nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒03‒15
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Branding and Collusion in Vertically Differentiated Industries By Garcia, Daniel
  2. Platform contents By Renault, Régis
  3. Uncertain Efficiency Gains and Merger Policy By Mariana Cunha; Paula Sarmento; Hélder Vasconcelos
  4. Patents as Quality Signals? The Implications for Financing Constraints on R&D By Dirk Czarnitzki; Bronwyn H. Hall; Hanna Hottenrott
  5. Vertical Structure and Forward Contract in Electricity Market By Yuanjing Li
  6. Market Power and Collusion on Interconnection Phone Market in Tunisia : What Lessons from International Experiences By Sami Debbichi; Walid Hichri
  7. Lift ticket prices and quality in French ski resorts: Insights from a non-parametric analysis By Francois-Charles Wolff
  8. Price setting behaviour in Lesotho: Stylised facts from consumer retail prices By Mamello Amelia Nchake, Lawrence Edwards and Neil Rankin
  9. Optimal Price-Setting in Pay for Performance Schemes in Health Care By Søren Rud Kristensen; Luigi Siciliani; Matt Sutton

  1. By: Garcia, Daniel
    Abstract: This paper presents a model of collusion in vertically differentiated industries where firms have the option to make their products distinguishable to consumers by attaching a brand. We show that if consumers’ preferences are linear in the quality dimension and their beliefs satisfy a standard refinement, collusion is facilitated in the absence of brands. More precisely, we show that if collusion is feasible with brands it is also feasible without them
    Keywords: Collusion; Branding; Vertical Differentiation
    JEL: D83 L13 L40
    Date: 2014–02–22
  2. By: Renault, Régis
    Abstract: A monopoly platform hosts advertisers who compete on a market for horizontally differentiated products. These products may be either mass market products that appeal broadly to the entire consumer population or niche products that are tailored to the tastes of some particular group. Consumers search sequentially through ads incurring a surfing cost of moving to the next ad. They may click on an ad at some cost, which provides all relevant information and the opportunity to buy. The platform chooses which information is in an ad and may be observed by consumers before they click. It also selects the level of sur ng costs and click costs and charges a per click ad price. Higher surfing and click costs and more mass market advertising reduces the platform's attractiveness but enhances advertisers' market power. If ads are uninformative, the platform optimally attracts only niche advertising. This is however not feasible if search costs cannot be made su ciently low, in which case both types of products are advertised. The platform benefits from requiring firms to advertise prices, only if it is unable to attract consumers with uninformative ads. The analysis is extended to allow advertising to include product information and allow the platform to provide non advertising content (e.g. entertainment or news).
    Keywords: Internet platforms; Internet; Consumers; Mass markets products; Advertising;
    JEL: L86 L81 M37
    Date: 2014–02
  3. By: Mariana Cunha (FEP-UP, School of Economics and Management, University of Porto); Paula Sarmento (FEP-UP, CEF-UP); Hélder Vasconcelos (FEP-UP, CEF-UP, CEPR)
    Abstract: This paper studies the role of uncertainty in merger control and in merger decisions. In a Cournot setting, we consider that mergers may give rise to uncertain endogenous efficiency gains and that every merger has to be submitted for approval to the Antitrust Authority (AA). We assume that both the AA and the firms in the industry face the same uncertainty about the future efficiency gains induced by the merger. It is shown that an increase in the degree of uncertainty benefits both insider and outsider firms but also the consumers. Further, when uncertainty is high, there is a greater likelihood that firms propose a merger to the AA and that the AA accepts it. Interestingly, however, although uncertainty enhances merger approval chances, it also decreases merger's stability, by increasing outsiders' incentives to free-ride on it.
    Keywords: Efficiency gains; Merger control; Uncertainty
    JEL: L13 D41 D81
    Date: 2014–03
  4. By: Dirk Czarnitzki; Bronwyn H. Hall; Hanna Hottenrott
    Abstract: Information about the success of a new technology is usually held asymmetrically between the research and development (R&D)-performing firm and potential lenders and investors. This raises the cost of capital for financing R&D externally, resulting in financing constraints on R&D especially for firms with limited internal resources. Previous literature provided evidence for start-up firms on the role of patents as signals to investors, in particular to Venture Capitalists. This study adds to previous insights by studying the effects of firms’ patenting activity on the degree of financing constraints on R&D for a panel of established firms. The results show that patents do indeed attenuate financing constraints for small firms where information asymmetries may be particularly high and collateral value is low. Larger firms are not only less subject to financing constraints, but also do not seem to benefit from a patent quality signal.
