nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒03‒06
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A model of monopoly with lags in the planning and production activity By Fausto, Cavalli
  2. Airline Price Discrimination By Stacey, Brian
  3. Leniency and Damages By Marvao, Catarina; Spagnolo, Giancarlo; Buccirossi, Paolo
  4. Can collusion promote sustainable consumption and production? By Schinkel, Maarten Pieter; Spiegel, Yossi
  5. Upstream Competition and Open Access Regimes: Experimental Evidence By Horstmann, Niklas; Krämer, Jan; Schnurr, Daniel
  6. Consumer Search and Retail Market Structure By Rhodes, Andrew; Zhou, Jidong

  1. By: Fausto, Cavalli
    Abstract: In this note, departing from the traditional static and fully rational economic agent setting, I study a dynamic model of a boundedly rational monopolist who, in a partially known environment, follows a rule of thumb learning process. Instead of considering the classical differential model with smooth argument, the proposed dynamic model consists of a piecewise constant argument differential equation, in order to take into account the more realistic assumption of a lag between the learning activity and the output production activity. It is shown how this simple first order differential equation can be rephrased into a nonlinear difference equation which, differently from the classical model with smooth argument, can exhibit complex behaviors. The aim of the paper is to illustrate, from a methodological point of view, the potential applications and the dynamical effects of piecewise constant argument differential equations in economics.
    Keywords: Monopoly, lags, bounded rationality, pie ewise onstant argument dierential equation, omplex dynami s.
    JEL: D42 L12 C02 C62 C63 C65
    Date: 2016–02–07
  2. By: Stacey, Brian
    Abstract: Price discrimination enjoys a long history in the airline industry. Borenstein (1989) discusses price discrimination through frequent flyer programs from 1985 as related to the Piedmont-US Air merger, price discrimination strategies have grown in size and scope since then. From Saturday stay over requirements to varying costs based on time of purchase, the airline industry is uniquely situated to enjoy the fruits of price discrimination.
    Keywords: Price Discrimination, Oligopoly
    JEL: L13
    Date: 2015–05–06
  3. By: Marvao, Catarina (Stockholm Institute of Transition Economics); Spagnolo, Giancarlo (Stockholm Institute of Transition Economics); Buccirossi, Paolo (LEAR)
    Abstract: Modern antitrust engenders a possible conflict between public and private enforcement due to the central role of Leniency Programs. Damage actions may reduce the attractiveness of Leniency Programs for cartel participants if their cooperation with the competition authority increases the chance that the cartel’s victims will bring a successful suit. A long legal debate culminated in a EU directive, adopted in November 2014, which seeks a balance between public and private enforcement. It protects the effectiveness of a Leniency Program by preventing the use of leniency statements in subsequent actions for damages and by limiting the liability of the immunity recipient to its direct and indirect purchasers. Our analysis shows such compromise is not required: limiting the cartel victims’ ability to recover their loss is not necessary to preserve the effectiveness of a Leniency Program and may be counterproductive. We show that damage actions will actually improve its effectiveness, through a legal regime in which the civil liability of the immunity recipient is minimized (as in Hungary) and full access to all evidence collected by the competition authority, including leniency statements, is granted to claimants (as in the US).
    Keywords: Private and public enforcement; cartels; competition policy; Leniency Program
    JEL: C72 C73 D43 D81 H11 K21 K42 L13 L44 L51
    Date: 2015–02–13
  4. By: Schinkel, Maarten Pieter; Spiegel, Yossi
    Abstract: Several competition authorities consider the exemption of horizontal agreements among firms from antitrust liability if the agreements sufficiently promote public interest objectives such as sustainable consumption and production. We show that when consumers value sustainable products and firms choose investments in sustainability before choosing output or prices, coordination of output choices or prices boosts investments in sustainability and may even enhance consumer surplus when products are sufficiently close substitutes and the marginal cost of investment in sustainability is relatively low. By contrast, coordination of investments in sustainability leads to lower investments and harms consumers.
    Keywords: antitrust; collusion; consumer surplus; public interest; Sustainability
    JEL: K21 L13 L40 Q01
    Date: 2016–02
  5. By: Horstmann, Niklas; Krämer, Jan; Schnurr, Daniel
    Abstract: We investigate the effects of alternative open access regimes on market performance. In particular, by means of an economic laboratory experiment we compare the market outcomes under unregulated wholesale competition, under a price-fixing rule (where firms must maintain their wholesale price for a fixed period of time), and under a margin squeeze rule (where the retail price of integrated firms must exceed their wholesale price). Our analysis suggests that wholesale and retail prices are substantially reduced by the introduction of a price-fixing rule at the upstream level compared to the unregulated scenario. In contrast, we do not find evidence that a margin squeeze regulation reduces retail market prices. In fact, while such a rule benefits the reselling firm by allowing for a viable profit margin, prices for consumers tend to be even higher than in the unregulated case.
    Keywords: Next Generation Access Networks,Access Regulation,Open Access,Upstream Competition,Experimental Economics,Margin Squeeze
    JEL: C92 L51 L90
    Date: 2015
  6. By: Rhodes, Andrew; Zhou, Jidong
    Abstract: This paper proposes a framework for studying how consumer search frictions affect retail market structure. In our model single-product firms which supply different products can merge to form a multiproduct firm. Consumers wish to buy multiple products and value the one-stop shopping convenience associated with a multiproduct firm. We find that when the search friction is relatively large all firms are multiproduct in equilibrium. However when the search friction is smaller the equilibrium market structure is asymmetric, with single-product and multiproduct firms coexisting. This asymmetric market structure often leads to the weakest price competition, and is the worst for consumers among all possible market structures. Due to the endogeneity of market structure, a reduction in the search friction can increase market prices and decrease consumer welfare.
    Keywords: consumer search; conglomerate merger; multiproduct pricing; one-stop shopping; retail market structure
    JEL: D11 D43 D83 L13
    Date: 2016–02

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