nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒06‒04
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Choice of strategic variables by relative profit maximizing firms in oligopoly By Satoh, Atsuhiro; Tanaka, Yasuhito
  2. Product differentiation and cost pass-through By Loy, Jens-Peter; Glauben, Thomas
  3. Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing By Sharat Ganapati; Joseph S. Shapiro; Reed Walker

  1. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: This paper studies the choice of strategic variables by firms in a symmetric oligopoly in which each firm produces differentiated goods and maximizes its relative profit that is the difference between its profit and the average profit of the other firms. We consider a two stage game such that in the first stage the firms choose their strategic variables, quantity or price, and in the second stage they determine the values of their strategic variables. We show that the choice of strategic variables is irrelevant in the sense that the equilibrium quantities and prices are the same in all firms whichever each firm chooses in the first stage, so any combination of strategy choice by the firms constitutes a sub-game perfect equilibrium in the two stage game.
    Keywords: relative profit maximization, oligopoly
    JEL: D43
    Date: 2016–01–01
  2. By: Loy, Jens-Peter; Glauben, Thomas
    Abstract: Many food products show a high level of vertical and horizontal product differentiation. Manufacturers may instrument product differentiation to limit competition and to increase price dispersion. In this paper, we estimate a panel error correction cost pass-through model for the German yoghurt market over a six year period (t = 312) to determine the impact of product differentiation on price competition between individual brands and varieties of yoghurt. We find that more differentiated products show higher markups, reduced equilibrium cost pass-through and lower speed of cost-price adjustments. The results indicate that manufacturers (and/or retailers) use product differentiation to limit price competition.
    Keywords: cost pass-through, product differentiation, yoghurt, Agribusiness, Demand and Price Analysis, Industrial Organization, D4, L11, R32,
    Date: 2016–07–31
  3. By: Sharat Ganapati; Joseph S. Shapiro; Reed Walker
    Abstract: This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are sufficient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We find that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both zero pass-through and complete pass-through. We find heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest.
    JEL: H22 H23 L11 Q40 Q54
    Date: 2016–05

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