nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒04‒25
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Capacity Choice under Uncertainty with Product Differentiation By Christiaan Behrens; Mark Lijesen
  2. The Effects of Leniency on Cartel Pricing By Harold Houba; Evgenia Motchenkova; Quan Wen
  3. Price Competition on Graphs By Pim Heijnen; Adriaan Soetevent
  4. Start-up Costs, Taxes and Innovative Entrepreneurship By Pourya Darnihamedani; Joern Hendrich Block; Jolanda Hessels; Aram Simonyan
  5. The Industrial Organisation of the Dance Industry in the Netherlands: a Transaction Cost Perspective on Hybrid Forms of Organisation By Frank A.G. den Butter; Jelle Joustra

  1. By: Christiaan Behrens (VU University Amsterdam); Mark Lijesen (VU University Amsterdam)
    Abstract: We explore the characteristics of a capacity-then-price game for a duopoly market with product differentiation and stochastic demand. The analysis shows that a minimum threshold value for the level of vertical product differentiation exists, relative to horizontal product differentiation, for which existence of a Nash equilibrium in pure strategies is guaranteed. We find that when the quality and cost differences between the firms exactly offset each other, demand uncertainty causes equilibrium outcomes in capacities to become asymmetric. Without demand uncertainty, only a symmetric equilibrium can be established. This difference between stochastic and deterministic demand is the main driver behind our finding that if the regulator ignores the stochastic nature of demand, regulation lowers welfare for a large range of parameters, that is for approximately 10 per cent of the plausible parameter space.
    Keywords: Price competition, Capacity choice, Demand uncertainty, Product differentiation, Price dispersion
    JEL: D43 L11 L13
    Date: 2012–10–26
    URL: http://d.repec.org/n?u=RePEc:tin:wpaper:20120113&r=ind
  2. By: Harold Houba (VU University Amsterdam); Evgenia Motchenkova (VU University Amsterdam); Quan Wen (University of Chicago, United States)
    Abstract: We analyze how leniency affects cartel pricing in an infinitely-repeated oligopoly model where the fine rates are linked to illegal gains and detection probabilities depend on the degree of collusion. A novel aspect of this study is that we focus on the worst possible outcome. We investigate the maximal cartel price, the largest price for which the conditions for sustainability hold. We analyze how the maximal cartel price supported by different cartel strategies adjusts in response to the introduction of (ex-ante and ex-post) leniency programs. We disentangle the effects of traditional antitrust enforcement, leniency, and cartel strategies on the maximal cartel price. Ex-ante leniency cannot reduce the maximal cartel price below the price under antitrust without leniency. On the other hand, for ex-post leniency, improvement is possible and granting full immunity to single-reporting firms achieves the largest reduction in the maximal cartel price. To reduce adverse effects under both leniency programs, fine reductions to multiple-reporting firms should be moderate or absent. Finally, ex-post leniency should provide less generous fine reductions to multiple-reporting firms, which is supported by the current practice in the US and the EU.
    Keywords: Cartel, Antitrust, Competition Policy, Leniency Program, Self-reporting, Repeated Game
    JEL: L41 K21 C72
    Date: 2014–11–10
    URL: http://d.repec.org/n?u=RePEc:tin:wpaper:20140146&r=ind
  3. By: Pim Heijnen (University of Groningen); Adriaan Soetevent (University of Groningen)
    Abstract: This paper extends Hotelling's model of price competition with quadratic transportation costs from a line to graphs. We derive an algorithm to calculate firm-level demand for any given graph, conditional on prices and firm locations. These graph models of price competition may lead to spatial discontinuities in firm-level demand. We show that the existence result of D'Aspremont et al. (1979) does not extend to simple star graphs and conjecture that this non-existence result holds more generally for all graph models with two or more firms that cannot be reduced to a line or circle.
    Keywords: spatial competition, Hotelling, graphs
    JEL: D43 L10 R12
    Date: 2014–10–02
    URL: http://d.repec.org/n?u=RePEc:tin:wpaper:20140131&r=ind
  4. By: Pourya Darnihamedani (Erasmus University Rotterdam, the Netherlands); Joern Hendrich Block (University of Trier, Trier, Germany); Jolanda Hessels (Erasmus University Rotterdam, the Netherlands); Aram Simonyan (National Academy of Science of the Republic of Armenia, Yerevan, Republic of Armenia)
    Abstract: Prior research suggests that start-up costs and taxes negatively influence entry into entrepreneurship. Yet, no distinction is made regarding the type of entrepreneurship, particularly innovative versus non-innovative entrepreneurship. Start-up costs, being one-off costs, may reduce the entry of entrepreneurs whose ideas are not very promising, thus increasing the proportion of innovative entrepreneurs. Taxes, being recurring costs, may reduce the “prize” of innovation and the profit from entrepreneurship, discouraging individuals with innovative business ideas from becoming entrepreneurs. Analyzing a dataset of 632,116 individuals, including 43,223 entrepreneurs from 53 countries, we can confirm our main predictions. Our paper contributes to the discussion on how governmental regulation costs and taxes influence innovative entrepreneurship and technological deve lopment.
    Keywords: Innovative entrepreneurship, corporate taxes, personal income taxes, start-up costs, entrepreneurial profit
    JEL: H24 H25 L26 L51 O31
    Date: 2015–01–23
    URL: http://d.repec.org/n?u=RePEc:tin:wpaper:20150013&r=ind
  5. By: Frank A.G. den Butter (VU University Amsterdam); Jelle Joustra (VU University Amsterdam, the Netherlands)
    Abstract: The organization of Electronic Dance Music (EDM) events has become a major export product in the Netherlands. In order to respond quickly to the new trends and needs, innovative forms of cooperation between producers are to be set up for the organization of exciting new events. A case study on how these EDM events are actually organised in the Netherlands shows that the best way to do it is through hybrid forms of organisation, which combine horizontal forms of organisation through the market and vertical forms through the hierarchy. As EDM events are characterised by much asset specificity, the perspective of transaction cost economics indicates why this industry relies on hybrid forms of organisation. Trust between the collaborating partners, intrinsic motivation to be professional in the design and creation of new, ground-breaking music sensations and an extensiv e use of social media play a key role in lowering the transaction costs in the dance industry.
    Keywords: Industrial organization, coordination costs, transaction cost economics, resource based view, cooperation in hybrid organizations, Electronic Dance Music (EDM) events, trust, use of social media
    JEL: D23 D85 E23 L23 L24 L82 O31 P13
    Date: 2014–07–24
    URL: http://d.repec.org/n?u=RePEc:tin:wpaper:20140095&r=ind

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