nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒04‒16
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Market Size, Product Differentiation and Bidding for New Varieties By Ma, Jie; Wooton, Ian
  2. When Hotelling meets Vickrey Service timing and spatial asymmetry in the airline industry. By André De Palma; Carlos Criado; L Randrianarisoa
  3. Royalty stacking in the U.S. freight railroads: Cournot vs. Coase By Alexandrov, Alexei; Pittman, Russell; Ukhaneva, Olga

  1. By: Ma, Jie; Wooton, Ian
    Abstract: We analyse a firm's investment decision in a regional economy composed of two countries. The firm already manufactures a horizontally differentiated good in the region and we determine the firm's equilibrium location choice for the new good and the welfare consequences of fiscal competition between the two countries. The outcome is the result of interactions among market-size, product-differentiation, and import-substitution effects. The first two effects represent the fundamental trade-off facing the firm. The third effect provides each country with an economic incentive to compete for the FDI. Past papers have addressed the market-size and import-substitution effects but, as far as we know, the product-differentiation effect is new to the literature.
    Keywords: FDI; import substitution; market size; MNEs; product differentiation
    JEL: F21 F23 L22
    Date: 2017–03
  2. By: André De Palma (ENS Cachan - École normale supérieure - Cachan); Carlos Criado (Department of Economics, Université Laval - Université Laval); L Randrianarisoa (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia)
    Abstract: This paper analyzes rivalry between transport facilities in a model that includes two sources of horizontal differentiation: geographical space and departure time. We explore how both sources influence facility fees and the price of the service offered by downstream carriers. Travellers' costs include a fare, a transportation cost to the facility and a schedule delay cost, which captures the monetary cost of departing earlier or later than desired. One carrier operates at each facility and schedules a single departure time. The interactions in the facility-carrier model are represented as a sequential three-stage game in fees, times and fares with simultaneous choices at each stage. We find that duopolis-tic competition leads to an identical departure time across carriers when their operational cost does not vary with the time of day, but generally leads to distinct service times when this cost is time dependent. When a facility possesses a location advantage, it can set a higher fee and its downstream carrier can charge a higher fare. Departure time differentiation allows the facilities and their carrier to compete along an additional differentiation dimension that can reduce or strengthen the advantage in location. By incorporating the downstream carriers into the analysis, we also find that a higher per passenger commercial revenue at one facility induces a lower fee charged by both facilities to their carrier and a lower fare charged by both carriers at their departure facility, while a lower marginal operational cost for one carrier implies a higher fee at its departure facility, a lower fee at the other facility served by the rival carrier and a lower fare at both facilities. JEL Classification: D43, L13, L22, L93, R4
    Keywords: Spatial asymmetry,Horizontal differentiation,Location model,Airline and facility competition,Service timing
    Date: 2017–01–27
  3. By: Alexandrov, Alexei; Pittman, Russell; Ukhaneva, Olga
    Abstract: Monopolists selling complementary products charge a higher price in a static equilibrium than a single multiproduct monopolist would, reducing both the industry profits and consumer surplus. However, firms could instead reach a Pareto improvement by lowering prices to the single monopolist level. We analyze administrative nationally-representative pricing data of railroad coal shipping in the U.S. We compare a coal producer that needs to ship from A to C,with the route passing through B, in two cases: (1) the same railroad owning AB and BC and (2) different railroads owning AB and BC. We find no price difference between the two cases, suggesting that the complementary monopolist pricing inefficiency is absent in this market. For our main analysis, we use a specification used by previous literature; however, we confirm our findings using propensity score blocking and machine learning algorithms. Finally, we confirm the results by using a difference-in-differences analysis to gauge the impact of a merger that made two routes wholly-owned (switched from case 2 to case 1). Our results have implications for royalty stacking and patent thickets, vertical mergers, tragedy of anti-commons, and mergers of firms selling complements.
    Keywords: Vertical mergers, complementary products mergers, railroads, end-to-end mergers, royalty stacking, patent thickets, Cournot, Coase
    JEL: D43 K21 L42 L92 O31
    Date: 2017–03–20

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