nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒11‒13
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Innovation, Competition and Technical Efficiency By Elina Berghäll
  2. A model of international trade with vertical differentiation and Stackelberg leadership By Bernard, Christophe; Calmette, Marie-Françoise; Kilkenny, Maureen; Loustalan, Catherine; Pechoux, Isabelle
  3. On leniency and markers in antitrust: how many informants are enough? By Konstantinos Charistos; Christos Constantatos
  4. Services Trade Restrictiveness, Mark-Ups and Competition By Dorothée Rouzet; Francesca Spinelli
  5. Consumer Loss Aversion, Product Experimentation and Implicit Collusion By Salvatore Piccolo; Aldo Pignataro
  6. A Generalized Model of Sales By Shelegia, Sandro; Wilson, Chris
  7. Characterization of the relevant market in the media industry: some new evidence! By Bardey, David; Santos, Nicolas; Tovar, Jorge
  8. Price discrimination of ott providers under duopolistic competition and multi-dimmesional product differentiation in retail broadband access By José Marino García García; Aurelia Valiño Castro; A. Jesús Sánchez Fuentes

  1. By: Elina Berghäll
    Abstract: Contradictory empirical and theoretical evidence on the relationship between innovation and competition has been reconciled in a model that yields an inverted U-shaped curve. I test whether the predictions of the model are supported by the data with an unbalanced panel of firms for 1990-2003 in a high productivity growth, high-tech industry, Finnish ICT manufacturing. In particular, I investigate how well alternative, yet rigorous measures of innovation and the technology gap, such as R&D intensity, R&D elasticity, technical change, technical efficiency and total factor productivity fare with respect to competition measured by the Lerner index. The results prove sensitive to the choice of variable. Overall, the model is not supported by the empirical evidence of the industry.
    Keywords: competition, innovation, technical efficiency, technology frontier, R&D intensity
    JEL: O25 L50 L60 D20 O30
    Date: 2016–10–12
  2. By: Bernard, Christophe; Calmette, Marie-Françoise; Kilkenny, Maureen; Loustalan, Catherine; Pechoux, Isabelle
    Abstract: This paper uses a model of international trade under duopoly to investigate under which conditions a large country’s entrance on world markets can lead to lower and less quality diversity available to consumers rather than more. In our partial model, autarky quality is proportional to the willingness to pay for quality and home market size, and inversely proportional to the cost of quality. We formalize strategically interacting firms, and identify the context in which a low-quality producer can lead, driving high-quality producers out of the market. We discuss the feasibility of this ‘predatory strategy’ by an emerging country. It is more likely in contexts where the emerging exporter is much larger and when the difference in willingness to pay for quality between countries is not too large.
    Keywords: international trade, market size effect, Stackelberg strategy, quality competition.
    Date: 2016–10
  3. By: Konstantinos Charistos (Department of Economics, University of Macedonia); Christos Constantatos (Department of Economics, University of Macedonia)
    Abstract: In this paper we investigate the impact of leniency programs on firms’ decision to collude. We depart from previous literature by relaxing the assumption that evidence provided by a single firm suffices to convict an existing cartel with certainty. Assuming the conviction-probability to be increasing in the number of reporting firms, we show first that efficient cartel deterrence requires incentives for all firms to report. Under a regime that secures a marker for the first in line applicant, eligibility for leniency should be extended to at least a second informant. Further, we show that the introduction of the marker system has an ambiguous impact on cartel deterrence. In relation to the manner that the marker is secured and the cartel-related evidence is allocated, we derive the conditions under which allowing the first applicant to secure a marker enhances cartel deterrence.
    Keywords: antitrust enforcement, collusion, leniency programs.
