
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. DOES SIZE MATTER? FIRM AND BUSINESS GROUP SIZE INFLUENCE ON THE BENEFITS OF GROUP AFFILIATION By Anaïs HAMELIN
  2. When (not) to Segment Markets By Catherine Gendron-Saulnier; Marc Santugini
  3. Imperfect Eco-labeling Signal in a Bertrand Duopoly By Lucie Bottega; Jenny De Freitas
  4. Cross-Licensing and Competition By Doh-Shin Jeon; Yassine Lefouili
  5. Substitution and Complementarity between Fixed-line and Mobile Access By Lukasz Grzybowski; Frank Verboven
  6. Switching Costs and Introductory Pricing in the Wireless Service Industry By Jorge Ale
  7. Game of Platforms: Strategic Expansion in Two-Sided Markets By Sagit Bar-Gill
  8. Price Discrimination in a Two-Sided Market: Theory and Evidence from the Newspaper Industry By Charles Angelucci; Julia Cage; Romain de Nijs
  9. Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects By Lapo Filistrucchi; Tobias J. Klein
  10. Corporations and Regulators: The Game of Influence in Regulatory Capture By Dominic K. Albino; Anzi Hu; Yaneer Bar-Yam

  1. By: Anaïs HAMELIN (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper explores whether the benefits and costs of affiliation with a business group (BG) are influenced by firm and BG size. We explore empirically this issue using a unique data set on French small businesses ownership. Our results show that affiliation with a BG has a positive influence on SMEs performance. This result holds when we account for firm size, BG size and endogeneity issues. Moreover, we observe that the benefits of BG affiliation diminish with firm size, which is consistent with the fact that the benefits of BG affiliation increase with information imperfection. Finally, affiliation with a small BG seems more beneficial than affiliation with a large BG. This paper contribute to the literature by showing that affiliation with a BG allows overcoming market imperfections related to organization size.
    Keywords: Business group, SME, Performance, Size.
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:lar:wpaper:2013-10&r=ind
  2. By: Catherine Gendron-Saulnier; Marc Santugini
    Abstract: A monopoly decides whether to segment two separate markets. Demand depends on stochastic shocks and some buyers are uninformed about the quality of the good. Contrary to the case of complete information, we show that it is not always more profitable for the firm to segment the markets in an environment in which some buyers have incomplete information. The reason is that the presence of uninformed buyers provides the firm with the incentive to engage in noisy price-signaling. Indeed, if the benefit from price flexibility (through market segmentation) is offset by the cost of signaling quality through two distinct prices, then it is optimal not to segment the markets and to use uniform pricing.
    Keywords: Market integration, market segmentation, learning, monopoly, profits, noisy signaling, third-degree price discrimination
    JEL: D82 D83 L12 L15
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:lvl:lacicr:1335&r=ind
  3. By: Lucie Bottega (Toulouse School of Economics); Jenny De Freitas (Universitat de les Illes Balears)
    Abstract: In a Bertrand duopoly model, we study firms’ eco-labeling behavior when certification process imperfectly signals environmental product quality to consumers. The test is noisy in the sense that brown products may be labeled while green products may not. We study how strategic interaction shapes firms’ incentives to get certified, equilibrium demand, prices and social welfare. We find that the eco-labeling policy is welfare enhancing for all parameter values. Nevertheless, the separating testing equilibrium may be too costly to sustain when the green firm probability to pass the test is small. Moreover, if the certification technology is soft, meaning that both brown and green units are awarded the label with high probability, it would be easier to sustain a separating equilibrium. This is a consequence of price strategic interaction between firms that gives firms incentives to coordinate on a separating equilibrium.
    Keywords: Imperfect Certification, Eco-label, Duopoly, Welfare Analysis, Environmental Quality, Credence Attribute
    JEL: C72 D21 D60 D82 L15 Q50
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:ubi:deawps:62&r=ind
  4. By: Doh-Shin Jeon (Toulouse School of Economics); Yassine Lefouili (Toulouse School of Economics)
    Abstract: We study bilateral cross-licensing agreements among N(> 2) firms that engage in competition after the licensing phase. It is shown that the most collusive cross-licensing royalty, i.e. the one that allows the industry to achieve the monopoly profit, is sustainable as the outcome of bilaterally efficient agreements. When the terms of the agreements are not observable to third parties, the monopoly royalty is the unique symmetric bilaterally efficient royalty. However, when the terms of the agreements are public, the most competitive royalty (i.e. zero) can also be bilaterally efficient. Policy implications regarding the antitrust treatment of cross-licensing agreements are derived from these results.
