nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒04‒29
fourteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Limits of Price Discrimination By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. Confidence, Pessimism and their Impact on Product Differentiation in a Hotelling Model with Demand Location Uncertainty By Kauffeldt, Florian; Wiesenfarth, Boris
  3. What Determines Market Structure? An Explanation from Cooperative Investment with Non‐Exclusive Co By Roig, Guillem
  4. Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals By Dubois, Pierre; Lasio, Laura
  5. Dynamic Oligopoly Pricing: Evidence from the Airline Industry By Siegert, Caspar; Ulbricht, Robert
  6. The Effectiveness of Competition Policy: An Econometric Assessment in Developed and Developing Countries By Samà, Danilo
  7. Competition Law Enforcement in Malaysia: Some Recent Developments By Cassey LEE
  8. Cartel Detection and Collusion Screening: An Empirical Analysis of the London Metal Exchange By Samà, Danilo
  9. Informative Advertisement of Partial Compatible Products By Roig, Guillem
  10. The Effects of Banning Advertising on Demand, Supply and Welfare: Structural Estimation on a Junk Food Market By Dubois, Pierre; Griffith, Rachel; O'Connell, Martin
  11. Patents as quality signals? The implications for financing constraints on R&D By Czarnitzki, Dirk; Hall, Bronwyn H.; Hottenrott, Hanna
  12. Does R&D increase the profit contribution of intangible assets? An exploration of European and American automotive supplierss By Stefan Lutz
  13. Competition and the Hold‐U p Problem: a Setting with Non‐exclusive Contracts By Roig, Guillem
  14. Learning-by-Doing in a Highly Skilled Profession When Stakes Are High: Evidence from Advanced Cancer Surgery By Avdic, Daniel; Lundborg, Petter; Vikström, Johan

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, Princeton University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the surplus generated by efficient trade.
    Keywords: First degree price discrimination, Second degree price discrimination, Third degree price discrimination, Private information, Privacy, Bayes correlated equilibrium, Concavification
    JEL: C72 D82 D83
    Date: 2013–05
    URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:1896rr&r=ind
  2. By: Kauffeldt, Florian; Wiesenfarth, Boris
    Abstract: We analyze a Hotelling location-then-price duopoly game under demand uncertainty with uniformly distributed consumers in a standard quadratic costs scenario. The novelty of our approach consists of assuming that firms' beliefs are represented by non-extreme-outcome-additive (neo-additive) capacities. We derive firms' subgame-perfect product design decisions under ambiguity. Furthermore, we investigate the influence of ambiguity and ambiguity attitude on equilibrium product differentiation and contrast our results with an environment of risky firms. We find that the impact of the degree of confidence or ambiguity is particularly significant when it comes to delivering accurate explanations for a wide range of phenomena related to observed product design behavior.
    Keywords: Hotelling; Confidence; Optimism; Pessimism; Degree of Ambiguity; Choquet Expected Utility; Neo-additive Capacities; Product Differentiation
    Date: 2014–04–17
    URL: http://d.repec.org/n?u=RePEc:awi:wpaper:0562&r=ind
  3. By: Roig, Guillem
    Abstract: In a common agency setting, where the common buyer undertakes cooperative investment with her suppliers, we obtain a direct link between the level of ex-post competition and investment which affects the market structure of the supply side of the market. We show that more competitive equilibria are associated with a larger and more homogeneous distribution of investment among active suppliers, and an equilibrium with no investment might occur when competition is mild. In our model, buyer's investment works as a mechanism to incentivize competition, and its effectiveness is positively related to the level of competition ex-post. In general, the equilibrium investment profile is lower than efficiency, and we surprisingly find that higher competitive markets may sustain a larger number of suppliers.
    Keywords: cooperative investment; investment distribution; competition.
    JEL: C72 D43 D44
    Date: 2014–03–26
    URL: http://d.repec.org/n?u=RePEc:tse:wpaper:28043&r=ind
  4. By: Dubois, Pierre; Lasio, Laura
    Abstract: We provide a method allowing identification of margins in an oligopoly price competition game when prices may not be freely chosen in some markets, for example due to regulation. We use our identification strategy to study the effects of regulatory constraints in the pharmaceutical industry. We provide the first structural estimation of price-cost margins on a regulated market with price constraints and show how to identify unknown possibly binding constraints thanks to three different markets (US, Germany and France) with varying regulatory constraints. We use the market for anti-ulcer drugs to identify whether regulation in France truly affects margins and prices and relate regulatory reforms to industry pricing equilibrium. Empirical results show that firms were especially constrained in price setting after the different reforms in 2004. Counterfactual simulations show that total spending significantly increased because of the new price regulation by displacing part of the demand from generics to branded drugs.
    Keywords: empirical IO, price constraints, Bertrand competition, regulation, pharmaceuticals, antiulcer drugs.
