nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒12‒06
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Strategic Location Choice under Dynamic Oligopolistic Competition and Spillovers By Luca Colombo; Herbert Dawid
  2. Oligopolistic competition and search without priors By Alexei Parakhonyak
  3. Collusion detection in procurement auctions By Ilya Morozov; Elena Podkolzina
  4. Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance By Joseph E. Harrington, Jr.; Juan-Pablo Montero
  5. Estimating dynamic R&D demand: An analysis of costs and long-run benefits By Peters, Bettina; Roberts, Mark J.; Vuong, Van Anh; Fryges, Helmut

  1. By: Luca Colombo (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Herbert Dawid (Universität Bielefeld)
    Abstract: This paper investigates firms' optimal location choices explicitly accounting for the role of inwards and outwards knowledge spillovers in a dynamic Cournot oligopoly with firms that are heterogeneous in their ability to carry out cost-reducing R\&D. Firms can either locate in an industrial cluster or in isolation. Technological spillovers are exchanged between the firms in the cluster. It is shown that a technological leader has an incentive to locate in isolation only if her advantage exceeds a certain threshold, which is increasing in firms' discount rate, in industry dispersion, and in the intensity of knowledge spillovers. Scenarios are identified where although it is optimal for the technological leader to locate in isolation, from a welfare perspective it would be desirable that she locates in the cluster.
    Keywords: Location Choice, Knowledge Spillovers, Technological Leadership, Markov-perfect Equilibrium
    JEL: L13 C73 O31 R12
    Date: 2013–11
  2. By: Alexei Parakhonyak (National Research University Higher School of Economics, Moscow, Russia.)
    Abstract: I study a model of oligopolistic competition in which consumers search for prices, but have no idea about the underlying price distribution. Consumers’ behaviour satisfies four consistency requirements such that beliefs about the underlying distribution maximize Shannon entropy. I derive the optimal stopping rule and equilibrium price distribution of the model. Unlike in Stahl (1989), the expected price is decreasing in the number of firms. Moreover, consumers can benefit from being uninformed, if the number of firms is sufficiently large.
    Keywords: consumer search, search without priors, bounded rationality, entropy
    JEL: D83 D43 L11
    Date: 2013
  3. By: Ilya Morozov (Research Assistant, International Laboratory for Institutional Analysis of Economic Reforms); Elena Podkolzina (Senior Researcher, International Laboratory for Institutional Analysis of Economic Reforms)
    Abstract: This paper proposes a method of bid-rigging detection, which allows us to reveal cartels in procurement auctions without any prior knowledge of the market structure. We apply it to data on highway construction procurements in one of the Russian regions and show that five suppliers demonstrated passive bidding behavior, which is consistent with the so called ‘rotating bidding’ scheme of collusion. The suggested methodology can be potentially used by both researchers and anti-trust agencies for cartel disclosure in various markets.
    Keywords: Bid-rigging, Tacit collusion, Public procurement, Cartel, Open auction.
    JEL: H57 L41 L92
    Date: 2013
  4. By: Joseph E. Harrington, Jr.; Juan-Pablo Montero
    Abstract: This study investigates when a cartel that uses a sales quota allocation scheme monitors more frequently than it enforces; for example, monitoring of sales is done on a weekly basis but firms are only required to comply with sales quotas on a quarterly basis. In a simple three-period quantity game with iid cost and demand shocks, we show that the volatility of a cartel member’s sales follows a U-shape within the compliance horizon. In comparison, sales volatility is constant over time under competition. This result offers a simple empirical test for distinguishing collusion from competition using sales data.
    Date: 2013
  5. By: Peters, Bettina; Roberts, Mark J.; Vuong, Van Anh; Fryges, Helmut
    Abstract: Using firm-level data from the German manufacturing sector, we estimate a dynamic, structural model of the firm's decision to invest in R&D and quantify the cost and longrun benefit of this investment. The model incorporates and quantifies linkages between the firm's R&D investment, product and process innovations, and future productivity and profits. The dynamic model provides a natural measure of the long-run payoff to R&D as the difference in expected firm value generated by the R&D investment. For the median productivity firm, investment in R&D raises firm value by 3.0 percent in a group of hightech industries but only 0.2 percent in low-tech industries. Simulations of the model show that cost subsidies for R&D can significantly affect R&D investment rates and productivity changes in the high-tech industries. --
    Keywords: R&D demand,Innovation,Productivity,Dynamic structural model
    JEL: L60 O31 O32
    Date: 2013

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