nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒10‒04
eleven papers chosen by

  1. Price and non-price competition in oligopoly: An analysis of relative payoff maximizers By Moghadam, Hamed M.
  2. Does a Platform Monopolist Want Competition? By Niedermayer, Andreas
  3. Information and Market Power By Dirk Bergemann; Tibor Heumann; Stephen Morris
  4. Nonlinear Pricing By Mark Armstrong
  5. Market category generation by meta-contrast thesis By Akira Yoshinari
  6. Merger Policy in a Quantitative Model of International Trade By Breinlich, Holger; Nocke, Volker; Schulz, Nicolas
  7. Competition with Multinational Firms: Theory and Evidence By Balázs Murakozy; Katheryn Niles Russ
  8. Social Networks, Ethnicity, and Entrepreneurship By William R. Kerr; Martin Mandorff
  9. The spatial component of R&D networks By Tobias Scholl; Antonios Garas; Frank Schweitzer
  10. An analysis of entry and exit decisions in shipping markets under uncertainty By BALLIAUW, Matteo
  11. Legal and illegal cartels in the European cement industry By Fink, Nikolaus; Frübing, Stefan

  1. By: Moghadam, Hamed M.
    Abstract: Do firms under relative payoffs maximizing (RPM) behavior always choose a strategy profile that results in tougher competition compared to firms under absolute payoffs maximizing (APM) behavior? In this paper we will address this issue through a simple model of symmetric oligopoly where firms select a two dimensional strategy set of price and a non-price variable known as quality simultaneously. In conclusion, our results show that equilibrium solutions of RPM and APM are distinct. We further characterize the comparison between these two equilibrium concepts. In particular, RPM does not always lead to stricter competition compared to the Nash equilbrium (APM). In fact, the comparison between two equilibrium concepts is influenced by the parameters of demand curve and cost function. The conditions, derived in this paper, determine under which circumstances RPM induces more competition or less competition w.r.t the price or non-price dimension.
    Abstract: Wählen Firmen, die ihre relativen Profite maximieren (RPM), immer ein Strategieprofil, das zu härterem Wettbewerb führt, im Vergleich zu Firmen, die ihre absoluten Profite maximieren (APM)? In diesem Aufsatz werden wir diese Frage durch ein einfaches, symmetrisches Oligopol-Modell beleuchten, wo Firmen gleichzeitig eine zwei-dimensionale Strategie wählen, bestehend aus einer Preis- und einer nicht-Preis-Variable, die wir als Qualität bezeichnen. Unsere Ergebnisse zeigen, dass die Gleichgewichtslösungen für RPM und APM unterschiedlich sind. Desweiteren charakterisieren wir den Unterschied zwischen diesen beiden Gleichgewichten. Insbesondere führt RPM nicht immer zu härterem Wettbewerb im Vergleich zum Nash-Gleichgewicht (APM). In der Tat wird der Unterschied zwischen den beiden Gleichgewichtskonzepten durch die Parameter der Nachfragekurve und der Kostenfunktion beeinflusst. Die in diesem Aufsatz abgeleiteten Voraussetzungen legen fest, unter welchen Umständen RPM mehr oder weniger Wettbewerb in Bezug auf die Preis- oder nicht-Preis-Dimension induziert.
    Keywords: relative payoff s maximizing (RPM),quality,price,oligopoly
    JEL: C73 D21 D43 L13 L15
    Date: 2015
  2. By: Niedermayer, Andreas
    Abstract: We consider a software vendor first selling a monopoly platform and then an application running on this platform. He may face competition by an entrant in the applications market. The platform monopolist can benefit from competition for three reasons. First, his profits from the platform increase. Second, competition serves as a credible commitment to lower prices for applications. Third, higher expected product variety may lead to higher demand for his application. Results carry over to non-software platforms and, partially, to upstream and downstream firms. The model also explains why Microsoft Office is priced significantly higher than Microsoft’s operating system.
