nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒12‒08
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Detecting Collusion in Spatially Differentiated Markets By Agnes Kügler; Matthias Firgo
  2. Rationalizability and Efficiency in an Asymmetric Cournot Oligopoly By Gabriel Desgranges; Stéphane Gauthier
  3. Reverse First-mover and Second-mover Advantage in a Vertical Structure By Lee, DongJoon; Choi, Kangsik; Hwang, Kyu-Chan
  4. Successive Market Power and Contracts of Finished Products By Xia, Tian; Li, Xianghong
  5. Permission to Exist By Martin C. Byford; Joshua S. Gans
  6. Consumer Price Search and Platform Design in Internet Commerce By Michael Dinerstein; Liran Einav; Jonathan Levin; Neel Sundaresan
  7. Homogeneous platform competition with endogenous homing By Jeitschko, Thomas D.; Tremblay, Mark J.
  8. Size and economies of scale in higher education and the implications for mergers By Tirivayi J.N.; Maasen van den Brink H.; Groot W.N.J.
  9. Does Conflict of Interest Lead to Biased Coverage? Evidence from Movie Reviews By Stefano DellaVigna; Johannes Hermle
  10. Imperfect Competition in the Italian Dairy Chain: Consequences for the Price Transmission and Welfare Distribution By Rosa, Franco; Vasciaveo, Michaela

  1. By: Agnes Kügler (Department of Economics, Vienna University of Economics and Business); Matthias Firgo (WIFO - Austrian Institute of Economic Research)
    Abstract: The empirical literature on mergers, market power and collusion in differentiated markets has mainly focused on methods relying on output and/or panel data. In contrast to this literature we suggest a novel approach that allows for the detection of collusive behavior among a group of firms making use of information on the spatial structure of horizontally differentiated products. By estimating best response functions using a spatial econometrics approach, we focus on differences in the strategic interaction in pricing between different groups of firms as well as on differences in price levels. We apply our method to the market for ski lift tickets using a unique data set on ticket prices and detailed resort-specific characteristics covering all ski resorts in Austria.
    Keywords: tacit collusion, strategic alliances, spatial differentiation, ski lift ticket prices
    JEL: C21 D43 L11 L41 L83 R32
    Date: 2014–10
  2. By: Gabriel Desgranges (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise); Stéphane Gauthier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We study rationalizable solutions in a linear asymmetric Cournot oligopoly. We show that symmetry across firms favors multiplicity of rationalizable solutions: A merger (implying a greater asymmetry across firms) makes out-of-equilibrium behavior less likely and should dampen &lquo;coordination&rquo; volatility. The market structure maximizing consumers' surplus at a rationalizable solution is not always the competitive one: This may be a symmetric oligopoly with few firms. An empirical illustration to the airlines industry shows that a reallocation of 1% of market share from a small carrier to a larger one yields a 1.3% decrease in volatility, measured by the within carrier standard error of the number of passengers.
    Keywords: Competition policy; Cournot oligopoly; dominance solvability; efficiency; rationalizability; stability; airline industry
    Date: 2014–03
  3. By: Lee, DongJoon; Choi, Kangsik; Hwang, Kyu-Chan
    Abstract: This paper examines the issue of the first-mover and second-mover advantage in a vertical structure in which each manufacturer trades with a separated retailer via two-part tariffs. Compared to the canonical result in one-tier market, we find that the manufacturers' preference orderings over sequential versus simultaneous play are reversed in a vertical structure. We show that the Stackelberg leader (Stackelberg follower) had the first (second)-mover advantage in the downstream Cournot (Bertrand) competition. The first (second)-mover advantage compels its manufacturer to set the wholesale price higher than that of rival. Finally, we show that the manufacturer in which its retailer moves second (first) in a downstream Stackelberg Cournot (Bertrand) competition earns higher profits than the other in which its retailer moves first (second) in a downstream Stackelberg Cournot (Bertrand) competition.
    Keywords: First- and Second-mover Advantage, Two-part Tariffs, Vertical Structure.
    JEL: D43 L13 L14
    Date: 2014–09–25
  4. By: Xia, Tian; Li, Xianghong
    Keywords: contracts, successive market power, Industrial Organization,
  5. By: Martin C. Byford; Joshua S. Gans
    Abstract: We provide a new model that generates persistent performance differences amongst seemingly similar enterprises. Our model provides a mechanism whereby efficient incumbent rivals can give permission for an inefficient firm to exist in the presence of efficient entrants. We demonstrate that, in a repeated game, an efficient incumbent has a unilateral incentive to establish a relational contract that softens price competition to either strengthen the inefficient firm in a war of attrition that emerges post-entry or reduce the value to the inefficient firm of selling its position to entrants. The paper provides conditions under which that equilibrium exists and derives a number of empirical predictions as implications of the model. It is demonstrated that performance differences are likely to be associated with stability in the identity of firms in the market.
    JEL: L11 L22
    Date: 2014–09
  6. By: Michael Dinerstein; Liran Einav; Jonathan Levin; Neel Sundaresan
    Abstract: Search frictions can explain why the "law of one price" fails in retail markets and why even firms selling commodity products have pricing power. In online commerce, physical search costs are low, yet price dispersion is common. We use browsing data from eBay to estimate a model of consumer search and price competition when retailers offer homogeneous goods. We find that retail margins are on the order of 10%, and use the model to analyze the design of search rankings. Our model explains most of the effects of a major re-design of eBay's product search, and allows us to identify conditions where narrowing consumer choice sets can be pro-competitive. Finally, we examine a subsequent A/B experiment run by eBay that illustrates the greater difficulties in designing search algorithms for differentiated products, where price is only one of the relevant product attributes.
