nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒11‒16
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Comparative Statics for Oligopoly: A Generalized Result By Naoto Jinji
  2. Industry Restructuring: A Case for Affirmative Action By Villeneuve, Bertrand; Zhang, Vanessa Yanhua
  3. Competition in Posted Prices With Stochastic Discounts By David Gill; John Thanassoulis
  4. Monopolistic Competition when Income Matters By Paolo Bertoletti; Federico Etro
  5. Extremal Information Structures in the First Price Auction By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  6. The Effect of Advertising and In-Store Promotion on the Demand for Chocolate By Jason C. Patalinghug
  7. Real Asset Valuation under Imperfect Competition: Can We Forget About Market Fundamentals? By Chaton, Corinne; Durand-Viel, Laure
  8. Director Networks and Takeovers By Renneboog, L.D.R.; Zhao, Y.
  9. Competition in the Portuguese economy: insights from a profit elasticity approach By Amador, João; Soares, Ana Cristina

  1. By: Naoto Jinji
    Abstract: We perform comparative statics for a general model of asymmetric oligopoly and derive a concise formula for the response of one firm to a marginal change in its rival’s strategic variable, taking into account the responses of all other firms. We obtain the conditions under which the sign of this response coincides with that of the mixed second-order partial derivative of the firm’s payoff function. We then propose a distinction between gross and net strategic relationships (i.e., strategic substitute and complement).
    Keywords: comparative statics, asymmetry, stability conditions
    JEL: L13 D43 C62
  2. By: Villeneuve, Bertrand; Zhang, Vanessa Yanhua
    Abstract: We analyze the trade-off faced by authorities envisaging a one-shot structural re-form in a capitalistic industry. A structure is modeled as (1) a sharing of productive capital at some time and (2) a sharing of scarce sites or any other non-reproducible assets. These two distinct dimensions of policy illustrate the importance of a dy-namic theory in which firms durably differ in several respects. Though equalization of endowments and rights is theoretically optimal, realistic constraints force com-petition authorities to adopt second-best solutions. Affirmative action here is the policy that recognizes the fact that, under certain circumstances, helping the dis-advantaged contributes maximally to social surplus.
    Keywords: Politique de la concurrence; accumulation de capacité; concurrence de Cournot; duopole asymétrique; régulation cohérente dans le temps; Competition policy; capacity accumulation; Cournot competition; asymmetric duopoly; regulatory consistency;
    JEL: C73 L13 L40
    Date: 2013–01
  3. By: David Gill; John Thanassoulis
    Abstract: We study price competition between firms over public list or posted prices when a fraction of consumers (termed 'bargainers') can subsequently receive discounts with some probability.� Such stochastic discounts are a feature of markets in which some consumers bargain explicitly; of markets in which sellers use the marketing practice of couponing; and of markets in which sellers offer both simple-to-understand tariffs (the posted prices) alongside complex or opaque tariffs that might offer a discount.� Even though bargainers receive reductions off the posted prices, the potential to discount dampens competitive pressure in the market by reducing the incentive to undercut a rival's posted price, thus raising all prices and increasing profits.� Welfare falls because of the stochastic nature of the discounts, which generates some misallocation of products to consumers.� We also find that stochastic discounts facilitate collusion by reducing the market share that can be gained from a deviation.
    Keywords: Posted prices, list prices, collusion, bargaining, negotiation, haggling, discounting, coupons, obfuscation, flat rate bias, price takers
    JEL: C78 D43 L13
    Date: 2013–10–30
  4. By: Paolo Bertoletti (Department of Economics and Management, University of Pavia); Federico Etro (Department of Economics, University of Venice Ca' Foscari)
    Abstract: We study monopolistic competition with preferences over differentiated goods characterized by a separable indirect utility rather than a separable direct utility as in the Dixit-Stiglitz model, with the CES case as the only common ground. Examples include linear and log-linear direct demands. In equilibrium with free entry, an increase of the number of consumers is neutral on prices, but increases proportionally the number of firms, just creating pure gains from variety. Contrary to the Dixit-Stiglitz model, an increase in consumer income increases prices and more than proportionally the number of varieties if and only if the price elasticity of demand is increasing. We also discuss extensions to an outside good, heterogeneous consumers, heterogeneous firms à la Melitz and endogenous quality. Finally, we provide an application to international trade generating pricing to market in a generalized Krugman model.
