nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒05‒09
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Free entry oligopoly, Cournot, Bertrand and relative profit maximization By Satoh, Atsuhiro; Tanaka, Yasuhito
  2. Relative profit maximization in duopoly: difference or ratio By Satoh, Atsuhiro; Tanaka, Yasuhito
  3. Mergers and the Dynamics of Innovation By Xavier Boutin
  4. Price setting in online markets: does IT click? By Gorodnichenko, Yuriy; Sheremirov, Viacheslav; Talavera, Oleksandr
  5. Pharmaceutical regulation, mandatory substitution, and generic competition By Birg, Laura
  6. The Microeconomics of Television Markets By Hurren, Konrad

  1. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We study a symmetric free entry oligopoly in which firms produce differentiated goods so as to maximize their relative profits. The relative profit of each firm is the difference between its profit and the average of the profits of other firms. We show that whether firms determine their outputs or prices, the equilibrium price when firms maximize their relative profits is lower than the equilibrium price when firms maximize their absolute profits, but the equilibrium number of firms under relative profit maximization is smaller than the equilibrium number of firms under absolute profit maximization. This is because each firm is more aggressive and produces larger output under relative profit maximization than under absolute profit maximization.
    Keywords: free entry, oligopoly, relative profit maximization
    JEL: D43 L13
    Date: 2015–05–03
  2. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We compare formulations of relative profit maximization in duopoly with differentiated goods, 1) (Difference case) maximization of the difference between the profit of one firm and that of the other firm, 2) (Ratio case) maximization of the ratio of the profit of one firm to the total profit. We show that in asymmetric duopoly the equilibrium output of the more efficient (lower cost) firm in the ratio case is larger than that in the difference case and the price of the good of the more efficient firm in the ratio case is lower than that in the difference case. For the less efficient firm (higher cost firm) we obtain the converse results.
    Keywords: duopoly, relative profit maximization, difference, ratio
    JEL: D43 L13
    Date: 2015–05–03
  3. By: Xavier Boutin
    Keywords: mergers; innovation; dynamics models; consumer welfare
    JEL: C61 G34 O31
    Date: 2015–05
  4. By: Gorodnichenko, Yuriy (University of California, Berkeley); Sheremirov, Viacheslav (Federal Reserve Bank of Boston); Talavera, Oleksandr (University of Sheffield)
    Abstract: Using a unique dataset of daily U.S. and U.K. price listings and the associated number of clicks for precisely defined goods from a major shopping platform, this paper explores how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors' prices, and low costs of nominal price adjustment. High-quality data are not only useful to estimate price rigidity and other properties of price adjustment in online commerce but also allow comparing the behavior of those properties with estimates available from brick-and-mortar stores.
    Keywords: online markets; prices; price dispersion
    JEL: E3
    Date: 2015–01–01
  5. By: Birg, Laura
    Abstract: This paper studies the effect of two regulatory instruments - a price cap and a reference price system - a mandatory substitution rule, and the combination of both on generic competition in a Salop-type model with an off-patent brand-name drug and n differentiated generic versions. The price cap reduces only the brand-name price, the reference price system reduces the brand-name price and generic prices. Both regulatory instruments reduce the generic market share and the number of generic competitors. The mandatory substitution rule decreases the brand-name price, but increases generic prices. It increases the generic market share and the number of generic competitors. Under mandatory substitution, price decreases under both regulatory instruments are lower. Mandatory substitution weakens the negative effect of the price cap on the generic market share and the number of generic competitors, but it amplifies the negative effect of the reference price system on the generic market share and the number of generic competitors.
    Keywords: pharmaceutical regulation,generic competition,mandatory substitution,reference price,price cap
    JEL: I18 I11 L50
    Date: 2015
  6. By: Hurren, Konrad
    Abstract: I consider the literature surrounding the television market. Two important issues in the literature are: the market's two-sided nature, and bundling of channels. I discuss how an asymmetric pricing structure arises in television markets. The literature on bundling in the television market is reviewed, with some authors finding that bundling is a first best solution. Other authors show that a la carte pricing is socially optimal. Interestingly, there is consensus that mixed bundling is unambiguously worse than pure bundling and a la carte. Public service broadcasting is described in four English speaking countries to provide context. Failures in the television market are identified and some policy responses are discussed. I include literature analysing a price cap on basic cable packages and a domestic content requirement.
    Keywords: Bundling, Television, Two-Sided Markets,
    Date: 2014

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