nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒01‒01
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Oligopolistic competition and welfare By Ritz, Robert; ; ;
  2. On Globally Optimal Punishments in the Repeated Cournot Game By F. Delbono; L. Lambertini
  3. Vertical Licensing, Input Pricing, and Entry By Elpiniki Bakaouka; Chrysovalantou Milliou
  4. Competitive Cross-Subsidization By Zhijun Chen; Patrick Rey
  5. Digitalization and Collective Value Creation By Isaksson, Darja; Wennberg, Karl
  6. A Theory of Intermediation in Supply Chains Based on Inventory Control By QU, Zhan; RAFF, Horst; SCHMITT, Nicolas
  7. Interconnection and Prioritization By Pio Baake; Slobodan Sudaric
  8. Are Market-Share Contracts a Poor Man’s Exclusive Dealing? By Zhijun Chen; Greg Shaffer
  9. Selling gasoline as a by-product: The impact of market structure on local prices By Haucap, Justus; Heimeshoff, Ulrich; Siekmann, Manuel
  10. EU competition law in the regulated network industries By Pablo Ibáñez Colomo

  1. By: Ritz, Robert; ; ;
    Abstract: This chapter provides a selective survey of recent developments in the study of social welfare under oligopoly. The main topics covered are (i) the rate of cost pass through as a tool to analyze market performance; (ii) the quantification of welfare losses due to market power in Cournot-style models; and (iii) new results from models with endogenous entry. The chapter highlights common themes across these topics and areas for future research.
    Keywords: monopoly, oligopoly, allocative efficiency, firm behaviour, antitrust policy
    JEL: D42 D43 D61 L20 L40
    Date: 2016–12–19
  2. By: F. Delbono; L. Lambertini
    Abstract: We challenge the global optimality of one-shot punishments in infi nitely repeated games with discounting. Speci fically, we show that the stick-and-carrot punishment à la Abreu (1986) may not be globally optimal. We prove our result by investigating tacit collusion in the infi nite repetition of a linear Cournot game. We illustrate the existence of the stick-and-carrot globally optimal punishment for large cartels, and fully characterise it. Then, we show that for mall cartels, global optimality may be reached only with two-period punishments.
    JEL: C73 L13
    Date: 2016–12
  3. By: Elpiniki Bakaouka; Chrysovalantou Milliou
    Abstract: We explore the incentives of a vertically integrated incumbent firm to license the production technology of its core input to an external firm. We find that it opts for licensing even when licensing induces the entry of the licensee in the final goods market. In fact, although the entry of the licensee reduces the licensor's efficiency and the competition that it faces, it reinforces, instead of weakens, the licensing incentives. Vertical licensing is always welfare-enhancing and it is even more welfare-enhancing when it triggers entry.
    Keywords: licensing, vertical relations, entry, two-part tariffs, outsourcing
    JEL: L22 L24 L13 L42
    Date: 2016–12–22
  4. By: Zhijun Chen; Patrick Rey
    Abstract: Cross-subsidization arises naturally when firms with different comparative ad- vantages compete for consumers with diverse shopping patterns. Firms then face a form of co-opetition, being substitutes for one-stop shoppers and complements for multi-stop shoppers. Competition for one-stop shoppers then drives total prices down to cost, but firms subsidize weak products with the profit made on strong products. While firms and consumers would bene.t from cooperation limiting cross- subsidization (e.g., through price caps), banning below-cost pricing instead increases firms profits at the expense of one-stop shoppers; this calls for a cautious use of below-cost pricing regulations in competitive markets.
    Keywords: cross-subsidization, shopping patterns, multiproduct competition,co-opetition.
    JEL: L11 L41
    Date: 2016–11
  5. By: Isaksson, Darja (Future transparent); Wennberg, Karl (The Ratio Institute and Linköping University)
    Abstract: We discuss the spread and impact of digitalization as a disruptive technological change. We show how digitalization is intimately connected to globalization by first, being dependent on globalization for its impact, and second, enhancing the speed of globalization. Digitalization lowers barriers to funding, marketing, sales and distribution, and enables an increasing global flow of goods, services, and financial transactions. We discuss how digitalization also contributes to changing consumer habits and a blurring line between producers and consumers where the latter now have capabilities to build collective knowledge by they themselves becoming producers. Digital platforms are emerging, aggregating data and providing new business models where contact costs are approaching zero. These platforms wield strong economic power and the algorithms by which they operate also change incentives and transaction costs for producers and consumers. We sketch the patterns by which industries digitialize as being characterized by one or a few ‘platforms’ dominating a global market, but where such platforms also facilitate the emergence of more narrow niche businesses and products and allow new types of micro-multinationals to reach out to a larger global crowd and satisfy latent demand. These changes have already happened in media and music, and the principles seen in these industries can be seen as emerging in other sectors. We conclude by highlighting the potential of digitalization to enhance the value of collective goods. We particularly highlight the cases of health care and the energy, and discuss how digital technologies can contribute to collective value creation in these areas.
