nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒01‒19
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Welfare Improving Cartel Formation in a Union-Oligopoly Static Framework By Minas Vlassis; Maria Varvataki
  2. Comparative Analusis Of Antitrust Policy Against Collusion In Some Transition Economies: Challenges For Effectiveness By Andrey V. Makarov
  3. Limit pricing and secret barriers to entry By Luigi Brighi; Marcello D'Amato
  4. Posted prices and bargaining: the case of Monopoly By Stephen P. King; Demitra Patras
  5. Single Till or Dual Till at Airports: a Two-Sided Market By Estelle Malavolti
  6. Union-Oligopoly Bargaining and Vertical Differentiation: Do Unions Affect Quality? By Minas Vlassis; Maria Varvataki

  1. By: Minas Vlassis (Department of Economics, University of Crete, Greece); Maria Varvataki (University of Crete)
    Abstract: In a union-oligopoly static framework we study the role of unions regarding the possibility and the effects of endogenous cartel formation. Given that firms independently adjust their own quantities, we show that, if union members are not sufficiently risk-averse and firms� products are sufficiently close substitutes, then collusion among firms may emerge in equilibrium, and that � in contrast to conventional wisdom � cartel formation proves to be a welfare improving market arrangement. Quite remarkably, the latter gain in social welfare materializes at the cost of union rents despite it is the union�s presence which effectively sustains collusion.
    Keywords: Oligopoly, Unions, Collusion
    JEL: D43 J51 L13
    Date: 2014–12–15
  2. By: Andrey V. Makarov (National Research University Higher School of Economics)
    Abstract: This article focuses on the development of antitrust policy in transition economies in the context of preventing explicit and tacit collusion. Experience of BRICS, Kazakhstan, Ukraine and CEE countries (Bulgaria, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Czech Republic, Estonia) in the creation of antitrust institutions was analyzed, including both legislation and enforcement practice. This article analyzes such enforcement problems as: classification problems (tacit vs explicit collusion, vertical vs horizontal agreements), flexibility of prohibitions (“per se” vs “rule of reason”), design of sanctions, private enforcement challenge, leniency program mechanisms, the role of antitrust authorities etc. Main challenges for policy effectiveness in this field were shown
    Keywords: collusion, antitrust policy, leniency program, transition economies, CEE, BRICS
    JEL: K21 L41 L42
    Date: 2014
  3. By: Luigi Brighi; Marcello D'Amato
    Abstract: We study a two periods entry game where the incumbent .rm, who has private information about his own production costs, makes a non observable long run investment choice, along with a pricing decision observed by the entrant. The investment choice affects both post-entry competition and first period cost of production, so that the cost of signaling becomes endogenous. The game is solved following Bayes-Nash requirements, the intuitive criterion is used to constrain off-equilibrium beliefs. When investment is publicly observable, it is shown that the unique intuitive equilibrium is the separating equilibrium with limit pricing and no entry deterrence. When investment is not observable, quite remarkably, there exists a unique intuitive pooling equilibrium which is Pareto superior, from the incumbent's point of view, to the unique intuitive separating equilibrium. In the pooling equilibrium no entry takes place and the price is below the low cost monopoly price. Thus, when investment is secret, a limit pricing policy supports entry deterrence. Our model provides an example of secret barriers to entry and their relationship with limit pricing. We also contribute to the analysis of a relatively under-researched class of games where the cost of signaling unobservable characteristics is endogenously determined by unobserved actions.
    Keywords: Entry deterrence, limit pricing, signaling, pooling equilibrium
    JEL: D58 L51
    Date: 2014–12
  4. By: Stephen P. King; Demitra Patras
    Abstract: If buyers can choose to initiate bargaining with a seller, how does this alter the price that the seller `posts' in the market? And does the option of bargaining raise or lower expected welfare? This paper develops a simple model to answer these questions. With a single seller, the potential for bargaining raises the profit maximising posted price. In part, as has been noted in related literature, this reflects the role of the posted price as a fall-back option if bargaining fails. However, our model highlights a separate effect. When the choice to bargain is endogenous, a seller will raise the posted price to encourage buyers to bargain. The posted price not only exceeds the monopoly price, it can be higher than the price a seller would set if he knew in advance that all buyers would bargain. Further, the posted price can change discontinuously in exogenous parameters such as the buyers' distribution of bargaining costs. While we assume efficient bargaining, the welfare consequences are ambiguous.
    Date: 2014–09
  5. By: Estelle Malavolti (Ecole Nationale de l'Aviation Civile (ENAC))
    Abstract: Big airports profits are more and more often coming from commercial activities such as retailing. However, commercial services are relatively far from the original mission of the airport: providing airlines with aviation services such as ground handling, terminal management or airside operations, and being regulated for that because of an obvious dominant position with respect to airlines. For this reason, one can advocate for the separation of the two activities, i.e. for a dual till approach, in which only the aeronautical activity is regulated. We, instead, suggest that a single till regulation, in which the total profit of the airport is examined, is relevant because it allows to take into account the externalities existing between retailing and aeronautical services. Using a two-sided market approach (Armstrong 2006, Rochet-Tirole 2003, 2006), we show that the airport is a platform which makes the shops and the passengers meet. The retailing activity depends on how many passengers are circulating and connecting at the airport, as well as the time they spent in the airport, while passengers value the least connecting time as possible. We show that the aeronautical tax can be either higher or lower under single till depending on whether the impact of the passengers demand or of the waiting time is the more important for the shops.
    Keywords: two-sided market, network externalities, air transport economics
    JEL: L11 L12 L89
    Date: 2014–12
  6. By: Minas Vlassis (Department of Economics, University of Crete, Greece); Maria Varvataki (University of Crete)
    Abstract: This paper investigates unionized oligopolistic markets with differentiated products and quality improvement-R&D investments. In endogenous union structures, we investigate the conditions under which firm-level unions may strategically collude, or not, and the impact of their decisions upon the firms� incentives to individually spend on R&D investments. We show that, separate firm-level unions are sustained in the equilibrium, where product quality and the level of R&D investments are relatively high. Moreover, we consider two instances of policy maker�s intervention. In the first case, we assume that a benevolent policy maker proceeds to quality improvement-R&D, as a common public good, by undertaking the costs of those investments and providing for free the know-how to the industry. In the second case he finances a percentage of the cost of firm-specific R&D investments. In both cases he finances those costs by indirect taxation on market products. We conclude that all market participant surpluses are higher (and consequently so is Social Welfare), when the R&D - quality improvement is a public good, even if this leads to indirect taxation on market products.
    Keywords: Oligopoly, Unions, Collusion, R&D Investments
    JEL: D43 J51 L13 O31
    Date: 2014–12–15

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