    Keywords: Cross-Licensing, Collusion, Antitrust and Intellectual Property
    JEL: L44 O33 O34
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1311&r=ind
  5. By: Lukasz Grzybowski (Telecom ParisTech, Department of Economics and Social Sciences, 46 rue Barrault, 75013 Paris, France); Frank Verboven (University of Leuven and CEPR (London), Naamsestraat 69, 3000 Leuven, Belgium)
    Abstract: We use rich survey data on 133,825 households from 27 EU countries during 2005-2011 to analyze substitution between fixed-line and mobile telecommunications services. We estimate a discrete choice model where households may choose between having mobile or fixed-line voice access only, or using both technologies at the same time. We obtain the following main findings. First, fixed-line and mobile connections are on average perceived as substitutes. But there is substantial heterogeneity across households and EU regions, with stronger substitution in Central and Eastern European countries. Second, there is strong complementarity between fixed-line and mobile connections that are offered by the fixed-line incumbent operator. This gives the incumbent a possibility to leverage its position in the fixed-line market into the mobile market. Third, fixed broadband technologies such as DSL and cable generate strong complementarities between fixed and mobile access, while mobile broadband strengthens substitution (at a smaller scale). The emergence of fixed broadband has thus been an important additional source through which incumbents leverage their strong position in the fixed-line network.
    Keywords: fixed-to-mobile substitution; incumbency advantage; broadband access
    JEL: L13 L43 L96
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1309&r=ind
  6. By: Jorge Ale (Department of Economics, The Hebrew University of Jerusalem)
    Abstract: In this article I analyze the effects of a recent reform intended to decrease switching costs in the cellular industry. The reform, implemented in Chile in 2012, allowed cell phone users to switch operators without any contract restriction while keeping their wireless number. Its aim was the belief that lower switching costs would force incumbent companies to charge lower prices by introducing more competition among them. I test the empirical implications of models of switching costs using individual data on customers' bills and plans. I find that average price decreased by 7.2 percent. Moreover, my results provide evidence that the operators reacted primarily by decreasing the price of on-net plans and by offering handsets with data connectivity at a discounted rate. I also find a decrease in the introductory price discounts that operators offer to new customers. I interpret this result as due to the lower ability of the firms to lock-in customers.
    Keywords: Switching Costs, Price Discounts, Number Portability, Wireless Industry, Telecommunications.
    JEL: D22 L13 L14 L50 L96
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1317&r=ind
  7. By: Sagit Bar-Gill (Tel Aviv University)
    Abstract: Online platforms, such as Google, Facebook, or Amazon, are constantly expanding their activities, while increasing the overlap in their service offering. In this paper, we study the scope and overlap of online platforms' activities, when they are endogenously determined. We model an expansion game between two online platforms offering two different services to users for free, while selling user clicks to advertisers. At the outset, each platform offers one service, and users may subscribe to one platform or both (multihoming). In the second stage, each platform decides whether to expand by adding the service already offered by its rival. Platforms' expansion decisions affect users' mobility, and thus the partition of users in the market, which, in turn, affects platform prices and profits. We analyze the equilibrium of the expansion game, demonstrating that, in equilibrium, platforms may decide not to expand, even though expansion is costless. Such strategic "no expansion" decisions are due to quantity and price effects of changes in user mobility, brought on by expansion. Both symmetric expansion and symmetric no-expansion equilibria may arise, as well as asymmetric expansion equilibria, even for initially symmetric platforms.
