nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒01‒10
thirteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Complementarity, Fragmentation, and the Effects of Patent Thickets By NAGAOKA Sadao; NISHIMURA Yoichiro
  2. Competitive Cross-Subsidization By Chen, Zhijun; Rey, Patrick
  3. Heterogenous switching costs By Biglaiser, Gary; Crémer, Jacques; Dobos, Gergely
  4. A Price Theory of Vertical and Lateral Integration under Productivity Heterogeneity By Serfes , Konstantinos
  5. Spectrum licensing, policy instruments and market entry By Madden, Gary; Bohlin, Erik; Tran, Thien; Morey, Aaron
  6. Nonprofit tax exemptions and market structure: The case of fitness centers By Harrison, Teresa; Seim, Katja
  7. The impact of regulation and competition on the adoption of fibre-based broadband services: Recent evidence from the European Union member states By Briglauer, Wolfgang
  8. Economic replicability tests for next-generation access networks By Jaunaux, Laure; Lebourges, Marc
  9. The effects of asymmetric regulation on the quality of broadband networks By Kocsis, Viktória
  10. Business Impact Analysis of a Mediator between the Network Management Systems of the IP/MPLS Network and the Transport Network By A. Mohammad Hassan; Jorn Altmann
  11. Regulatory fallacies in global telecommunications: The case of international mobile roaming By Knieps, Günter; Zenhäusern, Patrick
  12. Dynamics of broadbands demand: Substitution or complementarity between fixed and mobile technologies? An application to the Portuguese case By Silva, Rita Filipe; Proença, Isabel; Vareda, João
  13. Entry and Competition in a Transition Economy: The Case of Slovakia By Martin Lábaj; Peter Silaniè; Christoph Weiss

  1. By: NAGAOKA Sadao; NISHIMURA Yoichiro
    Abstract: This paper empirically investigates the effects of patent thickets. One unique feature of our study is to identify two sources of patent thickets: (1) complementarity as measured by the number of the patents to be used jointly with the focal patent in commercialization, and (2) ownership fragmentation as measured by the number of firms whose patents are cited by an examiner for the granting of the focal patent. There are three major findings. First, there is a significant difference between complex industry sectors and discrete ones regarding complementarity, while the difference regarding fragmentation at the patent level is small. Second, more complementarity is significantly associated with the importance of first mover advantage in research and development (R&D) and (less significantly) with that in commercialization, while fragmentation has little effect on them. Consistent with this finding, complementarity is associated with high patent value. Third, cross licensing motivation significantly accounts for patenting propensity while blocking motivation does not. Complementarity is significantly associated with more patenting for cross licensing, which facilitates both combining the inventions of different firms and preventing the risk of being held up. Furthermore, it does not invite patenting for blocking. Thus, we do not see significantly negative consequences of patent thickets on R&D, as seen by incumbents. At the same time, it is important to pay focus on policy to avoid granting patents to low quality inventions and to facilitate the mechanism of ex-ante contracting in complex industry sectors where patenting motivations are high.
    Date: 2014–01
  2. By: Chen, Zhijun; Rey, Patrick
    Abstract: This paper analyzes competitive pricing policies by multiproduct firms facing heterogeneous buying patterns. We show that cross-subsidization arises when firms have comparative advantages on different products but are equally efficient overall: Firms earn a profit from multi-stop shoppers by charging positive margins on their strong products but, as price competition for one-stop shoppers drives total margins down to zero, they price weaker products below cost. Banning below-cost pricing leads to higher profits and higher prices for one-stop shoppers, and may reduce consumer surplus as well as total social welfare.
    Keywords: Bertrand competition, cross-subsidization, buying patterns, one-stop and multi-stop shopping
    JEL: L11 L41
    Date: 2013–12–14
  3. By: Biglaiser, Gary; Crémer, Jacques; Dobos, Gergely
    Abstract: We consider a simple two period model where consumers have different switching costs. Before the market opens, there was an incumbent who sold to all consumers. We identify the equilibrium both with Stackelberg and Bertrand competition and show how the presence of low switching cost consumers benefits the incumbent, despite the fact that it never sells to any of them.
    Keywords: switching, cost
    JEL: D43 L13
    Date: 2013–12
  4. By: Serfes , Konstantinos (School of Economics LeBow College of Business Drexel University)
    Abstract: We develop a model of organizational choice in a perfectly competitive product market with heterogeneous firms and incomplete contracts. Successful production requires two inputs that are supplied by two different firms. The input suppliers can either remain as separate units or integrate to form an enterprise. The market consists of a continuum of suppliers with heterogeneous productivities. An important feature of our model is the endogenously determined, through matching, distribution of surplus in the bargaining problem between two input suppliers, which as we show has a profound effect on organizational design in a market. We study the interplay between market price, firm productivity and firm boundaries. We show that integration decisions can be non-monotonic with respect to firm productivity. Moreover, depending on the market distribution of firm productivities, a higher market price can induce more or fewer firms to integrate. In the latter case, the industry supply curve can be backward-bending. These results generate new empirical implications.
