nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒11‒01
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price leadership and unequal market sharing By Dijkstra, Pieter
  2. Entry with Two Correlated Signals By Alex Barrachina; Yair Tauman; Amparo Urbano
  3. Cartels: a Good or a Bad Strategy? By Pop, Izabela Luiza
  4. Competition and antitrust in internet markets By Haucap, Justus; Stühmeier, Torben
  5. Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases By Dubois, Pierre; Perrone, Helena
  6. Air passengers? shopping behaviour and regional development By António Almeida; Luiz Machado
  7. Industry Structure, Entrepreneurship, and Culture: An Empirical Analysis Using Historical Coalfields By Stuetzer, Michael; Obschonka, Martin; Audretsch, David B.; Wyrwich, Michael; Rentfrow, Peter J.; Coombes, Mike; Shaw-Taylor, Leigh; Satchell, Max
  8. Spatial Competition and Transport Infrastructure: The Case of Moscow Office Rental Market By Tatiana Mikhailova

  1. By: Dijkstra, Pieter (Groningen University)
    Date: 2015
  2. By: Alex Barrachina (Department of Economics, Universitat Jaume I, Castellón, Spain); Yair Tauman (IDC Herzliya, Israel and Department of Economics, Stony Brook University, NY, USA); Amparo Urbano (Department of Economic Analysis, University of Valencia,Spain)
    Abstract: We analyze the effect of industrial espionage on limit-pricing models. We consider an incumbent monopolist engaged in R&D trying to reduce his cost of production and deter a potential entrant from entering the market. The R&D project may be successful or not and its outcome is a private information of the incumbent. The entrant has an access to an Intelligence System (IS hereafter) of a certain precision that generates a noisy signal on the outcome of the R&D project, and she decides whether to enter the market based on two signals: the price charged by the incumbent and the signal sent by the IS. It is assumed that the precision of the IS is exogenous and common knowledge. Our fundamental result is that for intermediate values of the IS precision, the set of pooling equilibria is non-empty even with profitable entry and the entrant enters if the IS tells her the R&D project was not successful. Since in the classical limit- pricing models the entrant never enters in a pooling equilibrium, the use of the IS by the entrant increases competition in pooling equilibrium with high probability. Moreover, the incumbent can deter profitable entry with positive probability.
    Keywords: Espionage, Entry deterrence, Asymmetric information, Pooling equilibria
    JEL: C72 D82 L10 L12
    Date: 2015
  3. By: Pop, Izabela Luiza
    Abstract: Any organization should seek the efficiency maximization, namely the achievement of an effect/effort ratio as high as possible. In order to apply this economic ground rule, some companies use strategies based on gaining a competitive advantage over competitors. In contrast, other companies choose lighter options to increase profitability. They apply strategies focused on agreements with competitors that aim to maintain prices at a certain level regardless of economic factors governing the market mechanism. The purpose of this paper is to highlight the positive and negative effects of cartels as a management strategy. In this regard, the first part of the article summarizes the most important theories about cartels and their characteristics, while the second part presents some European and Romanian cartels, based on data provided by the European Commission and the Competition Council. The final part presents the most important findings and conclusions but also some recommendations for future research.
    Keywords: cartels, competition, strategies, development, price
    JEL: L10 L12 M10 M21
    Date: 2015–06
  4. By: Haucap, Justus; Stühmeier, Torben
    Abstract: This paper summarizes the peculiarities of online markets and discusses recent antitrust cases related to online markets. Following a brief description of the online markets' characteristics and potential tendencies for concentration the paper first discusses the antitrust allegations and proceedings against Google, before commenting on the most prominent cases related to vertical restraints, including the Apple ebook case and the ECJ's Pierre Fabre case. We also highlight competition issues at the infrastructure level, namely margin or price squeezing of incumbent operators vis-à-vis new ISPs and network neutrality. Finally, policy conclusions and further research questions are discussed in the paper's concluding section.
    Keywords: digital markets,Google,E-Book,online markets,net neutrality,vertical restraints
    Date: 2015
  5. By: Dubois, Pierre; Perrone, Helena
    Abstract: Traditional demand models assume that consumers are perfectly informed about product characteristics, including price. However, this assumption may be too strong. Unannounced sales are a common supermarket practice. As we show, retailers frequently change position in the price rankings, thus making it unlikely that consumers are aware of all deals offered in each period. Further empirical evidence on consumer behavior is also consistent with a model with price information frictions. We develop such a model for horizontally differentiated products and structurally estimate the search cost distribution. The results show that in equilibrium, consumers observe a very limited number of prices before making a purchase decision, which implies that imperfect information is indeed important and that local market power is potentially high. We also show that a full information demand model yields severely biased price elasticities.
