New Economics Papers
on Industrial Organization
Issue of 2014‒05‒24
eight papers chosen by

  1. A Spatial Model of Perfect Competition By Dimitrios Xefteris; Nicholas Ziros
  2. Price vs. quantity competition in a vertically related market By Alipranti, Maria; Milliou, Chrysovalantou; Petrakis, Emmanuel
  3. Strategic delegation in two-sided markets By Vitor Miguel Ribeiro
  4. Sustaining collusion in markets with a general evolution of demand By João Correia-da-Silva; Joana Pinho; Hélder Vasconcelos
  5. Bundling and joint marketing by rival firms By Jeitschko, Thomas D.; Jung, Yeonjei; Kim, Jaesoo
  6. Consumer Attention, Engagement, and Market Shares: Evidence from the Carbonated Soft Drinks Market By Liu, Yizao; Rui, Huaxia
  7. Hybrid Distribution Systems Based Upon Integrated Labeling of Verticals in Non-food Consumer Goods Branches and their Internationalization By Turban, Manfred
  8. Rethinking Deindustrialization By Andrew B. Bernard; Valerie Smeets; Frederic Warzynski

  1. By: Dimitrios Xefteris; Nicholas Ziros
    Abstract: This paper employs the theory of strategic market games (enhanced with a spatial dimension) in order to study the issue of market location in a perfectly competitive setup. In this framework, each player decides strategically where and what quantities she wishes to trade and, hence, the market structure (or simply the distribution of the active trading posts and prices) emerges endogenously. We conduct a comprehensive analysis for a class of simple games with a continuum of traders and we show that (i) not all market structures can support a Nash equilibrium, (ii) at least some multi-market structures can support a Nash equilibrium and (iii) prices in a multi-market Nash equilibrium, generically, diverge.
    Keywords: Spatial model; Market locations; Strategic market games; Perfect competition.
    Date: 2014–05
  2. By: Alipranti, Maria; Milliou, Chrysovalantou; Petrakis, Emmanuel
    Abstract: This paper demonstrates that the standard conclusions regarding the comparison of Cournot and Bertrand competition are reversed in a vertically related market with upstream monopoly and trading via two-part tariffs. In such a market, downstream Cournot competition yields higher output, lower wholesale prices, lower final prices, higher consumers' surplus, and higher total welfare than Bertrand competition. --
    Keywords: Cournot,Bertrand,vertical relations,two-part tariffs
    JEL: D43 L13 L14
    Date: 2014
  3. By: Vitor Miguel Ribeiro (Vitor Miguel Ribeiro - FEP and CEF.UP - Vitor)
    Abstract: In a two-sided market duopoly, we investigate the effects of delegating long run restrictive and unrestrictive decisions to managers by the platforms' owners, the effects of the platforms' ownership establishing long run decisions without managers and the impacts of asymmetric regimes between platforms in terms of profitability, consumer surplus and total welfare. The fact that our analysis is focused on platforms introduces inter-group externalities. We find that for sufficiently low intensity of the inter-group externality, the owners of symmetric platforms should take the long run decisions by themselves. However, for an intermediate level of the inter-group externality, the owners of symmetric platforms should delegate the long run decision to their managers. Finally, for sufficiently high level of the inter-group externality, only tipping equilibria occur. Under an asymmetric environment, that is, one platform owner establishes long run decisions and the other owner delegate's long run decisions to their manager the long run decisions should be taken by the platform's owners.
    Keywords: Two-sided markets, tipping, spatial competition, strategic delegation, managerial incentives.
    JEL: D43 L11 L13 R12
    Date: 2014–05
  4. By: João Correia-da-Silva (CEF.UP e Faculdade de Economia do Porto.); Joana Pinho (CEF.UP e Faculdade de Economia do Porto.); Hélder Vasconcelos (CEPR, CEF.UP e Faculdade de Economia do Porto.)
    Abstract: This paper proposes a general framework to study the sustainability of collusion in markets where demand growth (although deterministic) is not restricted to occur at a constant rate and may trigger future entry. It is shown that, typically, entry occurs later along the collusive path than along the punishment path (since profits are lower in the latter case). The possibility of delaying entry, therefore, constitutes an additional incentive for deviating just before entry is supposed to occur along the collusive path. In case discontinuing collusion does not delay entry, collusion is shown to be typically more difficult to sustain after than before entry. The proposed model encompasses and explains conflicting results derived in the extant literature under more restrictive settings, and derives some additional results. In particular, it is shown that whether collusion is more difficult before or after entry crucially depends on the magnitude of the entry costs and on the speed at which demand converges to its long-term evolution.
    Keywords: Collusion; Demand evolution; Entry.
    JEL: K21 L11 L13
    Date: 2014–05
  5. By: Jeitschko, Thomas D.; Jung, Yeonjei; Kim, Jaesoo
    Abstract: We study joint marketing arrangements by competing firms who engage in price discrimination between consumers who patronize only one firm (single purchasing) and those who purchase from both competitors (bundle purchasers). Two types of joint marketing are considered. Firms either commit to a component-price that applies to bundle-purchasers and then firms set stand-alone prices for single purchasers; or firms commit to a rebate off their stand alone price that will be applied to bundle-purchasers, and then firms set their stand alone prices. Both methods allow firms to raise prices and earn higher profits. However, the effect of price discrimination on social welfare depends on how prices are chosen. The rebate joint marketing scheme increases joint purchasing, whereas bundle pricing diminishes bundle purchases. If the marginal social value of a bundle over a single purchase is large, the former increases total welfare. However, welfare can also increase with bundle pricing compared to non-discriminatory pricing. --