    JEL: D12 D22 D83 L13 L86
    Date: 2014–08
  7. By: Jeitschko, Thomas D.; Tremblay, Mark J.
    Abstract: We develop a model for two-sided markets with consumers and producers, who interact through a platform. Typical settings for the model are the market for smartphones with phone users, app producers, and smartphone operating systems; or the video game market with game players, video game producers, and video game consoles. Only consumers who purchase the platform can access content from the producers. Consumers are heterogeneous in their gains from the producer side; and producers are heterogeneous in their costs of bringing apps to the platform. We consider competition between two homogeneous platforms that allows consumers and firms to optimize with respect to how they home, i.e. we allow both individual consumers and individual producers to multi-home or single-home depending on whether it is optimal based on their type. This leads to multiple equilibrium allocations of consumers and firms - all of which are seen in existing markets. We then find conditions under which a monopoly platform generates higher surplus than two competing homogeneous platforms.
    Keywords: two-sided markets,platforms,platform competition,multi-homing,single-homing,endogenous homing decisions,network effects
    JEL: L14 L22 D40 L13
    Date: 2014
  8. By: Tirivayi J.N.; Maasen van den Brink H.; Groot W.N.J. (UNU-MERIT)
    Abstract: This paper carries out a meta regression analysis to estimate the optimal size of higher education institutions HEI and identify its implications for strategies of mergers in higher education. This study finds an optimal institutional size of 24,954 students. We find potential opportunities for merging different HEIs relative to their mean sample size public universities by nearly 190 per cent, private universities by 131 per cent, small colleges by around 952 per cent, and non-US HEIs by about 118 per cent. However, if we compare with actual sizes of top ranked universities we find that in some parts of the world top ranked universities seem to be below optimal size, while in others they appear above optimal size. We urge caution in the interpretation of the findings due to the limited data. We recommend further research and that policymakers around the world refer to their own cost structures to determine the optimal size for efficiency.
    Keywords: Analysis of Education; Educational Finance; Higher Education and Research Institutions;
    JEL: I23 I21 I22
    Date: 2014
  9. By: Stefano DellaVigna; Johannes Hermle
    Abstract: Media outlets are increasingly owned by conglomerates, inducing a conflict of interest: a media outlet can bias its coverage to benefit companies in the same group. We test for bias by examining movie reviews by media outlets owned by News Corp.—such as the Wall Street Journal—and by Time Warner— such as Time. We use a matching procedure based on reported preferences to disentangle bias due to conflict of interest from correlated tastes. We find no evidence of bias in the reviews for 20th Century Fox movies in the News Corp. outlets, nor for the reviews of Warner Bros. movies in the Time Warner outlets. We can reject even small effects, such as biasing the review by one extra star (out of four) every 13 movies. We test for differential bias when the return to bias is plausibly higher, examine bias by media outlet and by journalist, as well as editorial bias. We also consider bias by omission: whether the media at conflict of interest are more likely to review highly-rated movies by affiliated studios. In none of these dimensions do we find systematic evidence of bias. Lastly, we document that conflict of interest within a movie aggregator does not lead to bias either. We conclude that media reputation in this competitive industry acts as a powerful disciplining force.
    JEL: D72 L41
    Date: 2014–11
  10. By: Rosa, Franco; Vasciaveo, Michaela
    Abstract: The milk quotas were introduced in Italy in 1984; from that time onward, the dairy chain has progressed in technology and organization with consequences for the market competition. The Aglink-Cosimo simulations suggest milk production will return to an increasing path, driven by a fairly optimistic demand outlook for the improved macroeconomic 2020 future prospects in the EU-27 economies and milk production will exceed the present level by about 3%. Milk deliveries would be expected to increase in Italy by a slightly higher rate, according with the consumption trend of dairy products. Purpose of this paper is to analyze the consequences of structural adjustments of the dairy chain for the competitive price setting assuming the retailers and processors having the control on the market prices, causing changes on the welfare distribution. The analysis is based on derived demand and price-transmission equations, using a successive oligopoly model. The conjectural hypothesis about the players provides the framework for estimating the degrees of price transmission in a dynamic setting with agents at the industry and retail levels (rather than firm) are acting as two oligopoly players. The conjectures about the oligopoly depending on the structure (number of competitors, size and degree of collusion), across the vertical stages of the dairy chain allow to simulate different degrees of market imperfection reflected on the price transmission and welfare distribution. (Dhar and Cotterill, 2000; McCorriston and Scheldon, 96; Morgan and Rayner, 1988). Six simulations for price transmission and ten simulations for welfare distribution are performed assuming different collusive patterns and results are used to check for the market efficiency hypothesis.
    Keywords: dairy chain, imperfect competition, successive oligopoly, price transmission, welfare, Agribusiness, Farm Management, Research Methods/ Statistical Methods, JEL L13,
    Date: 2013–09
  11. By: Li, Xi-Le; Saghaian, Sayed
    Keywords: Market power, price adjustment, Colombian Milds, Agribusiness, Demand and Price Analysis, C32, Q13, Q02,
    Date: 2014

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