    Keywords: consumer behavior; demand estimation; imperfect information; price dispersion; price elasticities; product differentiation; sales; search costs
    JEL: D4 D83 L11 L66
    Date: 2015–10
  6. By: António Almeida; Luiz Machado
    Abstract: Introduction/objectives: This study analysis the behaviour of shoppers at Madeira?s International Airport by taking into consideration a wide range of travel and socio-demographic related variables as well as the moderating effects of time pressure and overall spending while on holiday. Shopping at the airport, remains one of the most important tourist activity, and its contribution to the local economy is highly significant, as many passengers cannot admit to end the journey without liking around the shops or buying something. In fact, understanding domestic and international visitors shopping preferences and delivering high service quality that meets or exceeds expectations provides valuable showcase to sell iconic local products. Quite surprisingly, there is a dearth of research on the subject on peripheral airports, which is at odds with the key importance of such infrastructures at the regional level. Methods: Based on a sample of over 1000 passengers, we investigate which factors contribute decisively to higher levels of shopping and spending. Twenty different variables were checked to analyse the factors that condition passenger decisions to make either purchase in one of the airport stores or consume food/ beverage in a catering establishment. A bivariate probit model were applied because it is well suited to answer two questions (dependent variable) with closely linked answers by being influenced by the same factors. In order to check whether national and international visitors differed in their shopping preferences multivariate statistics and parametric and non-parametric tests where applied to identify significant differences between visitors?. Results/conclusions: Contrary to what was anticipated, socio-economic status only impacts marginally the level of spending, while travelling for business/vfr reasons results in passengers spending more. The bivariate model leads to the conclusion that travel motivations are a predominant impacting upon spending. It is also observed that low-cost airlines passengers spend less than those opting for traditional airlines, while high levels of satisfaction with the current holiday lead to higher levels of spending. The results also reveal that visitor?s motivations have positive impacts on commercial activities at the airport. And the results also shown that domestic visitors share more negative views in their service evaluations than their international counterparts. Moreover, the results provide strong support for the propositions of the study that domestic and international visitors differed in their evaluation of services and shopping item preferences. The results are of relevance to airport managers and local tourism policy managers, because it identifies which passengers are more interested in shopping. Although the airport managers cannot alter the essential characteristics of the respondents, a wide range of initiatives can be implemented in order to increase the respondents´ average expenditure levels by promoting regional products.
    Keywords: Regional development; Airports; Shopping preferences; Low cost carriers; Tourism
    JEL: R11 L83 L81 L93
    Date: 2015–10
  7. By: Stuetzer, Michael; Obschonka, Martin; Audretsch, David B.; Wyrwich, Michael; Rentfrow, Peter J.; Coombes, Mike; Shaw-Taylor, Leigh; Satchell, Max
    Abstract: There is mounting evidence demonstrating that entrepreneurship is spatially clustered and that these spatial differences are quite persistent over long periods of time. However, especially the sources of that persistence are not yet well-understood, and it is largely unclear whether persistent differences in entrepreneurship are reflected in differences in entrepreneurship culture across space as it is often argued in the literature. We approach the cluster phenomenon by theorizing that a historically high regional presence of large-scale firms negatively affects entrepreneurship, due to low levels of human capital and entrepreneurial skills, fewer opportunities for entry and entrepreneurship inhibiting formal and informal institutions. These effects can become self-perpetuating over time, ultimately resulting in persistent low levels of entrepreneurship activity and entrepreneurship culture. Using data from Great Britain, we analyze this long-term imprinting effect by using the distance to coalfields as an exogenous instrument for the regional presence of large-scale industries. IV regressions show that British regions with high employment shares of large-scale industries in the 19th century, due to spatial proximity to coalfields, have lower entrepreneurship rates and weaker entrepreneurship culture today. We control for an array of competing hypotheses like agglomeration forces, the regional knowledge stock, climate, and soil quality. Our main results are robust with respect to inclusion of these control variables and various other modifications which demonstrates the credibility of our empirical identification strategy. A mediation analysis reveals that a substantial part of the impact of large-scale industries on entrepreneurship is through human capital.
    Keywords: Entrepreneurship; entrepreneurship culture; Industrial Revolution; industry structure; personality
    JEL: L26 L64 N13 N53 N94
    Date: 2015
  8. By: Tatiana Mikhailova
    Abstract: This paper studies the geography of competition on Moscow commercial real estate market. We estimate the elasticity of office rental price to the prices of competing objects as a function of the geographical distance. We found that office real estate market in Moscow, although saturated, is surprisingly local. The evidence of price competition exists primarily at a walking distance, and dies down quickly at a distances beyond one kilometer. However, if competing objects are connected by a subway line, the geographical radius of competition extends to up to three kilometers. Thus, in the case of Moscow real estate transportation infrastructure works to integrate local markets and promote competition, although the magnitude of these effects are modest.
    Keywords: spatial competition; real estate; transport
    JEL: R32 R33 L85
    Date: 2015–10

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