    Keywords: Bundling,Joint Marketing,Price Discrimination
    JEL: D4 D8
    Date: 2014
  6. By: Liu, Yizao; Rui, Huaxia
    Abstract: among consumers and between consumers and brands. Social media users can now interact with brands directly through Facebook and Twitter. These new features make social media a very distinctive class of online WOM. In this paper, we formulate a random coefficient discrete choice model of consumer demand to study whether and how consumer engagement and attention on the Internet affect the consumption of carbonated soft drinks (CSDs). We model consumer attention and engagement on social media as goodwill in order to capture the carry-over effects of WOM’s impact on demand and combine two types of product level data: monthly CSD sales data and social media data. Our results suggest that the three types of social media messages all have significant and positive effects on CSD demand. In particular, indirect engagement on Twitter has the largest impact on consumer demand, followed by direct engagement on Twitter and consumer engagement on Facebook.
    Keywords: Consumer Engagement, Consumer Attention, Social Media, Consumer Demand, Consumer/Household Economics, Institutional and Behavioral Economics,
    Date: 2014–04–03
  7. By: Turban, Manfred (Department of Economics of the Duesseldorf University of Applied Sciences)
    Abstract: In non-food consumer goods branches of goods of medium and long term demand new business models are pushing through which are based on a simultaneous redesign of branding strategy, value chain and final retail distribution. The new vertical companies with brand focused distribution systems combine the vertical alignment of the value chain with integrated branding and a hybrid multi-channel approach in retailing. The competitive advantages of these business models are founded on the nexus between the enhanced possibilities of brand communication, the transaction cost savings of vertical business models and the diversity of channels of hybrid retailing systems. The performance has resulted in displacement effects with regard to competitors still applying traditional business models in a growing number of branches. Since the competitive advantages of the vertical companies with branding focused distribution systems proved to be also highly effective for entering international markets, they are ranking among the most successful international retailers according to the number of country markets entered, the number of stores established abroad and the share of cross-border sales. The causes of the competitive advantages both in national and international markets are discussed and business cases are presented.
    Abstract: In den Non-Food-Konsumgüterbranchen mit Gütern des mittel- und langfristigen Bedarfs setzen sich neue Geschäftsmodelle durch, die auf einer simultanen Neugestaltung der Markenkonzeption, der Wertschöpfungskette und der finalen Distributionsstufe beruhen. Die neuen vertikalen Markenanbieter mit markenfokussierten Distributionssystemen verbinden die Vertikalisierung der Wertschöpfungskette mit einem systembestimmten Netzmarkenauftritt und einem Multi-Channel-Distributionsansatz auf der Einzelhandelsstufe. Ihre Wettbewerbsvorteile ergeben sich aus der Verknüpfung zwischen neuen Formen der Markenkommunikation mit den Transaktionskosteneinsparungen vertikaler Unternehmensmodelle und der Vielfalt hybrider Distributionssysteme auf der Einzelhandelsstufe. Der Markterfolg in den Ausgangsmärkten hat in einer wachsenden Zahl von Branchen zu Verdrängungseffekten gegenüber konventionell aufgestellten Marktteilnehmern geführt. Da sich die Wettbewerbsvorteile der Geschäftsmodelle der vertikalen Markenanbieter mit markenfokussierten Distributionssystemen auch für die Erschließung internationaler Märkte als hoch wirksam erweisen, zählen sie inzwischen zu den nach der Zahl der erschlossenen Länder, der Zahl der Verkaufsstellen und dem Anteil des Auslandsumsatzes erfolgreichsten Unternehmen im International Retailing. Die Ursachen der Wettbewerbsvorteile der Systeme auf nationalen und internationalen Märkten werden diskutiert und an Fallbeispielen erläutert.
    Keywords: Distributionssysteme, Multi-Channel-Management, Vertikale Unternehmen, Monomarken-Stores, Systemmarken, Russland, Wirtschaftsbeziehungen, Distribution Systems, Verticals, Monolabel stores, Integrated branding, Russia, Economic Relation
    JEL: M30 L81
    Date: 2014–05
  8. By: Andrew B. Bernard (Tuck School of Business at Dartmouth, CEPR & NBER); Valerie Smeets (Department of Economics and Business, Aarhus University, Denmark); Frederic Warzynski (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: This paper examines the decline in manufacturing in Denmark from 1994 to 2007. As in almost every other high-income country, manufacturing employment and the number of manufacturing firms in Denmark have been shrinking as a share of the total and in absolute levels. Most of the decline of manufacturing is due to firm exit and reduced employment at surviving manufacturers. However, a portion of the recorded decline is due to firms switching industries, from manufacturing to service sectors. We focus on this last group of firms, asking what they looked like before switched and how they fared after the switch. Overall this is a group of small high productivity firms that grow more rapidly after they switch. By 2007, employment at these former manufacturers equals 10 percent of manufacturing employment, reducing the apparent decline in manufacturing employment by about one half.
    Keywords: deindustrialization, manufacturing firms, industry switching, employment, skill composition
    JEL: D22 L25
    Date: 2014–05–19

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