nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒10‒03
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Evolutionary Stability in Asymmetric Oligopoly. A Non-Walrasian Result By Wolfgang Leininger; Hamed Moghadam
  2. Strategic Choice on Product Line in Vertically Differentiated Duopoly By Ryoma Kitamura; Tetsuya Shinkai
  3. Market composition and price informativeness in a large market with endogenous order types By Edouard Challe; Edouard Chretien
  4. Export performance and product market regulation By Bruno Amable; Ivan Ledezma
  5. Automobile Prices in Market Equilibrium with Unobserved Price Discrimination By D’Haultfoeuille, Xavier; Durrmeyer, Isis; Février, Philippe

  1. By: Wolfgang Leininger; Hamed Moghadam
    Abstract: It is a very well-known result that in terms of evolutionary stability the long-run outcome of a Cournot oligopoly market with finitely many firms approaches the perfectly competitive Walrasian market outcome (Vega-Redondo, 1997). However, in this paper we show that an asymmetric structure in the cost functions of firms may change the long-run outcome. Contrary to Tanaka (1999) we show that the evolutionarily stable price in an asymmetric Cournot oligopoly needs not equal the marginal cost, it may rather equal a weighted average of (different) marginal cost. We apply a symmetrization technique in order to transform the game with asymmetric firms into a symmetric oligopoly game and then extend Schaffer’s definition (1988) of a finite population ESS (FPESS) to this setup. Moreover, we show that the FPESS in this game represents a stochastically stable state of an evolutionary process of imitation with experimentation.
    Keywords: Cournot oligopoly; asymmetry; finite population evolutionary stable strategy; stochastic stability
    JEL: C72 C73 D43 L13
    Date: 2014–08
  2. By: Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University); Tetsuya Shinkai (School of Economics, Kwansei Gakuin University)
    Abstract: In a real oligopoly, firms often supply multiple products differentiated by quality in the same market. To examine why they do so, we consider a duopoly model in which firms can choose between supplying two vertically differentiated products and selling a single product in the same market. By deriving equilibriums for possible games and comparing their outcomes with each other, we explored the conditions in which firms strategically determine their product lines, choosing to sell between a single product and two products. The first three are the cases in which both firms supply both products, or they supply either homogeneous product of the two in the same market. The last two are those in which one firm supplies both but another firm does either of the two. We find that a firm producing only one product has an incentive to launch another product as long as it can do so.
    Keywords: Multi-product firm; Duopoly; Strategic choice of product line; Vertical product differentiation, Cannibalization, Launch of product
    JEL: D21 D43 L13 L15
    Date: 2014–08
  3. By: Edouard Challe (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, Banque de France - -); Edouard Chretien (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: We analyse the joint determination of price informativeness and the composition of the market by order type in a large asset market with dispersed information. The market microstructure is one in which informed traders may place market orders or full demand schedules and where market makers set the price. Market-order traders trade less aggressively on their information and thus reduce the informativeness of the price; in a full market-order market, price informativeness is bounded, whatever the quality of tradersinformation about the assets dividend. When traders can choose their order type and demand schedules are (even marginally) costlier than market orders, then market-order traders overwhelm the market when the precision of private signals goes to in…nity. This is because demand schedules are substitutes: at high levels of precision, a residual fraction of demand-schedule traders is sufficient to take the trading price close to traders signals, while the latter is itself well aligned with the dividend. Hence, the gain from trading conditional on the price (as demand-schedule traders do) in addition to ones own signal (as all informed traders do) vanishes.
    Date: 2014–09–03
  4. By: Bruno Amable (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CEPREMAP - Centre pour la recherche économique et ses applications, IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique); Ivan Ledezma (LEDa - Université Paris-Dauphine, IRD - DIAL - UMR 225)
    Abstract: This paper analyses the impact of product market regulation on the propensity to export at the industry level for 13 OECD countries and 13 industries over the 1977-2007 period. Recent economic policy and academic literature insists on the negative effects of product market regulation on productivity or innovation, and hence on "competitiveness", a term that we interpret as the ability to export. Similar to the conclusions of some contributions to a recent literature on competition and growth, the "common sense" is that product market regulation should be detrimantal to competitiveness. Testing through a two-step estimation the impact of upstream pressures of product market regulation on productivity and the effect of the latter on the propensity to export, this paper shows that upstream regulatory pressures have a significantly positive impact on productivity and thereby on the capability of an industry to attract resources and to sell its production in international markets.
    Keywords: Exports; product market regulation; competitiveness
    Date: 2013–02
  5. By: D’Haultfoeuille, Xavier; Durrmeyer, Isis; Février, Philippe
    Abstract: This paper deals with the estimation of structural models of demand and supply with incomplete information on prices. When the seller is able to price discriminate, or the buyer to bargain, individuals pay different prices that are usually not collected in the data. This paper explores a method to estimate the supply and demand models jointly when only posted prices are observed. We consider that heterogenous transaction prices occur due to price discrimination by firms on observable characteristics of consumers. Within this framework, the identification is secured by (i) supposing that at least one group of individuals does pay the posted prices and (ii) assuming that the marginal costs of producing and selling the goods does not depend on the characteristics of the buyers. This methodology is applied to estimate the demand in the new automobile market in France. Results suggest that discounting arising from price discrimination is important. The average discount is estimated to be 5.2%, with large variation according to the buyers’ characteristics. Our results are in line with discounts generally observed in European and American automobile markets.
    Date: 2014–09–04

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