nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒04‒02
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Relative profit maximization and the choice of strategic variables in duopoly By Satoh, Atsuhiro; Tanaka, Yasuhito
  2. Research joint ventures in an R&D driven market with evolving consumer preferences: An evolutionary multi-agent based modelling approach By Cevikarslan S.
  3. Price competition and reputation in markets for experience goods: An experimental study By Huck, Steffen; Lünser, Gabriele K.; Tyran, Jean-Robert
  4. Should non-genuine products be expelled from markets? By Keisuke Hattori; Keisaku Higashida
  5. Policy of airline competition ~monopoly or duopoly~ By Morimoto, Yu; Takeda, Kohei
  6. Demand learning and firm dynamics: evidence from exporters By Berman, Nicolas; Rebeyrol, Vincent; Vicard, Vincent
  7. Are High-Growth Firms Overrepresented in High-Tech Industries? By Daunfeldt, Sven-Olof; Elert, Niklas; Johansson, Dan
  8. Net neutrality and inflation of traffic By Peitz, M.; Schütt, F.
  9. Measuring the Magnitude of Significant Market Power in the Manufacturing and Services Industries: A Cross Country Approach By Polemis, Michael; Fotis, Panagiotis
  10. Platform pricing and consumer foresight: The case of airports By Ricardo Flores-Fillol; Alberto Iozzi; Tommaso Valletti

  1. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We study implications of the choice of strategic variables, price or quantity, by firms in a duopoly with differentiated goods in which each firm maximizes its relative profit. We consider general demand and cost functions, and show that the choice of strategic variables is irrelevant in the sense that the conditions of relative profit maximization for the firms are the same in all situations, and so any combination of strategy choice by the firms constitutes a sub-game perfect equilibrium in a two stage game such that in the first stage the firms choose their strategic variables and in the second stage they determine the values of their strategic variables. We define the relative profit of a firm as the ratio of its profit over the total profit. But, even if we define the relative profit of a firm as the difference between the profits of firms, we can show the same result.
    Keywords: relative profit maximization, choice of strategic variables, duopoly
    JEL: D43 L13
    Date: 2015–03–17
  2. By: Cevikarslan S. (UNU-MERIT)
    Abstract: RD collaborations have increasingly attracted the attention of both academic and business circles in the last couple of decades. Several empirical studies have concentrated on the firms incentives to participate in these collaborations. This paper presents an alternative approach to RD collaborations using an evolutionary, multi-agent based and sector-level RD model. The model will firstly be used to simulate the evolution of an RD driven market composed of profit-driven firms and boundedly rational consumers. Next, frequently discussed research questions in the relevant empirical literature will be explored. This modelling exercise will extend beyond a basic confirmation/rejection of these research questions by showing that the way a firm is defined as an RD collaborator has a significant effect on research results.
    Keywords: Current Heterodox Approaches: Institutional; Evolutionary; Production, Pricing, and Market Structure; Size Distribution of Firms; Innovation and Invention: Processes and Incentives;
    JEL: B52 L11 O31
    Date: 2015
  3. By: Huck, Steffen; Lünser, Gabriele K.; Tyran, Jean-Robert
    Abstract: We experimentally examine the effects of price competition in markets for expe-rience goods where sellers can build up reputations for quality. We compare price competition to monopolistic markets and markets where prices are exogenously fixed (somewhere between the endogenous oligopoly and monopoly prices). While oligopolies benefit consumers regardless of whether prices are fixed or endoge-nously chosen, we find that price competition lowers efficiency as consumers pay too little attention to reputation for quality. This provides empirical support to recent models in behavioral industrial organization that assume that consumers may with increasing complexity of the market place focus on selected dimensions of products. We also find that consumers' attention to quality and, hence, provided quality drops when regulated prices are set at levels that are too low.
    Keywords: Markets,Price competition,Behavioral IO,Price regulation,Reputation,Trust,Moral hazard,Experience goods
    JEL: C72 C90 D40 D80 L10
    Date: 2015
  4. By: Keisuke Hattori (Faculty of Economics, Osaka University of Economics); Keisaku Higashida (School of Economics, Kwansei Gakuin University)
    Abstract: We develop a model in which a `genuine' producer supplying genuine products competes with many `non-genuine' producers supplying the compatible third-party or generic products. We examine whether non-genuine products should be expelled from markets. In particular, we focus on the genuine producer's strategies for driving out non-genuine products: running comparative advertising, building technical barriers, and improving the quality of genuine products. Although the small amount of spending on advertising or building technical barriers improves social welfare, their equilibrium amounts are socially excessive. The quality improvement may raise or reduce welfare, depending on the degree of patent protection. We also find that prohibition of entry of non-genuine producers may improve welfare by discouraging the genuine producer from implementing the drive-out strategies.
    Keywords: Genuine products, advertising, technical barriers, anti-trust law
    JEL: L13 L15
    Date: 2015–03
  5. By: Morimoto, Yu; Takeda, Kohei
    Abstract: We show that monopoly is better than competition in term of social welfare for low frequency routes. Competition affects both flight schedules and airfares. Flight schedules get un-even interval by competition and this leads to large scheduling delay cost (SDC). The increment of SDC is large when the number of flights is small. For low frequency routes, the increment of SDC by competition overwhelms the decreasing in the airfare, so monopoly is better than competition.
