nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒09‒25
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Equilibrium downstream mark-up and upstream free entry By Ioannis N. Pinopoulos
  2. A note on price caps with demand uncertainty, quantity precommitment and disposal By A. Lemus; Diego Moreno
  3. Do specialists exit the firm outsourcing its R&D? By Wenjing Wang
  4. Horizontal Mergers with Capital Adjustment: Workers' Cooperatives and the Merger Paradox By F. Delbono; L. Lambertini
  5. Multiproduct Firms, Product Scope and Productivity: Evidence from India’s Product Reservation Policy By Joshua Wilde; Ishani Tewari

  1. By: Ioannis N. Pinopoulos (Department of Economics, University of Macedonia, Greece)
    Abstract: We consider a successive Cournot oligopoly model where firms freely enter into the upstream market. We show that, under specific conditions, a higher number of downstream firms can lead to a higher mark-up in the downstream market. Although downstream market power may increase, consumer prices still decrease with the number of downstream firms implying that higher market power does not necessarily imply lower consumer surplus.
    Keywords: Vertical relations; Cournot competition; Free entry; Market Power.
    JEL: L22
    Date: 2014–09
  2. By: A. Lemus; Diego Moreno
    Abstract: Since Littlechild (1983)'s report, price cap regulation has been regarded as an effective instrument to mitigate market power when precise information about cost and demand is available. Earle, Schmedders and Tatur (2007) establishes that the comparative static properties of price caps that hold when the demand is deterministic fail for a generic stochastic demand schedule. This note concerns the validity and interpretation of this result in a setting in which firms choose how much to produce ex-ante, but then upon observing the realization of demand choose how much of their output to supply, freely disposing of the output it does not supply.
    Keywords: Price Cap Regulation, Capacity Investment and Withholding, Demand Uncertainty
    Date: 2014–08
  3. By: Wenjing Wang (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: Do specialists exit the firm increasingly outsourcing its research and development (R&D) work? Although this question is critical in understanding how R&D outsourcing links to innovation performance, the answer is not yet clear. This paper proposes that the optimal level of firm’s internal employment of R&D specialists decreases with the deepening of R&D outsourcing but increases with the broadening of R&D outsourcing. These relations can be inferred from previous empirical studies as well as our theoretical analysis, and are supported by the empirical evidence from estimations of correlated random effects (CRE) Tobit, CRE selection and CRE fractional response models on a panel dataset of Danish firms.
    Keywords: Correlated random effect models, employment of R&D specialists, R&D strategy, R&D outsourcing breadth and depth
    JEL: J21 M51 O32
    Date: 2014–09–03
  4. By: F. Delbono; L. Lambertini
    Abstract: We study the incentives towards horizontal merger among firms when the amount of capital is the strategic variable. We focus on is workers' cooperatives, but our conclusions apply also to employment-constrained profit maximisers. Within a simple oligopoly model, we prove that the horizontal merger, for any merger size, is: (i) privately efficient for insiders as well as for outsiders; (ii) socially efficient if market size is large enough, even in the case of merger to monopoly.
    JEL: D43 L13 L21 L41
    Date: 2014–09
  5. By: Joshua Wilde (Department of Economics, University of South Florida); Ishani Tewari (Yale School of Management)
    Abstract: We provide novel evidence showing product scope dynamics within a firm is an important dimension of productivity growth. This channel is identified by leveraging the gradual dismantling of an Indian regulation that “reserved” hundreds of products for manufacture in the small-scale sector. Following the removal of these product market restrictions, product churning and productivity rose. Multiproduct firms who were never in the reserved sector drive this increase, suggesting that the reservation policy constrained their ability to achieve the optimal product mix. Our findings underscore the importance of incorporating heterogeneity at the product-firm level in assessing the impact of size-contingent regulation.
    Keywords: Productivity, Multiproduct Firms, India, Dereservation, Products
    JEL: O10 O25 O40 L50
    Date: 2014–09

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