nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒03‒17
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Pricing when customers have limited attention By Tamer Boyaci; Yalçin Akçay
  2. Core Existence in Vertically Differentiated Markets By Jean J. Gabszewicz; Marco A. Marini; Ornella Tarola
  3. Fairs for e-commerce: the benefits of aggregating buyers and sellers By Pierluigi Gallo; Francesco Randazzo; Ignazio Gallo
  4. False Advertising By Rhodes, Andrew; Wilson, Chris
  5. Competition and corporate control in partial ownership acquisitions By Stühmeier, Torben

  1. By: Tamer Boyaci (ESMT European School of Management and Technology); Yalçin Akçay (College of Administrative Sciences and Economics, Koç University)
    Abstract: We study the optimal pricing problem of a firm facing customers with limited attention and capability to process information about the value (quality) of the offered products. We model customer choice based on the theory of rational inattention in the economics literature, which enables us to capture not only the impact of true qualities and prices, but also the intricate effects of customer’s prior beliefs and cost of information acquisition and processing. We formulate the firm’s price optimization problem and characterize the pricing and revenue implications of customer’s limited attention. We test the robustness of our results under various modelling generalizations such as prices signaling quality and customer heterogeneity, and study extensions such as multiple products, competition, and joint inventory and pricing decisions. We also show that using alternative pricing policies that ignore the limited attention of customers or their ability to allocate this attention judiciously can potentially lead to significant profit losses for the firm. We discuss the managerial implications of our key findings and prescribe insights regarding information provision and product positioning.
    Keywords: Pricing, choice behavior, rational inattention, information acquisition, signaling game
    Date: 2016–03–02
  2. By: Jean J. Gabszewicz (CORE, Universite' Catholique de Louvain, Belgium); Marco A. Marini (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy); Ornella Tarola (University of Rome La Sapienza, Rome, Italy)
    Abstract: We prove that a sufficient condition for the core existence in a n-firm vertically differentiated market is that the qualities of Â…firmsÂ’ products are equally-spaced along the quality spectrum. This result contributes to see that a fully collusive agreement among firms in such markets is more easily reachable when product qualities are not distributed too asymmetrically along the quality ladder.
    Keywords: Vertically Differentiated Markets ; Price Collusion ; Grand Coalition ; Coalition Stability ; Core
    Date: 2016
  3. By: Pierluigi Gallo; Francesco Randazzo; Ignazio Gallo
    Abstract: In recent years, many new and interesting models of successful online business have been developed. Many of these are based on the competition between users, such as online auctions, where the product price is not fixed and tends to rise. Other models, including group-buying, are based on cooperation between users, characterized by a dynamic price of the product that tends to go down. There is not yet a business model in which both sellers and buyers are grouped in order to negotiate on a specific product or service. The present study investigates a new extension of the group-buying model, called fair, which allows aggregation of demand and supply for price optimization, in a cooperative manner. Additionally, our system also aggregates products and destinations for shipping optimization. We introduced the following new relevant input parameters in order to implement a double-side aggregation: (a) price-quantity curves provided by the seller; (b) waiting time, that is, the longer buyers wait, the greater discount they get; (c) payment time, which determines if the buyer pays before, during or after receiving the product; (d) the distance between the place where products are available and the place of shipment, provided in advance by the buyer or dynamically suggested by the system. To analyze the proposed model we implemented a system prototype and a simulator that allow to study effects of changing some input parameters. We analyzed the dynamic price model in fairs having one single seller and a combination of selected sellers. The results are very encouraging and motivate further investigation on this topic.
    Date: 2016–02
  4. By: Rhodes, Andrew; Wilson, Chris
    Abstract: There is widespread evidence that some firms use false advertising to overstate the value of their products. Using a model in which a policymaker is able to punish such false claims, we characterize a natural equilibrium in which false advertising actively influences rational buyers. We analyze the effects of policy under different welfare objectives and establish a set of demand and parameter conditions where policy optimally permits a positive level of false advertising. Further analysis considers some wider issues including the implications for product investment and industry self-regulation.
    Keywords: Misleading Advertising,Pass-through,Product Quality
    JEL: M37 L15 D83
    Date: 2016–02–22
  5. By: Stühmeier, Torben
    Abstract: Competition authorities have a growing interest in assessing the effects of partial ownership arrangements. We show that the effects of such agreements on competition and welfare depend on the intensity of competition in the market and on the firms' governance structure. When assessing the effects of partial ownership, competition policy has to consider both the financial interest and level of control of the acquiring firm in the target firm.
    Keywords: corporate control,merger,partial acquisition
    JEL: L11 L13 L41
    Date: 2016

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