nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒01‒08
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Models of Consumer Demand for Differentiated Products By Bonnet, Céline; Richards, Timothy
  2. The more economic approach to predatory pricing By Michael Funk; Christian Jaag
  3. Another model of sales. Price discrimination in a differentiated duopoly market By Mehlum, Halvor
  4. To spy or not to (fire the) spy: The benefits of acquiring information about rivals’ play in Bertrand competition By Cuihong Fan; Byoung Heon Jun; Elmar G. Wolfstetter
  5. Pricing behaviour of cooperatives and investor-owned dairies under spatial competition By Zavelberg, Yvonne; Storm, Hugo
  6. A comment on 'Cross-border merger, vertical structure, and spatial competition' By Konstantinos Eleftheriou; Nickolas J. Michelacakis; Vassilios G. Papavassiliou
  7. Estimating market power Evidence from the US Brewing Industry By Jan De Loecker; Paul T. Scott

  1. By: Bonnet, Céline; Richards, Timothy
    Abstract: Advances in available data, econometric methods, and computing power have created a revolution in demand modeling over the past two decades. Highly granular data on household choices means that we can model very specific decisions regarding purchase choices for differentiated products at the retail level. In this chapter, we review the recent methods in modeling consumer demand, and their application to problems in industrial organization and strategic marketing.
    Keywords: consumer demand, discrete choice, discrete-continuous choice, shopping basket models, machine learning.
    JEL: D43 L13 L81 M31
    Date: 2016–12
  2. By: Michael Funk; Christian Jaag
    Abstract: The “more economic approach” was introduced to antitrust in order to achieve a more effect-based and theoretically grounded enforcement. However, related to predatory pricing it resulted in systematic over- and under-enforcement: Economic theory does not require dominance for pre-dation to be a rational (and harmful) strategy while an ex ante dominant firm would often refrain from predation. Hence, within the current legal framework, a more effect-based and theoretically grounded antitrust en-forcement with respect to predatory pricing will result in systematic over- and under-enforcement. Therefore, we suggest separating predatory pric-ing from exclusionary abuse of a dominant firm, both legally and analyti-cally. Instead, predatory pricing should be analyzed along the same logic as a merger. In particular, we argue that three elements from merger con-trol should be adopted: in absence of dominance, market share and/or turnover thresholds may serve as a de minimis rule; recoupment should be analyzed similarly to the competitive effect of a merger between the predator and its prey; and a stronger efficiency defense should be estab-lished.
    Keywords: Predatory pricing, competition policy, antitrust, more economic approach, predation
    JEL: L11 L41
    Date: 2016–12
  3. By: Mehlum, Halvor (Dept. of Economics, University of Oslo)
    Abstract: Using a model of horizontal differentiation where a variety dimension is added to Hotelling's (1929) "linear city" duopoly model, I show that even when costs and demand are symmetric, price discrimination may be an equilibrium phenomenon. In the model each customer have a preferred variety and a preferred firm. They have perfect information about all prices and may be induced to switch variety and firm given a sufficient price difference. Price discrimination equilibrium exists when a sufficient fraction of consumers are elastic both with respect to variety and firm.
    Keywords: Duopoly; price discrimination
    JEL: D43
    Date: 2016–09–23
  4. By: Cuihong Fan (Shanghai University of Finance and Economics); Byoung Heon Jun (Korea University, Seoul); Elmar G. Wolfstetter (Humboldt-University at Berlin and Korea University, Seoul)
    Abstract: The present paper explores the impact of planting a spy in a competing firm who discloses operational information about pricing in a Bertrand market game with differentiated products under incomplete information. The results depend upon whether the presence of the spy is common knowledge and whether the identity of the spy has been disclosed. Altogether, spying may benefit both the spying and the spied at firm. Although the spied at firm would prefer not to be spied at if its cost is low, firing the spy, which is an option if the spy’s identity has been disclosed, adversely affects beliefs and is never profitable.
    Keywords: Industrial espionage, price leadership, collusion, antitrust policy, incomplete information
    JEL: L41 D43 D82
    Date: 2016
  5. By: Zavelberg, Yvonne; Storm, Hugo
    Abstract: This paper analyses differences in the pricing behaviour between cooperatives and investor-owned dairies for raw milk in a spatial market setting. We systemize the theoretical literature concerning the relations between price and space in oligopsonistic markets. This provides the foundation for empirically analysing the price-space relationship in the German raw milk market. Space represents the distance to competing dairies and transportation cost. We differentiate between cooperatives and investor-owned dairies in North and South Germany. Specifically, the impact of a dairy’s own legal form and that of neighbouring competitors on the pricing behaviour is assessed. For the South of Germany, a negative relationship between space and raw milk price is found while for the North the relationship is positive. In both North and South the effect is stronger for cooperatives compared to investor-owned firms. Overall, our findings do not necessarily suggest an increase in market power and a decrease in raw milk prices when the concentration process of the dairy sector is progressing. Further, this paper provides the first spatial analysis of the competitive yardstick effect, for which we find weak evidence in the South. For the north, the theory of the competitive yardstick effect cannot be supported empirically. The estimation is based on a panel-data set covering all German dairies from 2001 to 2012 providing information on raw milk prices, processing quantities, legal and production form.
    Keywords: imperfect competition, spatial competition, competitive yardstick, Agricultural and Food Policy, Demand and Price Analysis, D43, R32, C51,
    Date: 2016–12–05
  6. By: Konstantinos Eleftheriou; Nickolas J. Michelacakis; Vassilios G. Papavassiliou
    Abstract: The aim of this paper is to revise and correct the results obtained in Beladi et al. [Beladi, H., Chakrabarti, A., Marjit, S., 2010. Cross-border merger, vertical structure, and spatial competition. Economics Letters 109, 112-114]. Specifically, we prove that the Nash equilibrium locations of the downstream firms are the same in the pre-merger free-trade case as they are following a cross-border upstream merger.
    Keywords: Price-discrimination; Spatial-competition; Firm-location; Cross-border merger
    JEL: L13 L42 D43 R32 F10 F12
    Date: 2016–09
  7. By: Jan De Loecker; Paul T. Scott
    Abstract: While inferring markups from demand data is common practice, estimation relies on difficult-to-test assumptions, including a specific model of how firms compete. Alternatively, markups can be inferred from production data, again relying on a set of difficult-to-test assumptions, but a wholly different set, including the assumption that firms minimize costs using a variable input. Relying on data from the US brewing industry, we directly compare markup estimates from the two approaches. After implementing each approach for a broad set of assumptions and specifications, we find that both approaches provide similar and plausible markup estimates in most cases. The results illustrate how using the two strategies together can allow researchers to evaluate structural models and identify problematic assumptions.
    JEL: D2 L1 L2 L40
    Date: 2016–12

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