    JEL: K21 L12 L41
    Date: 2016–11
  4. By: Dorothée Rouzet; Francesca Spinelli
    Abstract: This report explores the relationship between services trade policies and mark-ups at the firm level, taken as a measure of competitive pressure. Restrictive regulations are found to enable firms to charge higher mark-ups in a majority of services sectors, suggesting ample scope for pro-competitive gains from trade liberalisation. Barriers to establishment consistently enable incumbent firms shielded from competition to raise their prices, while a lack of regulatory transparency and complex administrative procedures tend to add to all firms’ operating expenses. A “tax equivalent” of trade-restrictive regulations is then inferred from the abnormal price-cost margin of domestic firms in each service sector. These estimates indicate the magnitude of the welfare costs of regulatory trade restrictions across sectors and countries. The sectors with the highest average tax equivalents of STRI indices are broadcasting, construction, storage, and air and maritime transport, while those with the lowest averages are road transport, architecture and cargo-handling. There is however considerable variation between countries in all sectors.
    Keywords: competition, trade liberalisation, regulation, services trade restrictions
    JEL: D22 F13 F14 F61 L11 L8 L9
    Date: 2016–11–09
  5. By: Salvatore Piccolo (Università Cattolica del Sacro Cuore (Milano), and CSEF); Aldo Pignataro (Università Cattolica del Sacro Cuore (Milano))
    Abstract: Two firms supplying experience goods compete to attract loss averse consumers that are uncertain about how well these goods fit their needs. To resolve valuation uncertainty, firms can allow perspective customers to test (experiment) their products before purchase. We investigate firms' dynamic incentives to allow experimentation and analyze the resulting effects on the profitability and the stability of horizontal price fixing. The analysis shows that, depending on the regulatory regime in place | i.e., whether experimentation is forbidden, mandated or simply allowed but not imposed (laissez-faire) | the degree of consumer loss aversion has ambiguous effects both on the profits that firms can achieve through implicit collusion and on the extent to which these agreements can be sustained. Moreover, we also show that while in static environments consumer welfare is always maximized by a policy that forbids experimentation, the opposite might happen in a dynamic environment.
    Keywords: Collusion, Loss Aversion, Product Experimentation, Vertical Differentiation
    JEL: L12 L15 L44 M30
    Date: 2016–11–07
  6. By: Shelegia, Sandro; Wilson, Chris
    Abstract: To provide a more flexible workhorse model of temporary price reductions or `sales', this paper presents a substantially generalized `clearinghouse' sales framework. Our framework permits multiple dimensions of firm heterogeneity, and views firms as competing directly in utility rather than prices. The paper i) reproduces and extends many equilibria from the existing literature, ii) offers a range of new results on how firm heterogeneity affects market outcomes, iii) provides original insights into the number and type of firms that use sales, and iv) extends a `cleaning' procedure that is commonly used in empirical studies of sales and price dispersion.
    Keywords: Sales,Price Dispersion,Advertising,Clearinghouse,Heterogeneity
    JEL: L13 D43 M3
    Date: 2016
  7. By: Bardey, David; Santos, Nicolas; Tovar, Jorge
    Abstract: In this paper we estimate the degree of substitutability for advertisers across different media outlets. The estimates are motivated by the need that competition agencies have to properly characterize the relevant market when dealing with mergers in the media industry. As technology changes the industry, advertisers may not view a given media outlet as independent from those operating in other media platforms. Indeed, our results show that advertisers see outlets across platforms, either as substitutes or complements. From a policy perspective, our findings imply that competition agencies, particularly when defining relevant markets, should not assume that advertisers operate independently within a single media platform.
    Keywords: Media substitution, Cross Price elasticity, Advertising.
    JEL: D4 L L4
    Date: 2016–10
  8. By: José Marino García García; Aurelia Valiño Castro; A. Jesús Sánchez Fuentes
    Abstract: Network neutrality regulation prevents price discrimination from Access Providers to Content Providers and product differentiation in terms of connection quality in the retail broadband access market. This paper analyzes the economic implications of price discrimination under duopolistic competition and multi-dimensional product differentiation in retail internet access using a sequential-moves game theoretic model. Under this framework, we discuss the impact of product differentiation and price discrimination on social welfare, and offer systematic simulations using feasible ranges for parameters value to help discern the impact of departing from network neutrality regulation on social welfare.
    Keywords: network neutrality, two sided markets, price discrimination, product differentiation, queuing theory, network congestion, duopoly, competition policy.
    JEL: C70 D43 L10 L13 L51 L86 L96
    Date: 2016–11

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