nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒02‒12
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cournot oligopoly with randomly arriving producers By Pierre Bernhard; Marc Deschamps
  2. Upstream Monopoly and Downstream Information Sharing By Pio Baake; Andreas Harasser
  3. Vertical Mergers in Platform Markets By Jérôme Pouyet; Thomas Trégouët
  4. The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma By Castanheira, Micael; de Frutos, Maria-Angeles; Ornaghi, Carmine; Siotis, Georges
  5. Tender Frequency and Market Concentration in Balancing Power Markets By Knaut, Andreas; Obermüller, Frank; Weiser, Florian
  6. The 2016 EU Industrial R&D Investment Scoreboard By Hector Hernandez Guevara; Fernando Hervas Soriano; Alexander Tuebke; Antonio Vezzani; Sara Amoroso; Alexander Coad; Petros Gkotsis; Nicola Grassano

  1. By: Pierre Bernhard (BIOCORE - Biological control of artificial ecosystems - LOV - Laboratoire d'océanographie de Villefranche - UPMC - Université Pierre et Marie Curie - Paris 6 - INSU - CNRS - Centre National de la Recherche Scientifique - CRISAM - Inria Sophia Antipolis - Méditerranée - Inria - Institut National de Recherche en Informatique et en Automatique - INRA - Institut National de la Recherche Agronomique); Marc Deschamps (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté, UBFC - Université Bourgogne Franche-Comté)
    Abstract: Cournot model of oligopoly appears as a central model of strategic interaction between competing firms both from a theoretical and applied perspective (e.g antitrust). As such it is an essential tool in the economics toolbox and always a stimulus. Although there is a huge and deep literature on it and as far as we know, we think that there is a ”mouse hole” wich has not already been studied: Cournot oligopoly with randomly arriving producers. In a companion paper [Bernhard and Deschamps, 2016b] we have proposed a rather general model of a discrete dynamic decision process where producers arrive as a Bernoulli random process and we have given some examples relating to oligopoly theory (Cournot, Stackelberg, cartel). In this paper we study Cournot oligopoly with random entry in discrete (Bernoulli) and continuous (Poisson) time, whether time horizon is finite or infinite. Moreover we consider here constant and variable probability of entry or density of arrivals. In this framework, we are able to provide algorithmes answering four classical questions: 1/ what is the expected profit for a firm inside the Cournot oligopoly at the beginning of the game?, 2/ How do individual quantities evolve?, 3/ How do market quantities evolve?, and 4/ How does market price evolve?
    Keywords: Cournot market structure,Bernoulli process of entry,Poisson density of arrivals,Dynamic Programming
    Date: 2016–11–01
  2. By: Pio Baake; Andreas Harasser
    Abstract: We analyze a vertical structure with an upstream monopoly and two downstream retailers. Demand is uncertain but each retailer receives an informative private signal about the state of the demand. We construct an incentive compatible and ex ante balanced mechanism which induces the retailers to share their information truthfully. Information sharing can be profitable for the retailers but is likely to be detrimental for social welfare.
    Keywords: information sharing, upstream monopoly, vertical relations
    JEL: D82 L13 L14
    Date: 2017
  3. By: Jérôme Pouyet (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), PSE - Paris School of Economics); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We analyze the competitive impact of vertical integration between a platform and a manufacturer when platforms provide operating systems for devices sold by manufacturers to customers, and, customers care about the applications developed for the operating systems. Two-sided network effects between customers and developers create strategic substitutability between manufacturers' prices. When it brings efficiency gains, vertical integration increases consumer surplus, is not profitable when network effects are strong, and, benefits the non-integrated manufacturer. When developers bear a cost to make their applications available on a platform, manufacturers boost the participation of developers by affiliating with the same platform. This creates some market power for the integrated firm and vertical integration then harms consumers, is always profitable, and, leads to foreclosure. Introducing developer fees highlights that not only the level, but also the structure of indirect network effects matter for the competitive analysis.