    Keywords: Scheduling Delay Cost, Airline Competition, Scheduling
    JEL: R41
    Date: 2015–03–26
  6. By: Berman, Nicolas; Rebeyrol, Vincent; Vicard, Vincent
    Abstract: This paper provides evidence that learning about demand is an important driver of firms' dynamics. We present a simple model with Bayesian learning in which firms are uncertain about their idiosyncratic demand parameter in each of the markets they serve, and update their beliefs as noisy information arrives in each period. The model predicts that firms update more their beliefs following a new demand shock, the younger they are. To test this learning mechanism, we make use of a specific feature of exporter-level data which contains both the values and the quantities sold by a given firm for the same product in different destination markets. This allows us to derive a methodology that identifies separately the demand shocks faced by the firms and their beliefs about future demand. We find strong support for our main prediction: The updating process appears especially strong in the first years after entry. However, the bulk of accumulated knowledge is lost during short periods of exit. Second, we consider implications of this prediction for firm growth rates and survival. Consistent with the learning model, we find that: (i) the absolute value of the mean growth rate for firms' beliefs decreases with age, as does the variance within cohorts; (ii) exit probability decreases with firms' beliefs and the demand shock the firm faces. Further, demand shocks trigger more exit in younger cohorts.
    Keywords: demand; firm growth; learning; uncertainty
    JEL: F12 F14 L11 L25
    Date: 2015–03
  7. By: Daunfeldt, Sven-Olof (HUI Research); Elert, Niklas (Research Institute of Industrial Economics (IFN)); Johansson, Dan (HUI Research)
    Abstract: It is frequently argued that policymakers should target high-tech firms, i.e., firms with high R&D intensity, because such firms are considered more innovative and therefore potential fast-growers. This argument relies on the assumption that the association among high-tech status, innovativeness and growth is actually positive. We examine this assumption by studying the industry distribution of high-growth firms (HGFs) across all 4-digit NACE industries, using data covering all limited liability firms in Sweden during the period 1997–2008. The results of fractional logit regressions indicate that industries with high R&D intensity, ceteris paribus, can be expected to have a lower share of HGFs than can industries with lower R&D intensity. The findings cast doubt on the wisdom of targeting R&D industries or subsidizing R&D to promote firm growth. In contrast, we find that HGFs are overrepresented in knowledge-intensive service industries, i.e., service industries with a high share of human capital.
    Keywords: Entrepreneurship; Firm growth; Gazelles; High-growth firms; High-impact firms; Innovation; R&D
    JEL: L11 L25
    Date: 2015–03–25
  8. By: Peitz, M.; Schütt, F. (Tilburg University, Center For Economic Research)
    Abstract: Under strict net neutrality Internet service providers (ISPs) are required to carry<br/>data without any differentiation and at no cost to the content provider. We provide a simple framework with a monopoly ISP to evaluate different net neutrality rules. Content differs in its sensitivity to delay. Content providers can use congestion control techniques to reduce delay for their content, but do not take into account the effect of their decisions on the aggregate volume of traffic. As a result, strict net neutrality often leads to socially inefficient traffic inflation. We show that piece-meal departures from net neutrality, such as transmission fees or prioritization based on sensitivity to delay, do not necessarily improve efficiency. However, allowing the ISP to introduce bandwidth tiering and charge for prioritized delivery can implement the<br/>efficient allocation.
    Keywords: Net neutrality; network congestion; telecommunications,; uality of service
    JEL: L12 L51 L86
    Date: 2015
  9. By: Polemis, Michael; Fotis, Panagiotis
    Abstract: This paper provides estimates of price-marginal cost ratios for manufacturing and services sectors in the Eurozone, the US and Japan over the period 1970-2007. The estimates are obtained applying τhe methodology developed by Hall (1988) and extended by Roeger (1995) on the EU KLEMS March 2011 database. The major stylized facts that are emerged from the empirical results based on the Ordinary Least Squares, Two Step Least Squares and Bootstrap methods of estimation are a) there is no evidence of imperfect competition across the majority of industries in Eurozone, US and Japan, b) sectors that are more open to internationalisation, experience relatively lower mark up ratios than the ratios experienced in less open sectors to internationalisation and c) deregulated industries generally have lower mark – up ratios than regulated industries, while fragmented industries generally exhibit higher mark – up ratios than segmented ones.
    Keywords: Mark up Ratio; US; Eurozone; Japan; Manufacturing; Services.
    JEL: D43 L13 L16 L60
    Date: 2015–02–05
  10. By: Ricardo Flores-Fillol (Universitat Rovira i Virgili); Alberto Iozzi (DEF and CEIS, Università di Roma "Tor Vergata"); Tommaso Valletti (Imperial College London, DEF and CEIS, Università di Roma "Tor Vergata" & CEPR)
    Abstract: Airports have become platforms that derive revenues from both aeronautical and commercial activities. The demand for these services is characterized by a one-way complementarity in that only air travelers can purchase retail goods at the airport terminals. We analyze a model of optimal airport behavior in which this one-way complementarity is subject to consumer foresight, i.e., consumers may not anticipate in full the ex post retail surplus when purchasing a flight ticket. An airport sets landing fees, and, in addition, also chooses the retail market structure by choosing the number of retail concessions to be awarded. We find that, with perfectly myopic consumers, the airport chooses to attract more passengers via low landing fees, and also sets the minimum possible number of retailers in order to increase the concessions’ revenues, from which it obtains the largest share of profits. However, even a very small amount of anticipation of the consumer surplus from retail activities changes significantly the airport’s choices: the optimal airport policy is dependent on the degree of differentiation in the retail market. When consumers instead have perfect foresight, the airport establishes a very competitive retail market, where consumers enjoy a large surplus. This attracts passengers and it is exploited by the airport by charging higher landing fees, which then constitute the largest share of its profits. Overall, airport’s profits are maximal when consumers have perfect foresight.
    Keywords: two-sided markets, platform pricing, one-way demand complementarity, consumer foresight
    JEL: L1 L2 L93
    Date: 2015–03–24

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