    Keywords: Platforms; Entry; Complementary Goods; Price Commitment; Product Variety; Microsoft; Vertical Integration; Two-Sided Markets
    JEL: D41 D43 L13 L86
    Date: 2015–09–22
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Dept. of Economics, Yale University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We analyze demand function competition with a finite number of agents and private information. We show that the nature of the private information determines the market power of the agents and thus price and volume of equilibrium trade. We establish our results by providing a characterization of the set of all joint distributions over demands and payoff states that can arise in equilibrium under any information structure. In demand function competition, the agents condition their demand on the endogenous information contained in the price. We compare the set of feasible outcomes under demand function to the feasible outcomes under Cournot competition. We find that the first and second moments of the equilibrium distribution respond very differently to the private information of the agents under these two market structures. The first moment of the equilibrium demand, the average demand, is more sensitive to the nature of the private information in demand function competition, reflecting the strategic impact of private information. By contrast, the second moments are less sensitive to the private information, reflecting the common conditioning on the price among the agents.
    Keywords: Demand function competition, Supply function competition, Price impact, Market power, Incomplete information, Bayes correlated equilibrium, Volatility, Moments restrictions, Linear best responses, Quadratic payoffs
    JEL: C72 C73 D43 D83 G12
    Date: 2015–08
  4. By: Mark Armstrong
    Abstract: I survey the use of nonlinear pricing as a method of price discrimination, both with monopoly and oligopoly supply. Topics covered include an analysis of when it is profitable to offer quantity discounts and bundle discounts, connections between second- and third-degree price discrimination, the use of market demand functions to calculate nonlinear tariffs, the impact of consumers with bounded rationality, bundling arrangements between separate sellers, and the choice of prices for upgrades and add-on products.
    Keywords: Price discrimination, nonlinear pricing, bundling, product-line pricing, screening, discrete choice.
    JEL: D11 D21 D42 D86 L13 M31
    Date: 2015–09–10
  5. By: Akira Yoshinari (Aichi institute of technology)
    Abstract: This study is based on the J.C. Turner et al. discussion of self-categorization and investigates generated categories in relation to existing categories. The research question in this study was: Does the existence of parallel categories clearly set boundaries for new categories? The aim of this study is to demonstrate the generation of categories in this market with cases of Japanese mini insurance. The conclusions were, firstly, that new product categories are generated in relation to parallel product categories and secondly that, if products have labels that can be clearly compared with parallel product categories, consumers can clearly see the boundaries between new and existing categories.
    Keywords: category in market, meta-contrast thesis, emergence of category
    JEL: L22 L26 L29
  6. By: Breinlich, Holger; Nocke, Volker; Schulz, Nicolas
    Abstract: In a two-country international trade model with oligopolistic competition, we studythe conditions on market structure and trade costs under which a merger policy designed to benefit domestic consumers is too tough or too lenient from the viewpoint of the foreign country. Calibrating the model to match industry-level data in the U.S. and Canada, we show that at present levels of trade costs merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of different regimes of coordinating merger policies at varying levels of trade costs.
    Keywords: Mergers and Acquisitions; Merger Policy; Trade Policy; Oligopoly; International Trade
    JEL: F12 F13 L13 L44
    Date: 2015–09–21
  7. By: Balázs Murakozy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Katheryn Niles Russ (University of California, Davis and NBER)
    Abstract: Do multinational firms wield more market power than their domestic counterparts? Using Hungarian firm-level data between 1993 and 2007, we find that markups are 19 percent higher for foreign-owned firms than for domestically owned firms. Moreover, markups for domestically owned firms are significantly lower in industries where multinationals have a greater technological edge, suggesting that Ricardian differences in technology and endogenous markups constitute important dimensions for models of foreign direct investment. We innovate within a canonical Ricardian model of endogenous markups and heterogeneous firms to provide analytical distributions of market shares and markups when goods are imperfect substitutes to provide structure for our empirical analysis. Our model explains about half of the multinational markup premium identified in the empirical analysis.
