nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒02‒15
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The "demand side" effect of price caps: uncertainty, imperfect competition, and ration By Léautier, Thomas-Olivier
  2. Prices and Quantities in Health Care Antitrust Damages By Martha A. Starr
  3. Multiple Equilibria and Deterrence in Airline Markets By Ciliberto, Federico; Zhang, Zhou
  4. Price Discrimination through Refund Contracts in Airlines By Escobari, Diego; Jindapon, Paan
  5. What do patent-based measures tell us about product commercialization? Evidence from the pharmaceutical industry By Stefan Wagner; Simon Wakeman

  1. By: Léautier, Thomas-Olivier
    Abstract: Price caps are often used by policy makers to "regulate markets". Previous analyses have focussed on the "supply side" impact of these caps, and derived the optimal price cap, which maximizes investment and welfare. This article expands the analysis to include the "demand side" impact of price caps: when prices can no longer rise, customers must be rationed to adjust demand to available supply. This yields two new findings, that contradict previous analyses. First, the welfare-maximizing cap is higher than the capacity-maximizing cap, since increasing the cap increases gross surplus when customers are rationed. Second, in somes cases, the capacity-maximizing cap leads to lower capacity and welfare than no cap. These findings underscores the importance for policy makers to examine the impact on customers when they impose price caps. Keywords: price caps, imperfect competition, rationing, investment incentives
    Keywords: price caps, imperfect competition, rationing, investment incentives
    JEL: L13 L94
    Date: 2014–01–27
  2. By: Martha A. Starr
    Abstract: Antitrust analysis conventionally assumes that illegal agreements among competitors raise prices and lower quantities, relative to lawful competition. However, markets for healthcare services have tendencies towards overprovision, which may increase when competition declines. This paper examines this possibility using data from a well-known antitrust case in Wisconsin. We find that, in parts of the state where physician groups illegally divided up markets, costs of physician services rose by about 10% more than they did elsewhere, with about half of this increase due to increased services. This suggests that higher quantities can contribute to healthcare antitrust damages, along with higher prices.
    Date: 2014
  3. By: Ciliberto, Federico; Zhang, Zhou
    Abstract: We use data from the US airline industry to estimate a model of entry deterrence. We model the interaction among airlines as a repeated static game, where we allow for a very general form of heterogeneity. We consider a menu of three alternative games that describe the strategic interaction among airlines: simultaneous and sequential move games, and a sequential move game with deterrence investments. Following Bernheim [1984], deterrence investments include all investment that raises barriers to entry, and for which the incumbent must incur some investment costs. We show that the profits that incumbents can make in the sequential game, both with and without deterrence investments, are larger than those that they can make if the game is played simultaneously. Thus, we find that on average it is profitable for all firms to deter new entrants, with the exception of United Airlines. Remarkably, United Airlines was under bankruptcy protection during the period of analysis, suggesting that its deterrence investments were not credible. Overall, we find that the data is explained better by a model where firms make deterrence investments. Thus, we cannot reject the hypothesis that incumbents deter entrants in the airline industry.
    Keywords: Multiple Equilibria, Entry Games, Heterogeneity, Deterrence, Airline Industry, Sequential Move Game, Simultaneous Move Game
    JEL: L1
    Date: 2014–01–26
  4. By: Escobari, Diego; Jindapon, Paan
    Abstract: This paper shows how an airline monopoly uses refundable and non-refundable tickets to screen consumers who are uncertain about their travel. Our theoretical model predicts that the difference between these two fares diminishes as individual demand uncertainty is resolved. Using an original data set from U.S. airline markets, we find strong evidence supporting our model. Price discrimination opportunities through refund contracts decline as the departure date nears and individuals learn about their demand.
    Keywords: Price discrimination; Refund contracts; Airlines; Individual demand learning
    JEL: C23 D42 D82 L93
    Date: 2014–02–10
  5. By: Stefan Wagner (ESMT); Simon Wakeman (ESMT)
    Abstract: Patent-based measures are frequently used as indicators in empirical research on innovation and technology as well as on firms’ strategies and organizational choices to characterize inventions or, more generally, innovative activities and the technological capabilities of organizations. A clear correlation between the value of an invention and a number of patent indicators such as the number of citations received has been established. However, there is much less evidence of what patent-based indicators tell us about outcomes beyond patent value. Using data from the pharmaceutical industry, we investigate the relationship between the most frequently used indicators and the outcomes from the product development process. Our findings draw a complex picture regarding the information content of various patent indicators that bear important implications for the use and the proper interpretation of these indicators in settings where they are employed to describe outcomes beyond the patent system itself.
    Keywords: Patent indicators, patent system, product commercialization, pharmaceutical industry, drug development
    Date: 2014–01–30

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