    Keywords: Entrepreneurship
    JEL: L26
    Date: 2016–12–22
  6. By: QU, Zhan; RAFF, Horst; SCHMITT, Nicolas
    Abstract: The paper shows that taking inventory control out of the hands of retailers and assigning it to an intermediary increases the value of a supply chain when demand volatility is high. This is because an intermediary can help solve two incentive problems associated with retailersi inventory control and thereby improve the intertemporal allocation of inventory. Adding an intermediary as a new link in a supply chain is also shown to reduce total inventory, to make shipments from the manufacturer less frequent and more variable in size, as well as to reduce social welfare.
    Keywords: intermediation, inventory, demand volatility, supply chain
    JEL: L11 L12 L22 L81
    Date: 2016–12
  7. By: Pio Baake; Slobodan Sudaric
    Abstract: We analyze pricing and competition under paid prioritization within a model of interconnected internet service providers (ISPs), heterogeneous content providers (CPs) and heterogeneous consumers. We show that prioritization is welfare superior to a regime without prioritization (network neutrality) and yields higher incentives for investment in network capacities. As ISPs price discriminate between on-net and off-net CPs, their bottleneck property is propagated and competition for consumers increases resulting in a potential prisoner's dilemma when deciding whether to offer prioritization. We show that peering for prioritized traffic emerges as a collusive outcome and present off-net prices as a further collusive instrument.
    Keywords: interconnection, investment, network neutrality, prioritization
    JEL: L13 L51 L96
    Date: 2016
  8. By: Zhijun Chen; Greg Shaffer
    Abstract: Contracts that reference rivals have long been a focus of antitrust law and the subject of intense scholarly debate. This paper compares two such contracts, exclusive-dealing contracts and market-share contracts, in a model of naked exclusion. We discuss the different mecha-nisms through which each works and identify the fundamental tradeoff that arises: market-share contracts are better at maximizing a seller’s benefit from foreclosure whereas exclusive dealing is better at minimizing a seller’s cost of foreclosure. We give settings in which each is the more profitable contract and show that welfare can be worse with market-share contracts.
    Keywords: Exclusive dealing, Market-share contracts, Dominant Firm, Foreclosure
    JEL: L13 L41 L42 K21 D86
    Date: 2016–11
  9. By: Haucap, Justus; Heimeshoff, Ulrich; Siekmann, Manuel
    Abstract: We use a novel data set with exact price quotes from virtually all German gasoline stations to empirically investigate how a temporary variance in local market structure - induced by restricted opening hours of specific players - affects price competition. We focus on stations selling gasoline as a by-product and find that, during their exogenously determined hours of opening, they have a significant negative price effect on nearby major-brand competitors. Applying a difference-in-difference framework with hourly average prices, our findings explicitly account for counterfactual market scenarios.
    Keywords: Gasoline Markets,Intraday Pricing,Supermarkets,Difference-in-Difference
    JEL: L11 L71
    Date: 2016
  10. By: Pablo Ibáñez Colomo
    Abstract: This piece considers the interface between EU competition law and the regulation of network industries. The two have been transformed as a result of their interactions. It is difficult to make sense of contemporary EU competition law without taking into account the consequences that the liberalisation process has had on it. Similarly, regulation sees EU competition law as a model and an aspiration. In this sense, the two disciplines can be said to be mutually compatible. In spite of the compatibility between EU competition law and sector-specific regulation, there is tension between them. The objectives of the two are not identical. Regulation is conceived to undermine the position of the incumbent and to introduce fragmentation. EU competition law, on the other hand, seeks to preserve the competitive constraints to which firms are subject. As a consequence of this tension, the substantive standards in EU competition law may vary to accommodate the features and demands of network industries. Finally, it appears that EU competition law and sector-specific regulation have a complementary relationship. Sectoral regimes often lack the tools to achieve their objectives. The substantive scope of regulation may be limited, or the range of measures insufficient to address all concerns. EU competition law is a versatile instrument that can remedy some of these gaps. It has proved to be an effective tool to preserve fragmentation in liberalised markets and to manage technological change.
    JEL: L81
    Date: 2016–03–15

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