    Keywords: Integration; incomplete contracting; market competition; endogenous matching
    JEL: D21 D23 D41 L11 L14 L22
    Date: 2013–11–26
  5. By: Madden, Gary; Bohlin, Erik; Tran, Thien; Morey, Aaron
    Abstract: Competition policy attempts to address the potential for market failure by encouraging competition in service markets. Often, in wireless communication service markets, national regulatory authorities seek to encourage entry via the spectrum assignment process. Instruments used include the assignment mode (auction or beauty contest), setting aside licenses and providing bidding (price and quantity) credits for potential entrants, and making more licenses (spectrum blocks) available than incumbent firms (excess licenses). The empirical analysis assesses the effectiveness of these policy instruments on encouraging entry. The econometric results show that the probability of entry is enhanced by using auction assignments and excess licenses. Furthermore, quantity, but not price, concessions encourage entry. --
    Keywords: spectrum licensing,policy instruments, market entry
    JEL: D82 L51 L96
    Date: 2013
  6. By: Harrison, Teresa (School of Economics LeBow College of Business Drexel University); Seim, Katja (Department of Business & Public Policy Wharton School University of Pennsylvania)
    Abstract: Nonprofits are increasingly present in industries with a large for-profit sector, raising questions about their competitive advantage afforded by the nonprofit tax exemption. We estimate an equilibrium model of market structure for recreation/fitness centers to assess whether nonprofit and for-profit firms compete directly for the same customer base. Our results suggest that the two ownership types serve independent markets. Consequently, nonprofits do not meaningfully crowd out for-profit competitors. We find that local property taxes, as a proxy for a firm’s tax burden, significantly affect for-profit entry and that nonprofit entry would fall by 25%, without affecting for-profit entry, if the same property tax liability was imposed.
    Keywords: entry; nonprofit firms; tax exemptions
    JEL: H25 L10 L30
    Date: 2013–12–01
  7. By: Briglauer, Wolfgang
    Abstract: Fibre deployment of next-generation high-speed broadband networks is considered to be a decisive development for any information-based society, yet investment activities and especially the adoption of fibre-based broadband services take place only very gradually in most countries. This work employs static and dynamic model specifications and identifies the most important determinants of the adoption of fibre-based broadband services with recent panel data from the European Union member states for the years from 2004 to 2012. The results show that the more effective previous broadband access regulation is, the more negative the impact on adoption, while competitive pressure from mobile networks affects adoption in a non-linear manner. It appears that the approach of strict cost-based access regulation embedded in the EU regulatory framework is at odds with the targets outlined in the European Commission's Digital Agenda. Finally, we also find evidence for substantial network effects underlying the adoption process. --
    Keywords: Next-generation telecommunications networks,regulation,competition,adoption,network effects
    Date: 2013
  8. By: Jaunaux, Laure; Lebourges, Marc
    Abstract: This paper discusses the relevant cost standard for the economic replicability test for Next-Generation Access (NGA) networks, described in the Recommendation on Costing and Non-discrimination adopted by the European Commission. We demonstrate that a cost standard that implies fully fixed and variable cost recovery for the access seeker would be incompatible with the economics of NGA networks and that such a test would deter NGA investment. We show that to reconcile investment and competition, the wholesale price must be a two-part tariff and the economic replicability test should only be based on variable wholesale prices. We underline that during a transition phase, until competitors have secured access to NGA infrastructure, a temporary second test called the 'competition migration test' should be added to ensure incumbent NGA retail prices do not foreclose copper-based efficient entrants. The tests we propose surpass the limits of the 'ladder of investment' theory by including the business migration effect developed by Bourreau et al. (2012). --
    Keywords: Margin squeeze,Regulation,Next-generation access networks
    JEL: L51 L96
    Date: 2013
  9. By: Kocsis, Viktória
    Abstract: Network operators of competing infrastructures in European electronic communications markets face asymmetric regulation: incumbent telecommunications firms are required to open their networks for retail broadband competition, while cable companies have no such obligation. Furthermore, for historical reasons, cable companies have better quality networks thanks to the DOCSIS 3.0 technology than DSL-based telecom firms. How would the market structure of electronic communications markets and the quality of networks develop in the presence of asymmetric regulation and original quality differences? Based on a location model for product differentiation, i find that access revenues can compensate incumbent telecom firms for the loss due to having a lower quality network than cable companies. Therefore, access obligation reduces the incentives of telecom firms to compete with cable companies by upgrading network quality. In the absence of retail competitors without networks, however, telecom firms need to upgrade network quality to be able to remain competitive with cable companies. Furthermore and in line with the existing literature, the exclusion of retail competitors is more likely in the presence of higher access prices and stronger substitutuion between firms' products. Finally, if the original differences between network quality is large and high returns on investments are unlikely, telecom firms may not be able to invest sufficiently and lose substantially from their market shares. --
