nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒11‒01
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Bundling and Tying By Nicholas Economides
  2. Supplier Fixed costs and Retail Market Monopolization By Caprice, Stéphane; von Schlippenbach, Vanessa; Wey, Christian
  3. Sequential selling and information dissemination in the presence of network effects By Junjie Zhou; Ying-Ju Chen
  4. Video killed the radio star? Evidence from YouTube and iTunes By Tobias Kretschmer; Christian Peukert
  5. Price dispersion and demand uncertainty: Evidence from US scanner data By Benjamin Eden
  6. Inter-firm R&D cooperation in local innovation networks: The case of Italian technological districts By Otello Ardovino; Luca Pennacchio

  1. By: Nicholas Economides (Stern School of Business, New York University. 44 West 4th Street, New York, NY 10012)
    Abstract: We discuss strategic ways that sellers can use tying and bundling with requirement conditions to extract consumer surplus. We analyze different types of tying and bundling creating (i) intra-product price discrimination; (ii) intra-consumer price discrimination; and (iii) inter-product price discrimination, and assess the antitrust liability that these practices may entail. We also discuss the impact on consumers and competition, as well as potential antitrust liability of bundling “incontestable” and “contestable” demand for the same good.
    Keywords: tying, ties, bundling, bundled rebates, loyalty discounts, loyalty requirement rebates, single monopoly surplus, monopolization, market power, foreclosure, antitrust
    JEL: C72 D42 D43 K21 L12 L40 L41 L42
    Date: 2014–10
  2. By: Caprice, Stéphane; von Schlippenbach, Vanessa; Wey, Christian
    Abstract: Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms'fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes.
    Keywords: Fixed Costs, Vertical Contracting, Monopolization
    JEL: L13 L14 L42
    Date: 2014–07
  3. By: Junjie Zhou (School of International Business Administration, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, 200433, China); Ying-Ju Chen (School of Business and Management & School of Engineering, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)
    Abstract: In this paper, we examine how a seller sells a product/service with a positive consumption externality, and customers are uncertain about the product's/service's value. Because early adopters learn this value, we consider the customers' intrinsic signaling incentives and positive feedback effects. Anticipating this, the seller commits to provide price discounts to the followers, and charges the leader a high price. Thus, the profit-maximizing pricing features the cream skimming strategy. We also show that the lack of seller's commitment is detrimental to the social welfare; nonetheless, the sequential selling still boosts up the seller's profit. Embedding a physical network with arbitrary payoff externality among customers, we investigate the optimal targeting strategy in the presence of information asymmetry. We provide precise indices for this leader selection problem. For undirected graphs, we should simply choose the player with the highest degree, irrespective of the seller's commitment power. Going beyond this family of networks, in general the seller's commitment power affects the optimal targeting strategy.
    Keywords: revenue management; signaling; information transmission; social networks;
    JEL: D82 L14 L15
    Date: 2014–10
  4. By: Tobias Kretschmer; Christian Peukert
    Abstract: Making video clips of a song unavailable on YouTube has no effect on its sales on iTunes; but album sales suffer when video clips of a song from it are made unavailable on YouTube. These findings of a study by Tobias Kretschmer and Christian Peukert suggest that we need not worry too much about today's equivalent of the old slogan 'Home taping is killing music'. Their research investigates whether digital sales of songs and albums suffer from videos of the material being freely available online, using a performing rights controversy in Germany that led to far more videos being blocked there than elsewhere: no other country in the world has less access to popular music content on YouTube than Germany, not even South Sudan or Afghanistan. The findings suggest that different digital channels interact in intricate ways - and availability on one can influence success on another.
    Keywords: Sampling, displacement, promotion, natural experiment
    JEL: L82 M37 D83
    Date: 2014–10
  5. By: Benjamin Eden (Vanderbilt University)
    Abstract: I use the Prescott (1975) hotels model to explain variations in price dispersion across goods sold by supermarkets in Chicago. I extend the theory to accounts for the monopoly power of chains and for non-shoppers. The main empirical finding is that the effect of demand uncertainty on price dispersion is highly significant and quantitatively important: More than 50% of the cross sectional standard deviation of log prices is due to demand uncertainty. I also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good (across stores and weeks) and with the number of stores that sell the good.
    Keywords: Price Dispersion, Demand Uncertainty, Sequential Trade
    JEL: D5 L0
    Date: 2014–10–06
  6. By: Otello Ardovino; Luca Pennacchio
    Abstract: This paper explores the drivers of inter-firm R&D collaborations in a particular type of innovation network, the technological districts created in Italy under a specific public policy to promote innovation. The empirical analysis used an original database containing information on research projects activated by the districts and on the characteristics of participating firms. The main results show that districts with governance oriented towards market logic and districts that include several universities foster a stronger cooperation among firms than other districts. In addition, network effects such as structural embeddedness and interlocking directorate greatly influence the propensity to cooperate. Lastly, knowledge transfer and absorptive capacity of firms also play an important role in shaping collaboration strategies. Some considerations about the effectiveness of public policy also emerge from the analysis. In particular technological districts foster research collaborations among small firms and between small and large firms. The latter type of cooperation could be very important to enhance the innovation capabilities of small firms and their performance.
    Keywords: R&D cooperation, innovation networks, firm behaviour, dyadic regession.
    JEL: L14 O31 O32
    Date: 2014–10–09

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