nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒08‒13
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On merger profitability and the intensity of rivalry By Escrihuela-Villar, Marc
  2. Price, target rate of profit and entry preventing By Jael, Paul
  3. Symmetry restoration by pricing in a duopoly of perishable goods By Su Do Yi; Seung Ki Baek; Guillaume Chevereau; Eric Bertin
  4. Prices, Product Differentiation, and Heterogeneous Search Costs By Jose L. Moraga-Gonzalez
  5. Economic distributions and primitive distributions in monopolistic competition By Anderson, Simon P; de Palma, André
  6. Differentiated pricing of delivery services in the e-commerce sector By Borsenberger, Claire; Cremer, Helmuth; De Donder, Philippe; Joram, Denis
  7. Strategic Promotion and Release Decisions for Cultural Goods By P. Belleflamme; D. Paolini
  8. Strategic alliances in the company’s value creation By Joanna Kuczewska; Izabela Szumal
  9. Innovation in the European Digital Single Market: The Role of Patents By Chryssoula Pentheroudakis
  10. Addressing fragmentation in EU mobile telecom markets By Mario Mariniello; Francesco Salemi

  1. By: Escrihuela-Villar, Marc
    Abstract: This paper considers a general symmetric quantity-setting oligopoly where the "coefficient of cooperation" defined by Cyert and DeGroot (An Analysis of Cooperation and Learning in a Duopoly Context, 1973) is interpreted as the parameter indicating severity of competition. It is obtained that horizontal mergers are more likely to be profitable in a more competitive market structure. Consequently, the results by Salant, Switzer and Reynolds (The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium, 1983) about merger profitability are sensitive to the assumption of pre-merger Cournot competition.
    Keywords: oligopoly,competitive intensity,horizontal mergers
    JEL: L13 L40 L41
    Date: 2015
  2. By: Jael, Paul
    Abstract: Since the marginalist controversy held from 1939 to the mid-fifties, the full cost principle presents itself as an alternative to the marginalist theory of the producer’s equilibrium, without being able to shake its dominance. Yet, through decades, empirical investigations are rather favourable to it. Its rationality has not been sufficiently emphasized; so, orthodoxy was able to belittle it as an empirical practice compatible with its own precepts. The present article shows that three principles stated by the full costers and their successors would allow to build a sound theory of full cost pricing. These are: - preventing entry of new competitors; - target rate of profit; - competitive price leadership The article proves that full cost pricing is more conducive to profit maximization than marginalist rule, especially in the case of a competitive market with few suppliers, a market structure usually neglected by microeconomics. Opponents to full cost pricing often consider changes in demand as its Achilles heel. The present article analyses this problem in depth
    Keywords: pricing, competition, market structure, full cost
    JEL: D21 D40
    Date: 2015–08
  3. By: Su Do Yi; Seung Ki Baek; Guillaume Chevereau; Eric Bertin
    Abstract: Competition is a main tenet of economics, and the reason is that a perfectly competitive equilibrium is Pareto-efficient in the absence of externalities and public goods. Whether a product is selected in a market crucially relates to its competitiveness, but the selection in turn affects the landscape of competition. Such a feedback mechanism has been illustrated in a duopoly model by Lambert et al., in which a buyer's satisfaction is updated depending on the {\em freshness} of a purchased product. The probability for buyer $n$ to select seller $i$ is assumed to be $p_{n,i} \propto e^{ S_{n,i}/T}$, where $S_{n,i}$ is the buyer's satisfaction and $T$ is an effective temperature to introduce stochasticity. If $T$ decreases below a critical point $T_c$, the system undergoes a transition from a symmetric phase to an asymmetric one, in which only one of the two sellers is selected. In this work, we extend the model by incorporating a simple price system. By considering a greed factor $g$ to control how the satisfaction depends on the price, we argue the existence of an oscillatory phase in addition to the symmetric and asymmetric ones in the $(T,g)$ plane, and estimate the phase boundaries through mean-field approximations. The analytic results show that the market preserves the inherent symmetry between the sellers for lower $T$ in the presence of the price system, which is confirmed by our numerical simulations.
    Date: 2015–08
  4. By: Jose L. Moraga-Gonzalez (VU University Amsterdam)
    Abstract: We study price formation in the standard model of consumer search for differentiated products (Wolinsky, 1986) but allow for search cost heterogeneity. In doing so, we dispense with the usual assumption that all consumers search at least once in equilibrium. This allows us to analyze the manner in which prices affect the decision to search rather than to not search at all, which is an important but often neglected aspect of the price mechanism. Recognizing the role the equilibrium price plays in consumers' participation decisions turns out to be critical for understanding how search costs affect market power. This is because the two margins that determine prices---the intensive search margin, or search intensity, and the extensive search margin, or search participation---may be affected in opposing directions by a change in search costs. When search costs go up, fewer consumers decide to search, which modifies the search composition of demand such that demand can become more elastic. At the same time, the consumers who choose to search reduce their search intensity, which makes demand less elastic. Whether the effect on the extensive or the intensive search margin dominates depends on the range and shape of the search cost density. We identify conditions for higher search costs to result in higher, constant, or lower prices. Similar results are obtained when the marginal gains from search vary across consumers.