    JEL: G32 O31 O32 O38
    Date: 2014–02
  5. By: Yuanjing Li
    Abstract: The pro-competitive effects of forward contracts in electricity market can- not be regarded alone without examining the market structure. In this paper, we show that under retail competition, spot market demand uncertainty and risk aversion, partially or fully integrated electricity generators and retailers have less incentives to be involved in trading electricity under forward con- tracts. Therefore, the effect of market power mitigation of forward contracts is countered by this vertical relationship between retailers and generators since it provides a natural hedging device as a substitute of forward contracts to the retailers. Both analytic framework and numerical simulation suggest that the optimal quantity of forward sales decreases and spot price increases with the degree of vertical control of retailers over generators' assets. We thus conclude that the retailers' ownership over generators' proffts could give rise to generators exercising market power in electricity spot market.
    JEL: L13 L42 L94
    Date: 2014–02–25
  6. By: Sami Debbichi (AEDD, Faculty of Economics and Management of Tunis el Manar, Tunisia); Walid Hichri (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: We try in this paper to characterize the state of mobile phone market in Tunisia. Our study is based on a survey of foreign experience (Europe) in detecting collusive behavior and a comparison of the critical threshold of collusion between operators in developing countries like Tunisia. The market power is estimated based on the work of Parker Roller (1997) and the assumption of "Balanced Calling Pattern". We use then the model of Friedman (1971) to compare the critical threshold of collusion. We show that the “conduct parameter” measuring the intensity of competition is not null during the period 1993-2011. Results show also that collusion is easier on the Tunisian market that on the Algerian, Jordanian, or Moroccan one.
    Keywords: Termination rate, Market power, Competition, Mobile phone Market
    JEL: D41 L96 L71
    Date: 2014
  7. By: Francois-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: Using a unique data set with 168 ski resorts located in France, this paper investigates the relationship between lift ticket prices and supply-related characteristics of ski resorts. A non-parametric analysis combined with a principal component analysis is used to identify the set of efficient ski resorts, defined as those where the lift ticket price is the cheapest for a given level of quality. Results show that the average inefficiency per lift ticket price is less than 1.5 euros for resorts located in the Pyrenees and the Southern Alps. The average inefficiency is three times higher for ski resorts located in the Northern Alps, which is explained by the presence of large connected ski areas offering many more runs for a small surchage.
    Keywords: data envelopment analysis, free disposal hull model, quality, lift ticket price, ski resorts
    Date: 2014–02–28
  8. By: Mamello Amelia Nchake, Lawrence Edwards and Neil Rankin
    Abstract: This paper documents some of the main features of price setting behaviour by retail outlets in Lesotho over the period March 2002 to December 2009. The sample of data covers 229 product items for 345 retail outlets. The paper has three main objectives. Firstly, it presents key indicators of price setting behaviour such as the frequency of price changes, the average size of price changes and the probability of price changes at the retail outlet level. Secondly, it identifies some of the dynamic features of price changes, including the synchronization of price changes and the relationship between the frequency and size of price changes and the duration of the existing price. Finally, the paper compares the stylised facts on price setting behaviour in Lesotho to other countries and South Africa in particular. The findings of the paper corroborate those in the international empirical literature. Substantial heterogeneity in price setting behaviour is found across products, outlets and time. Variations in inflation are strongly correlated with the average size of price changes, but rising inflation raises the frequency of price increases and reduces the frequency of price decreases. Surprisingly, the frequency and size of price changes in Lesotho differ substantially from those in South Africa, despite the presence of common retail chains and their joint membership in a customs union and common monetary area. Further research is required to unpack the sources of heterogeneity in the setting of prices and the stark differences in price setting behaviour in Lesotho and South Africa.
    Keywords: Lesotho, price changes, price rigidity, Inflation
    JEL: E31 D40 D21 L21
    Date: 2014
  9. By: Søren Rud Kristensen; Luigi Siciliani; Matt Sutton
    Abstract: The increased availability of process measures implies that quality of care is in some areas de facto verifiable. Optimal price-setting for verifiable quality is well-described in the incentive-design literature. We seek to narrow the large gap between actual price-setting behaviour in Pay-For-Performance schemes and the incentive literature. We present a model for setting prices for process measures of quality and show that optimal prices should reflect the marginal benefit of health gains, providers’ altruism and the opportunity cost of public funds. We derive optimal prices for processes incentivised in the Best Practice Tariffs for emergency stroke care in the English National Health Service. Based on published estimates, we compare these to the prices set by the English Department of Health. We find that actual tariffs were lower than optimal, relied on an implausibly high level of altruism, or implied a lower social value of health gains than previously used.
    Keywords: Pay For Performance; provider behaviour; optimal price-setting
    JEL: D82 I11 I18 L51
    Date: 2014–02

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