nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒08‒20
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Media See-saws: Winners and Losers in Platform Markets By Anderson, Simon P; Peitz, Martin
  2. Should the most efficient firm invest in its capacity? A value capture approach By Christian Trudeau; Zheng Wang

  1. By: Anderson, Simon P; Peitz, Martin
    Abstract: We customize the aggregative game approach to oligopoly to study media platforms which may differ by popularity. Advertiser, platform, and consumer surplus are tied together by a simple summary statistic. When media are ad-financed and ads are a nuisance to consumers we establish see-saws between consumers and advertisers. Entry increases consumer surplus, but decreases advertiser surplus if industry platform profits decrease with entry. Merger decreases consumer surplus, but advertiser surplus tends to increase. By contrast, when platforms use two-sided pricing or consumers like advertising, advertiser and consumer interests are often aligned.
    Keywords: advertising; Aggregative games; Entry; Media economics; mergers
    JEL: D43 L13
    Date: 2017–08
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:12214&r=ind
  2. By: Christian Trudeau (Department of Economics, University of Windsor); Zheng Wang (Capital University of Business and Economics)
    Abstract: Recently, cooperative game theory and the stand-alone core have been introduced to value capture theory to establish lower and upper bounds on the profits of firms. Where within these bounds firms end up depends on many unobservable factors, including individual bargaining abilities and market-specific practices. Gans and Ryall (2017), in their survey of the recent papers using this theory, provide an example of a matching market in which the firm with the cost advantage might actually be worse off when it decides to expand its capacity to take over the full market. We show that this paradox is extremely persistent and can resist to most extensions of the model, including the presence of additional buyers that were not served originally and economies of scale for the expanding firm. By expanding, the firm now has to attract more consumers, which considerably limits its bargaining power.
    Keywords: Value capture; expansion; bargaining power; core
    JEL: C71 C78 L13 L25 M11
    Date: 2017–08
    URL: http://d.repec.org/n?u=RePEc:wis:wpaper:1706&r=ind

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