nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒06‒27
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On the efficiency of Bertrand and Cournot equilibrium in the presence of asymmetric network compatibility effects By Tsuyoshi Toshimitsu
  2. Price and quantity competition in a differentiated duopoly with network compatibility effects By Tsuyoshi Toshimitsu
  3. Antitrust, Regulation and the Neutrality Trap By Renda, Andrea
  4. The link between cultural due diligence and socio-cultural post-merger integration management as a critical success factor in M&As By Dörrenbächer, Christoph; Witzmann, Natalie
  5. The Welfare Effects of Supply-Side Regulations in Medicare Part D By Francesco Decarolis; Maria Polyakova; Stephen P. Ryan
  6. On taxes and subsidies with private eco-labeling By Barry, I.; Bonroy, O.; Garella, P.G.
  7. Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China? By Hombert, Johan; Matray, Adrien
  8. The role of network effects and consumer heterogeneity in adoption of mobile phones: evidence from South Africa By Lukasz Grzybowski

  1. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Based on a differentiated duopoly model, we consider the efficiency of Bertrand and Cournot equilibrium in the presence of network effects and product compatibility. In particular, we demonstrate that if an asymmetric product compatibility with a strong network effect between the firms arises, give certain conditions, Cournot equilibrium is more efficient than Bertrand equilibrium in terms of greater consumer, producer, and social surplus.
    Keywords: Bertrand equilibrium; Cournot equilibrium; product compatibility; network effect; fulfilled expectation; horizontally differentiated duopoly
    JEL: L13 L32 L33
    Date: 2015–06
  2. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: We consider endogenous choice of the strategic variables, price and quantity, in a horizontally differentiated duopoly market, assuming network effects and product compatibility (hereafter, network compatibility effects). We demonstrate the following. If the degree of network compatibility effects of the other rival firm is smaller (larger) than the degree of product substitutability, then choosing quantity (price) is a dominant strategy for the firm. In this case, the Cournot (Bertrand) equilibrium arises. If there are asymmetric network compatibility effects between the firms, the firm with larger (smaller) network compatibility effects than the degree of product substitutability chooses quantity (price). In this case, the Cournot−Bertrand equilibrium arises.
    Keywords: Bertrand equilibrium; Cournot equilibrium; Cournot−Bertrand equilibrium; product compatibility; network effect; fulfilled expectation; horizontally differentiated duopoly
    JEL: C72 D01 D43 L13
    Date: 2015–06
  3. By: Renda, Andrea
    Abstract: EU Internet policy seems bewitched by the term ‘neutrality’, applied to networks and now search engines and other online platforms. Andrea Renda questions in this latest Special Report whether this is this a good way to protect end users. Originally confined to the infrastructure layer, today the neutrality rhetoric is being expanded to multi-sided platforms such as search engines and more generally online intermediaries. Policies for search neutrality and platform neutrality are invoked to pursue a variety of policy objectives, encompassing competition, consumer protection, privacy and media pluralism. This paper analyses this emerging debate and comes to a number of conclusions. First, mandating net neutrality at the infrastructure layer might have some merit, but it certainly would not make the Internet neutral. Second, since most of the objectives initially associated with network neutrality cannot be realistically achieved by such a rule, the case for network neutrality legislation would have to stand on different grounds. Third, the fact that the Internet is not neutral is mostly a good thing for end users, who benefit from intermediaries that provide them with a selection of the over-abundant information available on the Web. Fourth, search neutrality and platform neutrality are fundamentally flawed principles that contradict the economics of the Internet. Fifth, neutrality is a very poor and ineffective recipe for media pluralism, and as such should not be invoked as the basis of future media policy. All these conclusions have important consequences for the debate on the future EU policy for the Digital Single Market.
    Date: 2015–04
  4. By: Dörrenbächer, Christoph; Witzmann, Natalie
    Abstract: With the unchanging high failure rate of M&As, recent research is putting an increasing emphasis on Cultural Due Diligence (CDD) and socio-cultural Post-Merger Integration (PMI) Management. Nevertheless, the state of the art on CDD is still rare, leading to the fact that its actual value for a successful PMI remains unclear. Addressing this gap is the basic objective of this paper. In more detail the paper tries to clarify whether CDD is a necessary prerequisite for a successful PMI. The paper finds that the CDD process creates considerable value for the subsequent PMI as it facilitates a fast and smooth cultural integration and as such accelerates the operative integration of M&As.