    JEL: I18 L10
    Date: 2014–02
    URL: http://d.repec.org/n?u=RePEc:ide:wpaper:27918&r=ind
  5. By: Siegert, Caspar; Ulbricht, Robert
    Abstract: We explore how pricing dynamics in the European airline industry vary with the competitive environment. Our results highlight substantial variations in pricing dynamics that are consistent with a theory of intertemporal price discrimination. First, the rate at which prices increase towards the scheduled travel date is decreasing in competition, supporting the idea that competition restrains the ability of airlines to price-discriminate. Second, the sensitivity to competition is substantially increasing in the heterogeneity of the customer base, reecting further that restraints on price discrimination are only relevant if there is initial scope for price discrimination. These patterns are quantitatively important, explaining about 83 percent of the total within flight price dispersion, and explaining 17 percent of the observed cross-market variation of pricing dynamics.
    Keywords: Airline industry, capacity constraints, dynamic oligopoly pricing, intertemporal price dispersion, price discrimination.
    JEL: D43 D92 L11 L93
    Date: 2014–03–23
    URL: http://d.repec.org/n?u=RePEc:tse:wpaper:28015&r=ind
  6. By: Samà, Danilo
    Abstract: The ultimate objective of the present paper is to empirically investigate the effectiveness of competition policy in developed and developing countries. Although its importance is continuously increasing, the effectiveness of competition policy still seems to lack the attention that it would deserve. At the present state of art, the number of academic contributions that attempts to estimate its impact on relevant economic variables appears very limited, in particular for the less developed countries. However, an empirical literature aimed at measuring in objective terms the effect of competition policy on economic growth is emerging, starting from narrow variables of interest, such as Gross Domestic Product and Total Factor Productivity. As a result, the principal aim of the current work is to contribute to this branch of research, focusing on broader indicators of market performance, in order to understand whether the presence of an antitrust authority has a significant impact, thus an effective utility, on the level of competition of a country.
    Keywords: Competition Authorities, Competition Policy, Developed Countries, Developing Countries, Economic Development, Economic Growth, Law & Economics, Market Concentration, Market Efficiency, Market Performance, New Institutional Economics, Political Economy
    JEL: C21 C26 K21 L40
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:55360&r=ind
  7. By: Cassey LEE (University of Wollongong)
    Abstract: The enactment of the Competition Act 2010 represents a significant progress in the implementation of competition policy in Malaysia. The Malaysian Competition Commission has been fairly successful in its enforcement activities especially in price fixing cases involving trade associations. It has also investigated and issued proposed decisions in a number of high profile cases involving Malaysian Airlines, AirAsia, and Megasteel. Future challenges are likely to involve investigation of more complex anti-competitive cases, review of government regulations with impact on competition, possible introduction of merger controls and regional integration.
    Keywords: competition policy, competition law, malaysia.
    JEL: K21 L40 L41
    Date: 2014–01
    URL: http://d.repec.org/n?u=RePEc:era:wpaper:dp-2014-02&r=ind
  8. By: Samà, Danilo
    Abstract: In order to fight collusive behaviors, the best scenario for competition authorities would be the possibility to analyze detailed information on firms' costs and prices, being the price-cost margin a robust indicator of market power. However, information on firms' costs is rarely available. In this context, a fascinating technique to detect data manipulation and rigged prices is offered by an odd phenomenon called Benford's Law, otherwise known as First-Digit Law, which has been successfully employed to discover the ``Libor Scandal'' much time before the opening of the cartel settlement procedure. Thus, the main objective of the present paper is to apply a such useful instrument to track the price of the aluminium traded on the London Metal Exchange, following the allegations according to which there would be an aluminium cartel behind. As a result, quick tests such as Benford's Law can only be helpful to inspect markets where price patterns show signs of collusion. Given the budget constraints to which antitrust watchdogs are commonly subject to, a such price screen could be set up, just exploiting the data available, as warning system to identify cases that require further investigations.
    Keywords: Benford's Law, Cartel Detection, Collusion Screening, Competition Authorities, Data Manipulation, Monopolization, Oligopolistic Markets, Price Fixing, Variance Screen
    JEL: C10 D40 L13 L41
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:55363&r=ind
  9. By: Roig, Guillem
    Abstract: Product design and advertisement strategy have been theoretically studied as separate firms decisions. In the present paper, we look at the link between advertisement and product design and we analyze how firms' advertising decisions influence the market effect of product design. We consider a model of informative advertisement where two firms produce a bundle of complementary products which are partially compatible. A product design with more compatible components is associated with a larger intensity of advertisement. Higher compatibility reduces competition between firms, which incentivizes them to give factual information about their bundle. Like Matutes and Regibeau (1988), industry profit and total welfare is maximized with full product compatibility. However, contrary to them, we obtain that consumer surplus is not monotone with the level of product compatibility and its maximum is attained with partial compatibility. Moreover, because consumer surplus not only depends on the equilibrium prices but also on the intensity of advertisement, we find that for intermediate equilibrium levels of advertising, consumers prefer fully compatible components rather than full incompatibility. As a result, a more compatible product design benefits all the agents in the economy.
