nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒09‒24
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Mechanism behind Product Differentiation: An Economic Model By Harashima, Taiji
  2. Spillover and R&D Incentives under Incomplete Information in a Duopoly Industry By Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun
  3. On the Profitability of Interfirm Bundling in Oligopolies By Sang-Hyun Kim; Jong-Hee Hahn
  4. Competition and vertical/agglomeration effects in media mergers: bagging bundle benefits By Howell, Bronwyn E; Potgieter, Petrus H.
  5. Wholesale Pricing with Incomplete Information about Private Label Products By Johannes Paha
  6. Identifying the Effect of Mobile Operating Systems on the Mobile Services Market By Kuroda, Toshifumi; Koguchi, Teppei; Ida, Takanori
  7. Bundling, consumer retention and entry: evidence from fixed broadband market By Grzybowski, Lukasz; Liang, Julienne; Zulehner, Christine
  8. Market Power, Production (Mis)Allocation and OPEC By John Asker; Allan Collard-Wexler; Jan De Loecker

  1. By: Harashima, Taiji
    Abstract: The strategy of product differentiation has been viewed as very important in the field of business administration, but it has not necessarily been viewed as an important source of large differences in firms’ profits in the field of economics. In this paper, this apparent contradiction is examined based on the concepts of “ranking preference and value.” In the proposed model, if a product’s implicit rank is higher, households will purchase the product far more often than competing products even if their qualities are almost identical and the tastes of households are uniformly distributed. Even a slight difference in quality can result in a clear difference in implicit ranks and consequently large differences in firms’ profits. Therefore, the effects of differentiation are amplified by ranking preference, and product differentiation efforts are truly very important for firms.
    Keywords: Product differentiation; Ranking preference; Ranking value; Monopoly power: Monopoly profits; Marketing strategy
    JEL: D42 D43 M10 M31 M37
    Date: 2017–09–22
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:81522&r=ind
  2. By: Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun
    Abstract: Spillover of R&D results in oligopolistic industries may affect the R&D decisions of firms. How much a newly eveloped technology by a firm gets spilled over to its rival firms may or may not be observable by the concerned firm. This paper considers a two stage game involving two firms. In the first stage the firms decide whether to invest in R&D and in the next stage they compete in a Cournot duopoly market. The R&D incentives of firms are compared under alternative assumptions of complete and incomplete information scenarios involving general distribution function of types. The results indicate that the impact of availability of more information regarding rival’s ability to benefit from spilled over knowledge on R&D activities of firms is ambiguous.
    Keywords: R&D incentives, Duopoly, Asymmetric information, Spillover, Type distribution
    JEL: D43 D82 L13 O31
    Date: 2017–06–01
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:81371&r=ind
  3. By: Sang-Hyun Kim (Yonsei University); Jong-Hee Hahn (Yonsei University)
    Abstract: This paper examines the pro?tability of bundling or exclusive dealing among independent ?rms selling di¢´erentiated products. We show that, compared with separate sales, inter?rm bundling generally raises prices and is more pro?table provided the distribution of consumer valuations for products are su¡Ë ciently sym- metric and centered in the middle. Hence the ?rms have mutual incentives to o¢´er their products as a bundle or make exclusive dealing arrangements. We shed new light on the role of bundling in relaxing competition in oligopoly, the importance of which has been neglected in the previous literatures.
    Keywords: inter?rm bundling, (in)compatibility, exclusive dealing, antitrust
    JEL: L11 L13
    Date: 2017–09
    URL: http://d.repec.org/n?u=RePEc:yon:wpaper:2017rwp-114&r=ind
  4. By: Howell, Bronwyn E; Potgieter, Petrus H.
    Abstract: Existing frameworks (such as used by the New Zealand Commerce Commission in its recent evaluation of the proposed merger between Sky Television and Vodafone) require, as a first step, the definition of the relevant markets affected by the merger or vertical integration activity. Historic precedents in the telecommunications sector have tended towards finding that vertical agglomeration effects when network operators integrate downstream into the provision of applications and services to end-consumers are harmful to competition. Such Structure-Conduct-Performance methods of evaluating mergers and other aspects of market performance are problematic when the firm(s) concerned supply many different products, both together in various different bundle forms and separately as individual components. Defining the markets for (merger) analysis on the basis of only one of the components in a possible bundle that the (merged) firm may supply risks overlooking the complex interactions that occur on the demand side when consumers make their purchase decisions. This is especially likely to be an issue in the supply of internet applications and content bundled with broadband internet access. Consumers have heterogeneous preferences for different applications and content (hereafter ‘content’), and will purchase (or access) many different content types. Even though ownership of rights to distribute one content may confer a degree of market power in for the owner-provider over those consumers with very strong preferences for this content over all others, it is not axiomatic that the firm will be able to exert this power over consumers whose preferences are more evenly distributed. The more variety there is in the content bundles available, and the more heterogeneous are consumers’ preferences across the various content types, the greater is the number of possible markets in which interaction is likely to occur and the more problematic it becomes to identify the relevant markets for analysis of mergers and antitrust cases. We propose that classic merger and antitrust analysis based on econometric cost-benefit analysis can be augmented by using simulation and numerical analysis of a range of bundle offers expected to be relevant in decision-making. We develop a simple model and use it to demonstrate how this approach could have informed the recent New Zealand Commerce Commission decision about the proposed Sky-Vodafone merger by offering some quantitative estimates of total and consumer welfare and provider profits under the proposed factual (with bundling) and counterfactual (individual component sales) cases. The approach may also inform other analyses, such as the assessment of the effects of two-sided markets and firm pricing decisions.
