nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒05‒22
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Market Definition, Market Power By Louis Kaplow
  2. Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price By Krämer, Florentin; Schmidt, Klaus M.; Spann, Martin; Stich, Lucas
  3. Private versus Social Incentives for Pharmaceutical Innovation By Paula González; Inés Macho-Stadler; David Pérez-Castrillo
  4. Internal marketing in the hotel industry By Vlado Galičić; Marina Laškarin
  5. "The Effects of Domestic Mergers on Exports: A Case Study of the 1998 Korean Automobile Industry" By Hiroshi Ohashi; Yuya Toyama

  1. By: Louis Kaplow
    Abstract: Market definition and market power are central features of competition law and practice but pose serious challenges. On one hand, market definition suffers decisive logical infirmities that render it infeasible, unnecessary, and counterproductive, and the practice of stating market power requirements as market share threshold tests is incoherent as a matter of empirics and policy. On the other hand, market power is often probative of the desirability of liability, yet the typically assumed functional relationship is unexplored and often implausible. These latter deficiencies are addressed through a ground-up analysis of the channels by which market power can be relevant. It is important to explicitly and simultaneously consider both anticompetitive and procompetitive explanations for challenged practices and to attend to the magnitudes of the social consequences of correct and mistaken imposition of liability in order to identify the various ways and senses in which market power bears on optimal decision-making.
    JEL: D42 K21 L12 L40
    Date: 2015–05
  2. By: Krämer, Florentin; Schmidt, Klaus M.; Spann, Martin; Stich, Lucas
    Abstract: Pay What You Want (PWYW) and Name Your Own Price (NYOP) are customer-driven pricing mechanisms that give customers (some) pricing power. Both have been used in service industries with high fixed capacity costs in order to appeal to additional customers by reducing prices without setting a reference price. In this experimental study we compare the functioning and the performance of these two pricing mechanisms. We show that both mechanisms can be successfully used to endogenously price discriminate. PWYW can be very successful if there is an additional promotional benefit to using PWYW and if marginal costs are not too high. PWYW is a very aggressive competitive strategy that achieves almost full market penetration. NYOP is a less aggressive strategy that can also be used if marginal costs are high. It reduces price competition and segments the market. Low valuation customers are more likely to use NYOP while high valuation customers prefer a posted price seller.
    Keywords: competitive strategies; consumer-driven pricing mechanisms; name your own price; pay what you want
    JEL: D03 D21 D22 D40 L11 M31
    Date: 2015–05
  3. By: Paula González (Department of Economics, Universidad Pablo de Olavide.); Inés Macho-Stadler (Department of Economics, Universitat Autònoma de Barcelona and Barcelona GSE.); David Pérez-Castrillo (Department of Economics, Universitat Autònoma de Barcelona and Barcelona GSE.)
    Abstract: There is a great deal of debate in society regarding the tendency of pharmaceutical companies to direct their R&D toward marketing products that are "follow-on" drugs of already existing drugs, rather than the development of breakthrough drugs. This paper provides a theoretical framework to study firm incentives for pharmaceutical innovation that disentangle the quest for breakthrough drugs from the firm effort to develop follow-on drugs. We construct a model with a population of patients treated with one of two --horizontally and vertically differentiated-- drugs. One of the drugs is the pioneer; the other is the result of an innovative process by a firm that seeks to achieve an improvement over the existing drug. Our results offer theoretical support for the conventional wisdom that pharmaceutical firms devote too many resources to conducting R&D activities that lead to incremental innovations.
    Keywords: pharmaceuticals, R&D activities, me-too drugs, breakthrough drugs, incremental innovation, radical innovation.
    JEL: I1 L1
    Date: 2015–05
  4. By: Vlado Galičić (Faculty of Tourism and Hospitality Management, Opatija, University of Rijeka, Croatia); Marina Laškarin (Faculty of Tourism and Hospitality Management, Opatija, University of Rijeka, Croatia)
    Abstract: Purpose –The purpose of this paper is to prove that workers, who are satisfied with the attitude of management towards them reflected in regular information provided regarding future plans, tend to display their job satisfaction by working as part of a successful team. Design –In order to distinguishing between the various types of marketing, this paper explores internal marketing in the hotel industry that focuses on employees who need to know all about the types of services that are provided by the hotel and which are being developed within the framework of strategic development plans. Methodology −For the purpose of this paper, scientific research methods have been applied to a sample of 265 questionnaires filled out by the participants of seminars organized for production and service staff (professions: cook, pastry cook, waiter, barman, reception clerk, sales officer, hotel housekeeper) in four destinations in Croatia (Rovinj, Dubrovnik, Mali Lošinj and Vodice) in the period from 4 October to 10 November 2012. Approach −The task of such an approach was to confirm the perception that hoteliers in Croatia are failing to centre sufficient attention on the postulates of internal marketing, as indicated by the survey results presented below. Findings−Research results reveal lack of awareness about importance of communication between managers and workers, especially when it comes to providing information about future business plans. Originality –The originality of this research consist in fact that internal marketing has a significant impact on how employees understand their work tasks and the enterprise’s objectives. This paper provides valuable information about attitudes of hotel personnel in Croatia concerning the information provided to them, and the training on a regular basis.
    Keywords: hotel industry, production and service staff, internal marketing
    JEL: L83
  5. By: Hiroshi Ohashi (Faculty of Economics, The University of Tokyo); Yuya Toyama (Department of Economics, The University of Tokyo)
    Abstract: This paper examines the economic consequences of a horizontal merger between Korean automakers that took place in 1998, with a particular emphasis on export market behavior. Estimates of structural demand and supply reveal that the merger enhanced production efficiency of the merged party by 6.3 percent. Simulations, based on these estimates, indicate that while the merger increased domestic prices, it also tripled the export volume of the merged party. Moreover, the e ects of the merger are found to di er by auto model according to the model's pre-merger export status. It is shown that efficiency gains from the merger are likely to increase export volumes for models that were already exported prior to the merger, and to o set domestic market power for those that were not exported even after the merger. Finally, the paper compares the actual merger's e ects to those of an alternative counterfactual merger, nding that the actual merger brought greater bene ts to producers and fewer to domestic consumers. --
    Date: 2015–05

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