    Keywords: Vertical integration,two-sided markets,network effects
    Date: 2016–12
  4. By: Castanheira, Micael; de Frutos, Maria-Angeles; Ornaghi, Carmine; Siotis, Georges
    Abstract: This paper shows that a pro-competitive shock leading to a steep price drop in one market segment may benefit substitute products. Consumers move away from the cheaper product and demand for the substitutes increases, possibly leading to a drop in consumer surplus. The channel leading to this outcome is non-price competition: the competitive shock on thefirst set of products decreases the firms' ability to invest in promotion, which cripples their ability to lure consumers. To assess the empirical relevance of these findings, we study the effects of generic entry into the pharmaceutical industry by exploiting a large product-level dataset for the US covering the period 1994Q1 to 2003Q4. We find strong empirical support for the model's theoretical predictions. Our estimates rationalize a surprising finding, namely that a molecule that loses patent protection (the originator drug plus its generic competitors) typically experiences a drop in the quantity market share-despite being sold at a fraction of the original price.
    Keywords: Asymmetric competition; Generic entry; Pharmaceutical industry
    JEL: D22 I11 L13
    Date: 2017–01
  5. By: Knaut, Andreas (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Obermüller, Frank (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Weiser, Florian (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: Balancing power markets ensure the short-term balance of supply and demand in electricity markets and their importance may increase with a higher share of fluctuating renewable electricity production. While it is clear that shorter tender frequencies, e.g. daily or hourly, are able to increase the efficiency compared to a weekly procurement, it remains unclear in which respect market concentration will be affected. Against this background, we develop a numerical electricity market model to quantify the possible effects of shorter tender frequencies on costs and market concentration. We find that shorter time spans of procurement are able to lower the costs by up to 15%. While market concentration decreases in many markets, we – surprisingly – identify cases in which shorter time spans lead to higher concentration.
    Keywords: Balancing Power; Market Design; Market Concentration; Tender Frequency; Provision Duration; Mixed Integer Programming
    JEL: D47 L94
    Date: 2017–01–31
  6. By: Hector Hernandez Guevara (European Commission – JRC); Fernando Hervas Soriano (European Commission – JRC); Alexander Tuebke (European Commission – JRC); Antonio Vezzani (European Commission – JRC); Sara Amoroso (European Commission – JRC); Alexander Coad (European Commission – JRC); Petros Gkotsis (European Commission – JRC); Nicola Grassano (European Commission – JRC)
    Abstract: The 2016 edition of the EU Industrial R&D Investment Scoreboard (the Scoreboard) analyses the 2500 companies investing the largest sums in R&D in the world in the fiscal year 2015. It comprises companies based in the EU (590), the US (837), Japan (356), China (327), Taiwan (111), South Korea (75), Switzerland (58) and further 20 countries. This Scoreboard edition shows significant worldwide rise of corporate R&D, driven by high-tech industries. Revenues declined mostly due to low-tech sectors. Top 2500 Scoreboard firms invested in R&D €692.3bn in 2015, increase of 6.6% vs. 2014, similar growth than year before (6.8%). EU companies increased R&D above world's and US's growth rates in 2015. Asian companies continued to show large R&D growth but slowdown in revenues growth. Growth was driven by companies operating in the largest R&D-investing industries (ICT, health and auto, that also increased significantly net sales, while the overall fall in net sales was mostly due low-tech sectors and in particular due to oil-related companies. The Software industry showed the highest R&D growth worldwide, led by global software firms. In addition, notable R&D growth of non-EU companies dominated by high-tech sectors (mostly by US and Chinese companies) while growth of net sales greatly varied across sectors and countries. Among top 50 R&D investors, there are 15 EU companies, same as in last ranking and 30 firms among top 100, one more than last year. The two top investors are Volkswagen (€13.6bn) in 1st place and Samsung (€12.5bn) from KOR in 2nd. The other firms in top-ten are Intel, Alphabet and Microsoft (€11.0bn) from the US; Novartis (€9.0bn) and Roche (€8.6bn) from Switzerland; Huawei (€8.4bn) from China; Johnson & Johnson (€8.3bn) from the US and Toyota Motor (€8.0bn) from Japan.
    Keywords: Industrial R&D, top R&D investors, innovation, company performance, economic and innovation performance
    Date: 2017–01

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