    Keywords: Two-sided markets, Platforms, Entry, Online advertising
    JEL: L11 L13 L14
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1312&r=ind
  8. By: Charles Angelucci (Harvard University); Julia Cage (Harvard University); Romain de Nijs (Paris School of Economics)
    Abstract: We investigate theoretically and empirically the determinants of second-degree price discrimination in two-sided markets. We build a model in which a newspaper must attract both readers and advertisers. Readers are uncertain as to their future benefit from reading, and heterogeneous in their taste for reading. Advertisers are heterogeneous in their outside option, taste for subscribers, and taste for occasional buyers. To estimate empirically the effect of the advertisers' side of the industry on price discrimination on the readers' side, we use a "quasi-natural experiment". We exploit the introduction of advertisement on French Television in 1968, which we treat as a negative shock on advertisement revenues of daily national newspapers (treated group), but not on daily local newspapers (control group). We build a new dataset on French local newspapers between 1960 and 1974 and perform a Differences-in-Differences analysis. We find robust evidence of increased price discrimination as a result of a drop in advertisement revenues.
    Keywords: Newspaper Industry, Second-Degree Price Discrimination, Two-Sided Markets
    JEL: L11 M13
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1313&r=ind
  9. By: Lapo Filistrucchi (CentER, TILEC, Tilburg University and Department of Economics, University of Florence); Tobias J. Klein (CentER, TILEC, Tilburg University)
    Abstract: We model a two-sided market with heterogeneous customers and two heterogeneous network effects. In our model, customers on each market side care differently about both the number and the type of customers on the other side. Examples of two-sided markets are online platforms or daily newspapers. In the latter case, for instance, readership demand depends on the amount and the type of advertisements. Also, advertising demand depends on the number of readers and the distribution of readers across demographic groups. There are feedback loops because advertising demand depends on the numbers of readers, which again depends on the amount of advertising, and so on. Due to the difficulty in dealing with such feedback loops when publishers set prices on both sides of the market, most of the literature has avoided models with Bertrand competition on both sides or has resorted to simplifying assumptions such as linear demands or the presence of only one network effect. We address this issue by first presenting intuitive sufficient conditions for demand on each side to be unique given prices on both sides. We then derive sufficient conditions for the existence and uniqueness of an equilibrium in prices. For merger analysis, or any other policy simulation in the context of competition policy, it is important that equilibria exist and are unique. Otherwise, one cannot predict prices or welfare effects after a merger or a policy change. The conditions are related to the own- and cross-price effects, as well as the strength of the own and cross network effects. We show that most functional forms used in empirical work, such as logit type demand functions, tend to satisfy these conditions for realistic values of the respective parameters. Finally, using data on the Dutch daily newspaper industry, we estimate a flexible model of demand which satisfies the above conditions and evaluate the effects of a hypothetical merger and study the effects of a shrinking market for offline newspapers.
    Keywords: two-sided markets, indirect network effects, merger simulation, equilibrium, competition policy, newspapers
    JEL: L13 L40 L82
    Date: 2013–10
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1320&r=ind
  10. By: Dominic K. Albino; Anzi Hu; Yaneer Bar-Yam
    Abstract: In a market system, regulations are designed to prevent or rectify market failures that inhibit fair exchange, such as monopoly or transactions with hidden costs. Because regulations reduce profits to those possessing unfair advantage, these advantaged corporations (whether individuals, companies, or other collective organizations) are motivated to influence regulators. Regulatory bodies created to protect the market are instead co-opted to advance the interests of the corporations they are charged to regulate. This wide-spread influence, known as "regulatory capture," has been recognized for over 100 years, and according to expectations of rational behavior, will exist wherever it is in the mutual self-interest of corporations and regulators. Here we model the interaction between corporations and regulators using a new game theory framework explicitly accounting for players' mutual influence, and demonstrate the incentive for collusion. Communication between corporations and regulators enables them to collude and split the resulting profits. We identify when collusion is profitable for both parties. The intuitive results show that capture occurs when the benefits to the corporation outweigh the costs to the regulator. Under these conditions, the corporation can compensate the regulator for costs incurred and, further, provide a profit to both parties. In the real world, benefits often far outweigh costs, providing large incentives to collude and making capture likely. Regulatory capture is inhibited by decreasing the influence between parties through strict separation, independent market knowledge and research by regulators, regulatory and market transparency, regulatory accountability for market failures, widely distributed regulatory control, and anti-corruption enforcement.
    Date: 2013–09
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1310.0057&r=ind

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