    Keywords: multinational firm; heterogeneous firms; Bertrand competition
    JEL: F12 F13 F15 F23
    Date: 2015–06
  8. By: William R. Kerr; Martin Mandorff
    Abstract: We study the relationship between ethnicity, occupational choice, and entrepreneurship. Immigrant groups in the United States cluster in specific business sectors. For example, Koreans are 34 times more likely than other immigrants to operate dry cleaners, and Gujarati-speaking Indians are 108 times more likely to manage motels. We develop a model of social interactions where non-work relationships facilitate the acquisition of sector-specific skills. The resulting scale economies generate occupational stratification along ethnic lines, consistent with the reoccurring phenomenon of small, socially-isolated groups achieving considerable economic success via concentrated entrepreneurship. Empirical evidence from the United States supports our model's underlying mechanisms.
    JEL: D21 D22 D85 F22 J15 L14 L26 M13
    Date: 2015–09
  9. By: Tobias Scholl; Antonios Garas; Frank Schweitzer
    Abstract: We study the role of geography in R&D networks by means of a quantitative, micro-geographic approach. Using a large database that covers international R&D collaborations from 1984 to 2009, we localize each actor precisely in space through its latitude and longitude. This allows us to analyze the R&D network at all geographic scales simultaneously. Our empirical results show that despite the high importance of the city level, transnational R&D collaborations at large distances are much more frequent than expected from similar networks. This provides evidence for the ambiguity of distance in economic cooperation which is also suggested by the existing literature. In addition we test whether the hypothesis of local buzz and global pipelines applies to the observed R&D network by calculating well-defined metrics from network theory.
    Date: 2015–09
  10. By: BALLIAUW, Matteo
    Abstract: Objective: The existing literature on the application of real options in maritime economics is rather limited. Bendall & Stent (2003, 2005, 2007) show how investing in a new ship or maritime technology can incorporate an option value. Another application is elaborated by Bjerksund & Ekern (1995), discussing the value of mean-reverting cash owes through contingent claim analysis, applied to time charters. The analysis of the entry and exit decision in the shipping markets can form an interesting extension of this research. Shipping markets are in nature uncertain and cyclical (Stopford, 2009). For this reason, the real options based model of Ruiz-Aliseda & Wu (2012) for stochastically cyclical markets will be applied to the shipping markets, in order to define entry and exit thresholds in this market. Data/Methodology: Data on the freight rates, costs and ship prices are used for estimating the parameters present in the real options based model of Ruiz-Aliseda & Wu (2012) for stochastically cyclical markets. This model incorporates a discrete-time Markov process, an alternative for the traditionally used geometric Brownian motion (GBM) and suited to model the cyclicality of the shipping markets. Investing in a ship and selling it again can respectively be interpreted as entering and exiting the market. Hence, the model can be applied here in order to predict the optimal values for entry and exit in the shipping markets. Results/Findings: The theoretically calculated results will be tested on real cases using data on container time charter prices over different periods, to see how well the theoretically developed model performs in the shipping markets. In that way, the estimation of parameters and the assumptions of the model can be evaluated on their accuracy in these cyclical markets. Implications for Research/Policy: In the first place, this case study can indicate how well the model performs in another market. If the model turns out to successfully predict market entry and exit thresholds, it could help companies to make better predictions on competitor behaviour. Also for policy makers, it could help to have a more accurate insight in the required capacity for ports.
    Keywords: Cyclical markets, Real options, Shipping markets, Container, Entry and exit decisions
    Date: 2015–05
  11. By: Fink, Nikolaus; Frübing, Stefan
    Abstract: Due to being much better documented, legal cartels have recently attracted the interest of many researchers who aim to understand the functioning of illegal cartels in detail. This paper contributes to the question of what we can learn from legal cartels by taking a closer look at the cement industry which has a rich history of both legal and illegal cartels. We undertake a cross-country comparison for Austria, Germany, Poland and Norway, providing narrative evidence for many traits of the cases based on a variety of detailed sources. We identify similarities between legal and illegal cartels in aspects such as monitoring efforts, information exchange, the importance of industry associations and the role of capacities, whereas we also find substantial differences in the allocation of clients, reactions to deviations and pricing schedules.
    Keywords: cartels,collusion,cement
    JEL: L41 L43 L61
    Date: 2015

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