nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒08‒06
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Model of Third-Degree Price Discrimination with Positive Welfare Effects By Simon GB Cowan
  2. Endogenous Mergers in Markets with Vertically Diffeerentiated Products By Jaskold Gabszewicz, Jean; Marini, Marco A.; Tarola, Ornella
  3. ‘To sell or not to sell’: Licensing versus Selling by an outside innovator By Banerjee, Swapnendu; Poddar, Sougata
  4. Teamwork as a Self-Disciplining Device By Fahn, Matthias; Hakenes, Hendrik
  5. Consolidations in the German interurban bus industry: Effects on prices and quantities By Samuel de Haas; Jan Thomas Schaefer
  6. Opening the Retail Electricity Markets: Puzzles, Drawbacks and Policy Options By Anna Airoldi; Michele Polo
  7. Identifying Phosphorus Hot Spots: A spatial analysis of the phosphorus balance as a result of manure application By Stefan Borsky; Alexej Parchomenko

  1. By: Simon GB Cowan
    Abstract: Abstract Monopoly third-degree price discrimination raises social welfare above the level with a uniform price when direct demand functions have constant curvatures that differ across markets and are below 1, and the maximum willingness to pay is identical across markets.
    Keywords: third-degree price discrimination, monopoly, social welfare
    JEL: D42 L12 L13
    Date: 2017–08–01
  2. By: Jaskold Gabszewicz, Jean; Marini, Marco A.; Tarola, Ornella
    Abstract: This paper studies the incentives of firms selling vertically differentiated products to merge. To this aim, we introduce a three-stage game in which, at the first stage, three independent firms can decide to merge with their competitors via a sequential game of coalition formation and, at the second and third stage, they can optimally revise their qualities and prices, respectively. We study whether such binding agreements (i.e. full or partial mergers) can be sustained as subgame perfect equilibria of the coalition formation game, and analyze their effects on equilibrium qualities, prices and profits. We find that, although profitable, the merger-to-monopoly of all firms is not an outcome of the finite-horizon negotiation, where only partial mergers arise. Moroever, we show that all stable mergers always include the firm initially producing the bottom quality good and reduce the number of variants on sale.
    Keywords: Mergers, Price Collusion, Vertically Differentiated Products, Sequential Game of Coalition Formation.
    JEL: C7 D21 L1 L11 L13 L16 L4 L41 L43
    Date: 2017–07–20
  3. By: Banerjee, Swapnendu; Poddar, Sougata
    Abstract: Abstract Study of patent licensing in spatial competition is relatively sparse. We study optimal licensing policies of an outside innovator in spatial framework when the potential licensees are asymmetric. We also introduce the notion of selling the property rights of innovation. We then examine the incentive of the innovator who sell the rights and compare that with conventional licensing contracts. We address this problem in linear city with two competing asymmetric firms (potential licensees). We show the optimal licensing policy is pure royalty to both firms when cost differentials between the firms are relatively small, otherwise it is fixed fee licensing to the efficient firm only. Interestingly, we show the innovator is always better-off selling innovation to one of the firms. This holds irrespective of the size of the innovation (drastic or non-drastic) and the degree of pre-innovation cost asymmetry between the firms. Social welfare is greater under selling than licensing.
    Keywords: Outside innovator, Cost-reducing innovation, Patent Licensing, Patent Selling, Welfare, Linear city model
    JEL: D43 D45 L13
    Date: 2017–07–19
  4. By: Fahn, Matthias (LMU Munich and CESifo); Hakenes, Hendrik (University of Bonn and CEPR)
    Abstract: We show that team formation can serve as an implicit commitment device to overcome problems of self-control. If individuals have present-biased preferences, effort that is costly today but rewarded at some later point in time is too low from the perspective of an individual\'s long-run self. If agents interact repeatedly and can monitor each other, a relational contract involving teamwork can help to improve performance. The mutual promise to work harder is credible because the team breaks up after an agent has not kept this promise - which leads to individual underproduction in the future and hence a reduction of future utility.
    Keywords: self-control problems; teamwork; relational contracts;
    JEL: L22 L23
    Date: 2017–07–27
  5. By: Samuel de Haas (Justus-Liebig-University Giessen); Jan Thomas Schaefer (Justus-Liebig-University Giessen)
    Abstract: We study effects on prices and quantities of a takeover in the rather concentrated German interurban bus industry. We empirically asses the effect of the takeover of Postbus by Flixbus on industry key features, using a route-level price data set containing prices for more than 6,000 routes in Germany for a period between September and December 2016. We find that average prices significantly increase and quantities decrease in the post-takeover phase. However, these results are mainly driven by the fact that Postbus was a low-cost supplier. The remaining providers do not seem to have increased their prices significantly in the post-takeover phase. This absence of a price increase despite the removal of a close competitor could be an indication of a strong impact of intermodal competition. This suggestion is confirmed by our empirical findings.
    Keywords: Competition, Takeover, Interurban Bus Services, Germany
    JEL: L11 L41 L92 K21 K23
    Date: 2017
  6. By: Anna Airoldi; Michele Polo
    Abstract: The Italian electricity retail market is fully liberalized since 2007, allowing all households to choose between a regulated tariff and those offered in the free market. However, as of 2015, almost 70% of households remain with the regulated contract and only 4.5% moves every year to the free market. Moreover, contracts more costly than the regulated default one are offered and subscribed. In this paper we first analyze the best and worst offers on the free market, identifying significant potential gains but also losses when switching from the regulated tariff to the free market. Then we build up a sequential search model that extends Janssen et al. (2005) to explain this evidence. Consumers have zero (shoppers) and positive (non-shoppers) search costs. These latter receive upward (pessimistic) or downward (optimistic) biased signals of their current regulated price. We obtain a rich set of mixed strategy equilibria with continuous support and, in some cases, an atom, different level of participation of non-shoppers of either type and some contracts more costly than the regulated one. Equilibria with a larger participation of non-shoppers are associated with higher expected and minimum prices. Search costs and perception bias are key parameters in comparative statics, with policy implications to improve market performance. Finally, by mid 2019 the Government has planned to lift the regulated tariff. We use the model to predict possible outcomes including an initial increase in prices.
    Keywords: Search costs, liberalized retail markets, price dispersion, gains and losses from switching.
    JEL: L13 L15 L94
    Date: 2017
  7. By: Stefan Borsky (University of Graz); Alexej Parchomenko (Vienna University of Technology)
    Abstract: In this paper, we analyze the phosphorus balance as a result of manure application on the parish level for Denmark and investigate its local geographic distribution. For our analysis, we determine phosphorus loads for the five main animal groups and the phosphorus demand of the fifteen major crop categories. To identify statistical significant local patterns of phosphorus over- and undersupply we apply Getis-Ord Gi* hot spot analysis. Our results show that there is a large variability in the phosphorus balance within Denmark. Statistically significant hot spots appear mainly along the west coast, while cold spots are predominantly present on southern and eastern coasts towards the Baltic Sea. The proximity of oversupply areas to water bodies and other environmental sensitive areas reinforces the need for further phosphorus regulation. These findings show the importance of a spatial targeted regulation, which allows different levels of phosphorus application depending on local economic and environmental circumstances, e.g., distance to an environmental sensitive region.
    Keywords: Hotelling model, packaged goods, network effect, horizontal product differentiation
    JEL: L14 L15 L17 L86
    Date: 2017–07

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