nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒05‒08
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Undue Charges and Price Discrimination By Gabriel Garber; Márcio Issao Nakane
  2. Strategic delegation effects on Cournot and Stackelberg competition By Michelacakis, Nickolas
  3. Collusion under Imperfect Monitoring with Asymmetric Firms By Luke, Garrod; Matthew, Olczak
  4. Subsidizing new technology adoption in a Stackelberg duopoly: Cases of substitutes and complements By Hattori, Masahiko; Tanaka, Yasuhito
  5. Estimating Production Functions of Multiproduct Firms By Valmari, Nelli
  6. Specialization vs Competition: An Anatomy of Increasing Returns to Scale By Alberto Bucci; Philip Ushchev
  7. How to Catch a Unicorn: An exploration of the universe of tech companies with high market capitalisation By Jean Paul Simon

  1. By: Gabriel Garber; Márcio Issao Nakane
    Abstract: In this paper, we draw attention to a type of price discrimination that seems to be widespread, but has gone unnoticed by the literature: one based on false mistakes and the heterogeneous cost of complaining. We focus on the hypothetical example case of a bank manager that charges an undue fee from a client’s balance, and setup a model of price discrimination. We also devise a test for the detection of such behavior in a setting where the authorities have less information about the clients than the bank manager
    Date: 2016–04
  2. By: Michelacakis, Nickolas
    Abstract: This paper compares the outcomes of two three-stage games of two firms competing for quantity with managerial delegation. In fact, we prove that simultaneous choice of managers by the proprietors of the firms followed by Stackelberg-type competition is equivalent to sequential choice of managers followed by Cournot-type competition. We prove equivalence in a general setting, namely, when the duopolistic model is characterised by a non-linear inverse demand function.
    Keywords: Strategic delegation; Cournot competition; Stackelberg competition
    JEL: D43 L13 L21
    Date: 2016–05–01
  3. By: Luke, Garrod; Matthew, Olczak
    Abstract: We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms must monitor the agreement through their privately observed sales and prices. In this private monitoring setting, we show that all firms can infer when at least one firm’s sales are below some firm-specific “trigger level”. This public information ensures that firms can detect deviations perfectly if fluctuations in market demand are sufficiently small. Otherwise, there can be collusion under imperfect public monitoring where punishment phases occur on the equilibrium path. We find that symmetry faciliates collusion. Yet, we also show that if the fluctuations in market demand are sufficiently large, then the collusive prices of symmetric capacity distributions are actually lower than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy.
    Keywords: capacity constraints, mergers, collusion, imperfect monitoring
    JEL: D43 D82 K21 L12 L41
    Date: 2016–03–17
  4. By: Hattori, Masahiko; Tanaka, Yasuhito
    Abstract: Economic growth requires that firms adopt new technologies. However, it may be insufficient in less competitive industries from the social welfare point of view. In this case, a government subsidy is necessary. We present an analysis of firms' adoption of new technology and government subsidization policy in a Stackelberg duopoly with differentiated goods. The technology itself is free, but each firm must expend a fixed set-up cost, such as training employees. There are several cases related to optimal policies depending on the set-up costs and whether the goods are substitutes or complements. In particular, there are two cases. (1) Social welfare is maximized when only the Stackelberg leader adopts the new technology, but no firm adopts the new technology without a subsidy. Then, the government should subsidize only the leader, which is a discriminatory policy. (Case 5 of Theorem 1 and Case 3-(1)-ii of Theorem 2) (2) Social welfare is maximized when both firms adopt the new technology, but only the leader adopts the new technology without a subsidy. Then, the government should subsidize only the follower. This policy is not discriminatory because adoption is the dominant strategy for the leader. (Case 2 of Theorem 1)
    Keywords: Stackelberg duopoly \and adoption of new technology \and subsidization \and sub-game perfect equilibrium
    JEL: D43
    Date: 2016–05–02
  5. By: Valmari, Nelli
    Abstract: Despite the fact that multiproduct firms constitute a considerable share of firms and account for an even greater share of production, virtually all production function estimates are based on the assumption that firms are single-product producers. The single-product assumption is made due to lack of data on input allocation across the various product lines multiproduct firms operate. I provide a method to estimate product-level production functions without observable input allocations. The empirical application and Monte Carlo simulations show that the single-product firm assumption leads to biased parameter and productivity estimates and overestimated productivity differences between firms.
    Keywords: Multiproduct firm, production function, productivity
    JEL: D24 L11 L25
    Date: 2016–03–08
  6. By: Alberto Bucci (National Research University Higher School of Economics); Philip Ushchev (National Research University Higher School of Economics)
    Abstract: We develop a two-sector model of monopolistic competition with a dierentiated intermediate good and variable elasticity of technological substitution. This setting proves to be well-suited to studying the nature and origins of external increasing returns. We disentangle two sources of scale economies: specialization and competition. The former depends only on how TFP varies with input diversity, while the latter is fully captured by the behavior of the elasticity of substitution across inputs. This distinction gives rise to a full characterization of the rich array of competition regimes in our model. The necessary and sucient conditions for each regime to occur are expressed in terms of the relationships between TFP and the elasticity of substitution as functions of the input diversity. Moreover, we demonstrate that, despite the folk wisdom resting on CES models, specialization economies are in general neither necessary nor sucient for external increasing returns to emerge. This highlights the profound and non-trivial role of market competition in generating agglomeration economies, endogenous growth, and other phenomena driven by scale economies.
    Keywords: External Increasing Returns; Variable Elasticity of Substitution; Specialization Eect; Competition Eect
    JEL: D24 D43 F12 L13
    Date: 2016
  7. By: Jean Paul Simon
    Abstract: Technology companies with high market capitalisation (often called unicorns) have been receiving a lot of attention and media coverage recently. In general, unicorns are IT-centric (software mostly, but also hardware). They are often rather young global companies that match unsatisfied demand with supply through the production (which can easily be scaled up) of innovative and usually affordable services and products. These are usually part of the mobile internet wave, and rely on connectivity (high speed networks, mobile and fixed), new devices (smartphones, tablets, phablets…) and the opportunities these bring. They are grounded in network effects, and demand-side economies of scale and scope. They depend on a strong favourable business environment, developing organically and building on fast expanding markets (emerging economies, middle classes). They are Venture Capital-dependent and the competition for funding can generate impressive (i.e. inflated) valuations. These companies can be disruptive for other sectors and firms. This report aims to document the phenomenon by investigating a qualitative sample of 30 companies that have recently been valued above the one billion dollar threshold. It identifies some of their characteristics and the lessons to be learnt. The report has two parts: Part I contains the overall findings of the investigation and some suggestions for policy makers. Part II contains a detailed account of the case studies on which the investigation is based. They are published as separate documents
    Keywords: IT industry, technology, innovation, market capitalisation
    JEL: L00 L1 L2 L8 O3
    Date: 2016–04

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