nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒03‒05
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Bertrand versus Cournot with Convex Variable Costs By F. Delbono; L. Lambertini
  2. Asymmetric Price Effects of Competition By Lach, Saul; Moraga-González, José-Luis
  3. Personalized Pricing and Advertising: An Asymmetric Equilibrium Analysis By Anderson, Simon P; Baik, Alicia; Larson, Nathan
  4. Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices By Matthew Grennan; Robert Town
  5. Does quality disclosure improve quality? Responses to the introduction of nursing home report cards in Germany By Herr, Annika; Nguyen, Thu-Van; Schmitz, Hendrik
  6. The Cost of Antitrust Law to Malaysia’s Financial Services Sector By Michael, Bryane; Williams, Mark; Munisamy, Susila

  1. By: F. Delbono; L. Lambertini
    Abstract: Within a simple model of homogeneous oligopoly, we show that the traditional ranking between Bertrand and Cournot equilibria may be reversed. For price setting entails a continuum of price equilibria under convex variable costs, departure from marginal cost pricing may be observed. As a consequence, Bertrand-Nash equilibrium profi…ts (welfare) may be higher (lower) than Cournot-Nash ones. The reversal of the standard rankings occurs when pricing strategies mimic collusive behaviour.
    JEL: D43 L13
    Date: 2015–02
  2. By: Lach, Saul; Moraga-González, José-Luis
    Abstract: In markets where price dispersion is prevalent the relevant question is not what happens to the price when the number of firms changes but, instead, what happens to the whole distribution of equilibrium prices. Using data from the gasoline market in the Netherlands, we find, first, that markets with a given number of competitors have price distributions that first-order stochastically dominate the corresponding price distributions in markets with one more firm. Second, the competitive response varies along the price distribution and is stronger at prices in the medium to upper part of the distribution. Finally, consumer gains from competition depend on how well informed they are and turn out to be larger for relatively attentive consumers. To account for these empirical results, we propose a generalisation of Varian's (1980) well-known model of sales that allows for richer heterogeneity in consumer price information.
    Keywords: distribution of price information; number of competitors; price dispersion
    JEL: D43 D83 L13
    Date: 2015–03
  3. By: Anderson, Simon P; Baik, Alicia; Larson, Nathan
    Abstract: We study personalized price competition with costly advertising among n quality-cost differentiated firms. Strategies involve mixing over both prices and whether to advertise. In equilibrium, only the top two firms advertise, earning “Bertrand-like" profits. Welfare losses initially rise then fall with the ad cost, with losses due to excessive advertising and sales by the “wrong " firm. When firms are symmetric, the symmetric equilibrium yields perverse comparative statics and is unstable. Our key results apply when demand is elastic, when ad costs are heterogeneous, and with noise in consumer tastes.
    Keywords: Bertrand equilibrium; consumer targeting; mixed strategy equilibrium; price advertising; price dispersion
    JEL: D43 L13
    Date: 2015–03
  4. By: Matthew Grennan; Robert Town
    Abstract: This paper examines optimal regulatory testing requirements when new product quality is uncertain but market participants may learn over time. We develop a model capturing the regulator's tradeoff between consumer risk exposure and access to innovation. Using new data and exogenous variation between EU and US medical device regulatory rules, we document patterns consistent with our model and estimate its parameters. We find: without information from regulatory testing, risk shuts down the market; US policy is close to the one that maximizes a measure of welfare derived from our theoretical model and our empirical estimates; EU surplus could increase 20 percent with more pre-market testing; and “post-market surveillance” could increase surplus 24 percent.
    JEL: I11 L11 L51
    Date: 2015–02
  5. By: Herr, Annika; Nguyen, Thu-Van; Schmitz, Hendrik
    Abstract: Since 2009, German nursing homes have been evaluated regularly with quality report cards published online. We argue that most of the information in the report cards does not reliably measure quality of care, but a subset of seven measures does. Using a sample of more than 3,000 nursing homes with information on two waves, we find a significant improvement in the nursing home quality from the first to the second evaluation. Both indicators comprising either the two outcome quality measures or the seven measures indicating "risk factors" in the report cards improve. This can be interpreted as evidence that quality disclosure positively affects the (reported) quality in nursing homes.
    Keywords: public reporting,quality,long-term care,information
    JEL: L15 I11 I18
    Date: 2015
  6. By: Michael, Bryane; Williams, Mark; Munisamy, Susila
    Abstract: Judging by only economic incentives, Malaysian financial institutions (particularly banks) should completely ignore the Competition Act. The data show that Malaysian banks probably benefit from anticompetitive behaviour. Political and family connections likely facilitate such behaviour. Given that the Malaysian Competition Commission will likely lack the resources to investigate and sanction anti-competitive behaviour in Malaysia’s banking industry – the banks’ best response to the Act probably consists of ignoring it. Maximum fines of 10 million ringgit and revenue-tied penalties of only 10% of worldwide revenue mean that banks still have strong incentives to engage in anticompetitive behaviour and to pay any low fine that might be levied. The best compliance programme for banks in Malaysia likely consists of actions that avoid detection rather than detecting and preventing anticompetitive behaviour. Private rights of action are unlikely to provide any stronger economic incentives for Malaysian banks to adopt strong antitrust compliance programmes and internal audit programmes. By staying the course, Malaysian banks can continue to earn about 15 billion ringgits (approximately US$4.6 billion in anticompetitive rents).
    Keywords: antitrust,Malaysia,internal audit,compliance
    JEL: D41 L44
    Date: 2015

This nep-ind issue is ©2015 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.