    Keywords: Informative advertisement; product design; partial compatibility; welfare.
    JEL: D21 D43 L13 L15
    Date: 2014–03–26
    URL: http://d.repec.org/n?u=RePEc:tse:wpaper:28044&r=ind
  10. By: Dubois, Pierre; Griffith, Rachel; O'Connell, Martin
    Abstract: Restricting advertising is one way governments seek to reduce consumption of potentially harmful goods. There have been increasing calls to apply a similar policy to the junk food market. The effect will depend on how brand advertising influences consumer demand, and on the strategic pricing response of oligopolistic firms. We develop a model of consumer demand and dynamic oligopoly supply in which multi-product firms compete in prices and advertising budgets. We model the impact of advertising on demand in a exible way, that allows for the possibility that advertising is predatory or cooperative, and we consider how market equilibria would be impacted by an advertising ban. In our application we apply the model to the potato chip market using transaction level data. The implications of an advertising ban for consumer welfare depend on the view one takes about advertising. In the potato chip market advertising has little informational content. The advertising may be a characteristic valued by consumers, or it may act to distort decision-making. We quantify the welfare impacts of an advertising ban under alternative views of advertising, and show that welfare conclusions depend on which view of advertising the policymaker adopts.
    Keywords: advertising, demand estimation, welfare, dynamic oligopoly
    JEL: L13 M37
    Date: 2014–04
    URL: http://d.repec.org/n?u=RePEc:tse:wpaper:28116&r=ind
  11. By: Czarnitzki, Dirk; Hall, Bronwyn H.; Hottenrott, Hanna
    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. --
    Keywords: Patents,Quality Signal,Research and Development,Financial Constraints,Innovation Policy
    JEL: O31 O32 O38
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:zbw:zewdip:14023&r=ind
  12. By: Stefan Lutz (Royal Docks Business School, University of East London)
    Abstract: Economic theory implies that research and development (R&D) efforts increase firm productivity and ultimately profits. In particular, R&D expenses lead to the development of intangible assets in the form of intellectual property (IP) and these assets command a return that increases overall profits of the firm. This hypothesis is investigated for the North American and European automotive supplier industries. Results indicate that R&D expenses in fact increase both intangible asset levels and their profit contributions. In particular, increases in the R&D expense to sales ratio lead to increases in the profit contribution of intangible assets relative to sales. This indicates that more R&D intensive IP should command higher royalty rates per sales when licensed to third parties and within multinational enterprises alike.
    Keywords: Productivity; Intellectual property; Royalties; MNE; Transfer pricing.
    JEL: D24 L20 L62 M21
    Date: 2014–02
    URL: http://d.repec.org/n?u=RePEc:ucm:doicae:1407&r=ind
  13. By: Roig, Guillem
    Abstract: This work studies how the introduction of competition to the side of the market offering trading contracts affects the equilibrium investment profile in a bilateral investment game. By using a common agency framework, where contracts are not exclusive, we find that the equilibrium investment profile depends on the competitiveness of the equilibrium outcome. Full efficiency can only be implemented when the trading outcome is the most competitive. Moreover, lowering the outcome competitiveness is not always Pareto dominant for the parties offering the contracts, and larger social welfare can be obtained with low competitive equilibria.
    Keywords: bilateral investment; hold-up; competition; Pareto dominance; social surplus.
    JEL: D44 L11
    Date: 2014–03–26
    URL: http://d.repec.org/n?u=RePEc:tse:wpaper:28042&r=ind
  14. By: Avdic, Daniel (CINCH); Lundborg, Petter (Lund University); Vikström, Johan (IFAU)
    Abstract: Although learning-by-doing is believed to be an important source of productivity growth, there is limited evidence that production volume affects productivity in a causal sense. We document evidence of learning-by-doing in a highly skilled profession where stakes are high; advanced cancer surgery. For this purpose, we introduce a novel instrument that exploits the closure and opening of entire cancer clinics which have given rise to sharp and exogenous changes in the cancer surgical volumes at Swedish public sector hospitals. Using detailed register data on more than 100,000 episodes of advanced cancer surgery, our results suggest positive effects of surgery volumes on survival. In addition, we provide evidence on the mechanisms through which these improvements occur. We also show that the results are not driven by changes in patient composition or by other changes at the hospital level.
    Keywords: hospital volume, learning-by-doing, cancer surgery, survival, causal effect
    JEL: I11 I12 I18 L11
    Date: 2014–04
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp8099&r=ind

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