    Date: 2017
    URL: http://d.repec.org/n?u=RePEc:zbw:itsp17:168487&r=ind
  5. By: Johannes Paha (Justus-Liebig-University Giessen)
    Abstract: This article provides a theoretical model analyzing wholesale pricing tariffs set by a monopolistic manufacturer for its branded product that is sold to final customers by a monopolistic retailer. The bargaining power of the downstream retailer is strengthened by offering also a vertically differentiated private label product whose production costs are known only incompletely to the upstream manufacturer. The model shows that the manufacturer can avoid double marginalization and implement the full information outcome by combining a quantity discount with a market-share discount where only a retailer with a strong private label retroactively receives an allowance. Under these circumstances it is unprofitable for the manufacturer to impose exclusive dealing on the retailer.
    Keywords: Branded Products, Incomplete Information, Market-Share Discounts, Private Label Products, Wholesale Pricing
    JEL: D42 D82 L15 L42
    Date: 2017
    URL: http://d.repec.org/n?u=RePEc:mar:magkse:201736&r=ind
  6. By: Kuroda, Toshifumi; Koguchi, Teppei; Ida, Takanori
    Abstract: Modern economic theory predicts that tying can serve as a tool for leveraging market power. In line with this economic theory, competition authorities regulate the tying of Microsoft Windows with its Media Player or Internet browser in the EU and Japan. The authorities also take note of the market power of mobile handset operating systems (OSs) over competition in the app and services markets. However, no empirical evidence has thus far been presented on the success of government intervention in the Microsoft case. To assess the effectiveness of government intervention on mobile handset OSs, we identify the extent to which complementarity and consumer preferences affect the correlation between mobile handset OSs and mobile service app markets (mail, search, and map). We find significant positive complementarity between the mail, search, and map services, and mobile handset OSs. However, the elasticities of the mobile handset OS–mobile service correlations are rather small. We conclude that taking action to restrict mobile handset OSs is less effective than acting on mobile services market directly.
    Keywords: Mobile phone,Handset,Internet service,Platform competition
    JEL: L12 L43 L96
    Date: 2017
    URL: http://d.repec.org/n?u=RePEc:zbw:itsp17:168506&r=ind
  7. By: Grzybowski, Lukasz; Liang, Julienne; Zulehner, Christine
    Abstract: This paper answers two empirical questions. First, we analyze how fixed-mobile (quadruple-play) bundling impacts retention of consumers in fixed broadband market. Second, we assess how bundling by the incumbent operator impacts the market share and number of entrants who provide broadband services using incumbent's infrastructure. To address these questions we use a complete database of about 9.5 million subscribers to incumbent fixed broadband operator in a European country between March 2014 and February 2015. This data is combined with information on the market share and number of entrants in about 36,000 municipalities in this country. We find that consumers who bundle fixed and mobile services from the same provider are less likely to churn. Without quadruple-play bundling the annual retention of fixed broadband consumers would increase from 8.4% to 9.2%. Next, we find that the share of consumers having quadruple-play bundles with the incumbent has a negative impact on the market share and number of entrants. In the absence of quadruple- play bundling, the market share of entrants would be higher by about 6.8 percentage points. Quadruple-play bundling has also negative impact on the number of LLU entrants, which is bigger in the case of small LLU operators who cannot provide bundled offers themselves. This suggests that firms which cannot sell fixed-mobile bundles are disadvantaged in competition.
    Keywords: Quadruple-play,Bundling,Consumer retention,Market entry
    JEL: L13 L50 L96
    Date: 2017
    URL: http://d.repec.org/n?u=RePEc:zbw:itsp17:168483&r=ind
  8. By: John Asker; Allan Collard-Wexler; Jan De Loecker
    Abstract: This paper estimates the extent to which market power is a source of production misallocation. Productive inefficiency occurs through more production being allocated to higher-cost units of production, and less production to lower-cost production units, conditional on a fixed aggregate quantity. We rely on rich micro-data covering the global market for crude oil, from 1970 to 2014, to quantify the extent of productive misallocation attributable to market power exerted by the OPEC. We find substantial productive inefficiency attributable to market power, ranging from 14.1 percent to 21.9 percent of the total productive inefficiency, or 105 to 163 billion USD.
    JEL: D2 L1 L4 L72
    Date: 2017–09
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:23801&r=ind

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