nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒06‒20
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price equilibrium and willingness to pay in a vertically differentiated mixed duopoly By C. Benassi; M. Castellani; M. Mussoni
  2. Merger remedies in oligopoly under a consumer welfare standard By Dertwinkel-Kalt, Markus; Wey, Christian
  3. Speculative Constraints on Oligopoly By Sebastien Mitraille; Henry Thille
  4. Investigating the Strategic Nature of Supply Functions in Oligopoly By F. Delbono; L. Lambertini
  5. Endogenous information disclosure in experimental oligopolies By David Kopanyi; Anita Kopanyi-Peuker
  6. Price discontinuities in an online market for used cars By Englmaier, Florian; Schmöller, Arno; Stowasser, Till

  1. By: C. Benassi; M. Castellani; M. Mussoni
    Abstract: In the framework of a vertically differentiated mixed duopoly, with uncovered market and costless quality choice, we study the existence of a price equilibrium when a welfare-maximizing public firm producing low quality goods competes against a profit-maximizing private firm producing high quality goods. We show that a price equilibrium exists if the quality spectrum is wide enough vis à vis a measure of the convexity of the distribution of the consumers' willingness to pay, and that such equilibrium is unique if this sufficient condition is tightened. Log-concavity of the income distribution is inconsistent with the existence of equilibrium.
    JEL: D43 L13 L51
    Date: 2015–06
  2. By: Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We analyze the welfare effects of structural remedies on merger activity in a Cournot oligopoly if the antitrust agency applies a consumer surplus standard. We derive conditions such that otherwise price-increasing mergers become externality-free by the use of remedial divestitures. In this case, the consumer surplus standard ensures that mergers are only implemented if they increase social welfare. If the merging parties can extract the entire surplus from the asset sale, then the socially optimal buyer will be selected under a consumer standard.
    Keywords: Remedies,Merger control,Consumer standard,Synergies
    JEL: L13 L41 K21
    Date: 2015
  3. By: Sebastien Mitraille (Toulouse Business School, University of Toulouse); Henry Thille (Department of Economics and Finance, University of Guelph)
    Abstract: We examine an infinite horizon game in which producers’ output can be purchased by speculators for resale in a future period. The existence of speculators serves to constrain the feasible set of prices that can result from producers’ output game in each period. Absent speculation, producers play a repeated Cournot game with random demand. With speculative inventories possible, the game becomes a dynamic one in which speculative stocks are a state variable which firms can control via their influence on price. We employ collocation methods to find the unknown expected price and value functions required for computation of equilibrium quantities. We demonstrate that strategic considerations result in an incentive to sell to speculators that is nonmonotonic in the number of producers: speculation has the largest effect on equilibrium prices and welfare for market structures intermediate between monopoly and perfect competition. Using a computed example, we demonstrate that the effect of speculative storage on the average price level can be substantial, even though the effects on social welfare can be ambiguous.
    Keywords: Inventory, speculation, oligopoly, commodity markets
    JEL: L13 D43
    Date: 2015
  4. By: F. Delbono; L. Lambertini
    Abstract: We show that supply functions cannot be classified as either strategic complements or substitutes according to the twofold criterion advanced by Bulow et al. (1985). This is because while the slope of the best reply is univocally positive, this is not the case with the sign of the cross derivative of marginal profit. We first show this discrepancy in the original Klemperer and Meyer (1989) setting, and then in a linear-quadratic model of differentiated duopoly. We further confirm and strengthen our result by proving that the game in supply functions is neither supermodular nor submodular.
    JEL: D43 L13
    Date: 2015–06
  5. By: David Kopanyi (Department of Economics, University of Nottingham); Anita Kopanyi-Peuker (University of Amsterdam)
    Abstract: With this research we examine whether observing firm-specific production levels leads to a less competitive market outcome. We consider an endogenous information setting where firms can freely decide whether they want to share information about their past production levels. By voluntarily sharing information, firms can show their willingness to cooperate.We conduct a laboratory experiment where firms decide only about their production levels first, and the information they receive is exogenous (either no information, or aggregate / disaggregated information about others' production, in varying order). Later, firms can also decide whether to share their past production levels with others. We vary the kind of information firms receive: they receive the shared information either in aggregate or in disaggregated form. Our results show no difference in average total outputs across data aggregation and information settings. However, we observe more collusion when individual information was shared voluntarily. Our results show that subjects use voluntary sharing to show their intentions to cooperate. If they share information, they produce significantly less than if they do not share information.
    Keywords: Cournot competition, information, collusion, experiment
    Date: 2015–11
  6. By: Englmaier, Florian; Schmöller, Arno; Stowasser, Till
    Abstract: We use more than 63,000 datapoints from a German used car market website to document systematic and substantial price drops at vintage (= year of first registration) thresholds and 10,000 km odometer marks. The latter finding replicates the findings in Lacetera et al. (2012), whereas the first dimension cannot be analyzed with their US data because only German cars have such legally mandated and regulated “birthdatesâ€. Hence we have the unique opportunity to study the presence of coarse information processing within the same dataset and decision problem but across two separate domains. We document that discontinuities in these two domains are of comparable size. While Lacetera et al. (2012) explain their result with a left-digit bias in the processing of numerical information, vintage discontinuities cannot be explained by this. We propose a slightly more general model of information prominence and availability bias to accommodate our findings.
    Keywords: Complex Goods; Price Discontinuities; Information Neglect; Heuristics; Field Study
    JEL: D12 D83 L
    Date: 2015–03–15

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