    Keywords: Telecommunications,Investments,Quality,Access regulation,Asymmetric regulation
    JEL: L51 L96 L10 K23
    Date: 2013
  10. By: A. Mohammad Hassan (College of Engineering, Seoul National University); Jorn Altmann (College of Engineering, Seoul National University)
    Abstract: IP/MPLS service providers rely on transport networks to provide bandwidth on demand with the lowest possible provisioning time. However, due to the static nature of transport networks and the differences in the communication languages and switching systems, the IP/MPLS and transport network management systems are isolated from each other. To address this issue, a mediator called "ONE Adapter" has been developed. It allows automatic interaction and coordination of network management functions between the two network management systems.The objective of this paper is to capture the deployment impact of the mediator on the business of IP/MPLS providers and transport service providers, and to illustrate the changes in the market. To achieve that, we have conducted a survey of the literature on business models in the telecommunication sector and analyzed the service offerings of 15 leading telecommunication operators.The result is a description of the current Internet ecosystem, includingthe market players, their roles, and relationships. Furthermore, our results suggest that amediator deployment will change the way how the IP/MPLS network and the transport network interact. It will allow new players to enter the market and new business models to emerge. This study will help IP/MPLS and transport service providers to anticipate the changes in the market due to a NMS mediator entering the market.
    Keywords: Network Service Provider, IP/MPLS Network, New Technology Deployment Impact, Business Model, Internet Ecosystem.
    JEL: L22 L26 L86 L96 M15 M21
    Date: 2013–10
  11. By: Knieps, Günter; Zenhäusern, Patrick
    Abstract: International mobile roaming cartel agreements prompted the EU to intervene, firstly encompassing competition law measures by a cartel exemption, then initiating several competition proceedings based on the accusation of abuse of a dominant market position, and finally applying price regulations of increasing scope. The paper exposes the temporary market power regulations, including the designated local break out measures, as insufficient and misleading. The solution is to solve the cartel problem at its root, permitting visiting customers the freedom of choosing between their home operator and alternative carriers from the visited country by the implemention of carrier portability. --
    JEL: K21 L51 L96
    Date: 2013
  12. By: Silva, Rita Filipe; Proença, Isabel; Vareda, João
    Abstract: The development of the broadband market is a key aspect of the economic and social growth of a country. However, despite the importance and the development of broadband market in Portugal in recent years, especially with the explosion of the number of mobile broadband accesses, the studies for the Portuguese case are rare. The present paper seeks to contribute to the discussion about the definition of the broadband market in Portugal, specifically studying the demand for broadband Internet and measuring the determinants that explain the use of each of the technologies available to provide broadband access, with emphasis on the differences between fixed and mobile accesses. Demand broadband functions were estimated using nested logit and multinomial discrete choice model. The primary source of information was ANACOM's Electronic Communications Services Consumption Survey, complemented with price information regarding the offers available in the market. The estimations obtained for the elasticities point out the probable existence of substitution between ADSL and cable and between these fixed broadband technologies and the mobile broadband. However, the inverse relation is not statistically significant, the demand for mobile broadband isn't constrained by the price of ADSL or of cable, which may reveal the existence of asymmetric substitution between fixed and mobile broadband accesses. These results have implications in the definition of the broadband market in Portugal which will be discussed. --
    Keywords: Broadband,Market Definition,Demand,Regulation,Fixed-Mobile Substitution
    JEL: L51 L96
    Date: 2013
  13. By: Martin Lábaj (University of Economics in Bratislava, Faculty of National Economy, Department of Economic Policy); Peter Silaniè (University of Economics in Bratislava, Faculty of National Economy, Department of Economic Policy); Christoph Weiss
    Abstract: The present paper provides first empirical evidence on the effects of entry on market conduct for a transition economy. We estimate size thresholds required to support different numbers of firms for seven retail and professional service industries in a large number of distinct geographic markets in Slovakia. Our results suggest a differential impact of entry on market conduct: while market conduct is unaffected by entry in the north-western parts of Slovakia, competition tends to kick in slowly in most professions in the south-east. This latter region suffers from infrastructure bottlenecks and competitors require a larger increase in the number of customers to come in.
    Keywords: entry thresholds, competition, Slovakia, cross section, geographic markets
    JEL: L22 D22 M13 R11
    Date: 2013–01–31

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