    Abstract: Die andauernd hohe Misserfolgsrate bei M&A hat zu einer intensiven wissenschaftlichen Beschäftigung mit Cultural Due Diligence (CDD) und sozio-kulturellem Post-Merger Integrationsmanagement geführt. Unklar ist jedoch inwieweit CDD zu einer gelungenen Post-merger Integration beiträgt. Am Beispiel einer Fallstudie zeigt der hier vorliegende Aufsatz, dass CDD eine wichtig Voraussetzung für eine gelungene Post-merger Integration ist, da er eine schnelle und reibungsarme kulturelle Integration ermöglicht und damit auch die operative Integration beschleunigt.
    Date: 2015
  5. By: Francesco Decarolis; Maria Polyakova; Stephen P. Ryan
    Abstract: The efficiency of publicly-subsidized, privately-provisioned social insurance programs depends on the interaction between insurer behavior and public subsidies. We study this interaction within Medicare Part D Prescription Drug Plan (PDP) markets. Using a structural model of supply and demand, we find: consumers purchase too few and too socially-costly PDP plans; insurers price near marginal cost; the primary driver of welfare is the opportunity cost of government spending on other Medicare programs; and the current subsidization policy achieves a level of total welfare close to that obtained under an optimal in-kind subsidy, but is far from the social planner's first-best solution.
    JEL: H2 H4 I11 I18 L1 L2
    Date: 2015–06
  6. By: Barry, I.; Bonroy, O.; Garella, P.G.
    Abstract: Taxes and subsidies on products embodying environmental qualities often coexist with certified private labels---like Ecocert, Scientific Certification System, or OEKO-TEX. Their interaction is yet quite unexplored. We analyze a duopoly where consumers value an environmental quality, with an externality. A certifier sets the quality standard for a label. The fee for granting the label is either set by the certifier (certifier power), or in a noncooperative bidding game (firm power). Taxes and subsidies then affect the fee, depending upon how this is set, and the standard. This channel can produce distorted or even reversed effects. If firm power exists, for instance, a subsidy to the labeled good ends up decreasing the environmental quality and welfare. Conversely, absence of firm power nullifies the effects of ad valorem taxing the unlabeled "dirty" product. Only a per unit tax has similar, but always worsening, effects.
    JEL: L13 L15 L5 Q5
    Date: 2015
  7. By: Hombert, Johan; Matray, Adrien
    Abstract: We study whether R&D-intensive firms are more resilient to trade shocks. We correct for the endogeneity of R&D using tax-induced changes to the cost of R&D. On average across US manufacturing firms, rising imports from China lead to slower sales growth and lower profitability. These effects are, however, significantly smaller for firms with a larger stock of R&D -- by about half when moving from the 25th percentile to the 75th percentile of the R&D stock distribution. As a result, while the average firm in import-competing industries cuts capital expenditures and employment, R&D-intensive firms downsize considerably less.
    Keywords: China; import competition; innovation; R&D tax credit
    JEL: F14 L25 L60 O33
    Date: 2015–06
  8. By: Lukasz Grzybowski
    Abstract: In this paper we analyze the role of network effects and consumer heterogeneity in the adoption of mobile phones. We estimate the decision to adopt a mobile phone using panel survey data of South African households between the years 2008 and 2012, which includes interviews with all adult household members. We construct variables which approximate network effects on the household level and find that the greater the number of mobile phones in the household, the greater the likelihood that the other household members will also adopt a mobile phone. Moreover, network effects depend on who in the household adopts a mobile phone. Without within-household network effects the penetration of mobile phones of 76.4% in 2012 would be lower by about 9.9 percentage points. The decision to adopt a mobile phone is also explained by observed and unobserved consumer heterogeneity.
    Keywords: Mobile phones, Network effects, Consumer heterogeneity
    JEL: L13 L96
    Date: 2015

This nep-ind issue is ©2015 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.