    Date: 2015
  5. By: Anderson, Simon P; de Palma, André
    Abstract: We link fundamental technological and taste distributions to endogenous economic distributions of firm size (output, profit) and prices in extensions of canonical IO and Trade models. We develop a continuous logit model of monopolistic competition to show that exponential or normal distributions respectively generate Pareto or log-normal economic size distributions. Two groups of distributions (output, profit, and quality-cost; and price and cost) are linked through the technological relation between cost and quality-cost. We formulate a general monopolistic competition model and recover the demand structure, mark-ups, and the quality-cost distribution from the output and profit distributions. Adding the price distribution recovers the cost distribution and the relation between quality-cost and cost. We also find long-run equilibrium distributions as a function of the primitives. On the Trade side, we provide a parallel analysis for the CES and break the Pareto circle by introducing quality.
    Keywords: ces; general monopolistic competition model; logit; pareto and log-normal distribution; price and profit dispersion; primitive and economic distributions
    JEL: L13
    Date: 2015–07
  6. By: Borsenberger, Claire; Cremer, Helmuth; De Donder, Philippe; Joram, Denis
    Date: 2015–07–30
  7. By: P. Belleflamme; D. Paolini
    Abstract: We study how producers of cultural goods can strategically increase their promotion budgets to secure the most profitable release dates for their goods. In a game-theoretic setting, where two producers choose their budget before simultaneously setting the release date of their good, we prove that two equilibria are possible - releases are either simultaneous (at the demand peak) or staggered (one producer delays). In the latter equilibrium, the first-mover secures its position by investing more in promotion. We test this prediction on a dataset of more than 1500 American movies released in ten countries over 13 years. Our empirical analysis confirms that higher budgets allow movie studios to move release dates closer to demand peaks.
    Keywords: Non-price competition, Strategic promotion, Strategic timing, Motion pictures
    JEL: L13 L82
    Date: 2015
  8. By: Joanna Kuczewska (Faculty of Economics, University of Gdansk); Izabela Szumal (Nelton Design Group)
    Abstract: Modern, global, knowledge-based economy creates very difficult business environment conditions. They are characterized by high volatility and instability. Strategic cooperation agreements have become key factors-contributor to the building of a lasting, permanent and difficult to copy competitive position. Actions without collaboration in many situations are impossible, and strategic alliances have become not only an attractive option among the various forms of value creation, but a necessity. The aim of the article is assessing the role of strategic alliances in the creation of companies’ value. The key issue is to determine the meaning and place of decisions concerning cooperation in the process of value creation. In addition, the analysis covered selected case studies of global corporations.
    Keywords: strategic alliances, company value, types and forms of strategic alliances
    JEL: L14 L21 L24
    Date: 2015–07
  9. By: Chryssoula Pentheroudakis
    Abstract: The Institute for Prospective Technological Studies of the Joint Research Centre (JRC) organised the Conference "Innovation in the European digital single market - The Role of Patents". This conference aimed to provide reliable evidence based on patent data analysis to support European innovation policies for a Digital Single Market. The advancement of the digital economy in Europe does not only bring unmatched opportunities, but also a series of challenges in the area of intellectual property rights. This is particularly true for the patent system which has to strike the right balance between providing incentives for research and development investments while enabling at the same time the dissemination and re-use of technological knowledge. The difficulties of striking this balance are most apparent in the field of Information and Communications Technologies (ICT), where standardization and interoperability are important for the implementation of a Digital Single Market. In order to pin down the role of patents in the new digital economy, it is important to look at the broader economic, legal, technological and policy context and achieve a better understanding of what is at stake in the current dynamics. It is a volatile landscape marked by patent wars, high litigation costs, overlapping rights, hold-up scenarios in the field of standardization and radical market shifts deriving from convergent technologies and emerging platform-centric business models. Against this background, the stakes are high with regards to many issues: interoperability, reasonable and timely access to key technologies and technical knowledge, legal certainty, unfettered competition and a secured return on investment in research and development.
    Keywords: Innovation, Digital Single Market, patents
    Date: 2015–07
  10. By: Mario Mariniello; Francesco Salemi
    Abstract: Highlights - Mobile telecommunications markets are an important part of the European Commissionâ?? strategy for the completion of the European Union Digital Single. The use of mobile telecommunications â?? particularly mobile data access â?? is growingand becoming an increasingly important input for the economy. - The EU currently does not have a unified mobile telecommunications market. TheEU compares favourably to the United States in terms of prices and connectionspeed, but lags behind in terms of coverage of high-speed 4G wireless connections.â?¢ Europeâ??s long-term goal should be to make data access easier by increasing highspeedwireless coverage while keeping prices down for users. An increase incross-border competition could help to achieve that goal. The Commission has two important levers to help stimulate cross-border supply:(a) ensuring competition in intra-country mobile markets in order to provide anincentive for operators to expand into other jurisdictions, and (b) reducing mobileoperatorsâ?? costs of expansion into multiple EU countries. The further developmentof policies on international roaming and radio spectrum management will be centralto this effort.
    Date: 2015–07

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.