    Keywords: Monopolistic competition, Indirect additivity, Non-homotheticity, Pricing to market, Krugman model, Melitz model
    JEL: D11 D43 L11 F12
    Date: 2013–11
  5. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, Princeton University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We study how the outcomes of a private-value first price auction can vary with bidders' information, for a fixed distribution of private values. In a two bidder, two value, setting, we characterize all combinations of bidder surplus and revenue that can arise, and identify the information structure that minimizes revenue. The extremal information structure that minimizes revenue entails each bidder observing a noisy and correlated signal about the other bidder's value. In the general environment with many bidders and many values, we characterize the minimum bidder surplus of each bidder and maximum revenue across all information structures. The extremal information structure that simultaneously attains these bounds entails an efficient allocation, bidders knowing whether they will win or lose, losers bidding their true value and winners being induced to bid high by partial information about the highest losing bid. Our analysis uses a linear algebraic characterization of equilibria across all information structures, and we report simulations of properties of the set of all equilibria.
    Keywords: First price auction, Mechanism design, Robust predictions, Private information, Bayes correlated equilibrium
    JEL: C72 D44 D82 D83
    Date: 2013–11
  6. By: Jason C. Patalinghug (Wesleyan University)
    Abstract: This paper analyzes the effect of TV advertising and in-store displays on the sales of chocolates. I examine which method is more effective in gaining customers and in increasing total sales. Also, I look at the evidence to see whether the lack of advertising by a firm will hurt the industry as a whole. In this essay, I use a nested logit model on scanner data obtained by the Zwick Center for Food and Resource Policy at the University of Connecticut's Department of Agricultural and Resource Economics to examine the effect of TV advertising on chocolate sales. The results show that in-store displays and advertising both help increase the demand for chocolate.
    Keywords: nested logit, scanner data, advertising, in-store promotions
    JEL: D12 L25 L66 M37
    Date: 2013–10
  7. By: Chaton, Corinne; Durand-Viel, Laure
    Abstract: Real assets are usually valued by computing the stream of profits they can bring to a price-taking firm in a liquid market. This method ignores market fundamentals by assuming that all the relevant information is included in the spot price. Our article analyses the bias resulting from such an approach when the market is imperfectly competitive. We propose a stylised two-period model of the natural gas market with no uncertainty, focusing on strategic interactions between two types of oligopolistic players—pure traders and suppliers with downstream customers—who have access to storage. We show that the true value of storage capacity is not the same for traders and for suppliers. Comparing the latter value with the traditional price-taking valuation reveals a systematic bias that tends to induce underinvestment.
    Keywords: Assets (accounting); profit; gas industry; spot prices; suppliers; natural gas;
    JEL: L16 G14 G12
    Date: 2013
  8. By: Renneboog, L.D.R.; Zhao, Y. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: We study the impact of corporate networks on the takeover process. We find that better connected companies are more active bidders. When a bidder and a target have one or more directors in common, the probability that the takeover transaction will be successfully completed augments, and the duration of the negotiations is shorter. Connected targets more frequently accept offers that involve equity. Directors of the target firm (who are not interlocked) have a better chance to be invited to the board of the combined firm in connected M&As. While connections have a clear impact on the takeover strategy and process, we do not find evidence that the market acknowledges connections between bidders and targets as the announcement returns are not statistically different from those bidders and targets which are ex ante not connected.
    Keywords: Mergers and Acquisitions;Director Networks;Centrality;Connections
    JEL: D85 G14 G34
    Date: 2013
  9. By: Amador, João; Soares, Ana Cristina
    Abstract: This article segments the Portuguese economy into fairly disaggregated markets and estimates a new competition measure suggested by Boone (2008), which draws on the concept of profit elasticity to marginal costs. In addition, robustness of results across econometric specifications is discussed, along with their consistency with classical competition indicators. The article concludes that the majority of Portuguese markets exhibited a reduction in competition in the period 2000-2009, though there is substantial heterogeneity. In addition, markets that faced competition reductions represent the large majority of sales, gross value added and employment in the Portuguese economy. The non-tradable sector shows lower competition intensity than the tradable sector. Moreover, reductions in competition are relatively widespread across markets in both sectors, but in terms of sales, gross value added and employment these reductions are more substantial in the non-tradable sector. In the majority of markets the assessment on the evolution of competition using profit elasticities is similar to that obtained with classical competition indicators. JEL Classification: L10, L60, O50
    Keywords: market competition, Portuguese economy
    Date: 2013–11

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