nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒06‒05
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Bertrand-Edgeworth games under triopoly: the payoffs By De Francesco, Massimo A.; Salvadori, Neri
  2. Help us to help us: how consumer data can alter quality races By Christian Trudeau; Zheng Wang
  3. Robot Cars and Dynamic Bottleneck Congestion: The Effects on Capacity, Value of Time and Preference Heterogeneity By Vincent A.C. van den Berg; Erik T. Verhoef

  1. By: De Francesco, Massimo A.; Salvadori, Neri
    Abstract: The paper extends the analysis of price competition among capacity constrained sellers beyond duopoly and symmetric oligopoly. The main focus is on the equilibrium payoffs under triopoly. The paper also includes insightful examples highlighting features of equilibrium which can arise in a triopoly but not in a duopoly. Most notably, the supports of the equilibrium strategies need not be connected, nor need be connected the union of the supports; further, an atom may exist for a firm different from the largest one.
    Keywords: Bertrand-Edgeworth; Price game; Oligopoly; Triopoly; Mixed strategy equilibrium
    JEL: C72 L13
    Date: 2015–05–27
  2. By: Christian Trudeau (Department of Economics, University of Windsor); Zheng Wang (Capital University of Business and Economics)
    Abstract: Recent technological changes have made it easy for firms to collect data on their consumers, which in turns allows them to improve the efficiency of their R&D. We explore the strategic interaction that occurs when two firms compete in a vertically-differentiated market to acquire this data and invest in R&D to set the quality of their product. Among our results, we find that if the initial quality lead is not too large, there exists equilibria where the laggard is able to reverse the lead by being particularly aggressive in acquiring this consumer data. While total welfare is higher when the initial leader maintains its lead, consumers prefer leapfrogging.
    Keywords: consumer data, vertical differentation, quality race, leapfrogging
    JEL: C72 L11 L13 L41
    Date: 2015–05
  3. By: Vincent A.C. van den Berg (VU University Amsterdam, the Netherlands); Erik T. Verhoef (VU University Amsterdam, the Netherlands)
    Abstract: ‘Robot cars’ are cars that allow for automated driving. They can drive closer together than human driven ‘normal cars’, and thereby raise road capacity. Obtaining a robot car instead of a normal car can also be expected to lower the user’s value of time losses (VOT), because travel time can be used for other activities than driving. With a mix of normal and robot car users, the VOT is therefore (more strongly) heterogeneous. We study the effect of robot cars on social welfare for a number of market organizations: private monopoly, perfect competition and public supply. Increasing the share of robot cars raises average capacity (especially if robot cars drive concentrated in time), but may hurt existing robot car users as the switchers’ lowered VOT will increase their bottleneck-congestion externality. When the capacity effect dominates, buying a robot imposes a net positive externality, but otherwise, it causes a net negative externality. Numerical analysis suggests that a net positive externality is more likely; nevertheless, for a small, but still plausible, capacity effect a net negative externality results. With a positive (negative) externality, marginal cost provision tends to lead to an undersupply of robot cars, and a public supplier needs to subsidise (tax) robot car purchase in order to maximise welfare. A monopolist supplier ignores the externality and tends to add a mark-up to its price. This almost always leads to a substantial undersupply.
    Keywords: robot cars; heterogeneity; bottleneck model; autonomous cars; self-driving cars; market structure
    JEL: D42 D62 H23 L12 L51 R41 R48
    Date: 2015–05–22

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