nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒10‒01
six papers chosen by

  1. Merger Paradox in a Network Product Market: A Horizontally Differentiated Three-Firm Model By Tsuyoshi Toshimitsu
  2. A Decomposition of the Herfindahl Index of Concentration By de Gioia, Giacomo
  3. Competition between For-Profit and Industry Labels: The Case of Social Labels in the Coffee Market By Pio Baake; Helene Naegele
  4. Dynamic Airline Pricing and Seat Availability By Kevin R. Williams
  5. Abuse of Dominance and Antitrust Enforcement in the German Electricity Market By Tomaso Duso; Florian Szücs; Veit Böckers
  6. Vertical Integration, Market Structure and Competition Policy: Experiences of Indian Manufacturing Sector during the Post Reform Period By Basant, Rakesh; Mishra, Pulak

  1. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Using a horizontally differentiated three-firm model, we reconsider the merger paradox and externalities, i.e., the profitability of a merger, in a network product market where network externalities and compatibilities between products exists. Investigating the effect of a merger on the profits of the insider (participant) and outsider (nonparticipant) firms, we demonstrate the conditions under which the merger paradox and externalities arise in the network product market. If the degree of the merger-related network compatibility is sufficiently large, the merger paradox never arises.
    Keywords: merger paradox; network externality; compatibility; horizontal product differentiation; quantity-setting game
    JEL: D43 K21 L13 L14 L15
    Date: 2017–09
  2. By: de Gioia, Giacomo
    Abstract: The Herfindahl index is one of the most known indices used to measure the concentration of a variable distributed over a certain number of units, and tipically to measure the degree of concentration of business in a market. Its worth is the sensitivity both to the dimensional variability of these units and to their numerical consistency. In the this note a decomposition of the H-index into these two terms is offered.
    Keywords: Herfindahl; Decomposition of the Herfindahl index; Industrial concentration; Metric index of concentration.
    JEL: C43 C49 D40 L11
    Date: 2017–09–22
  3. By: Pio Baake; Helene Naegele
    Abstract: We model strategic interaction on a market where two labeling organizations compete and firms in duopoly decide which labels to offer. The incumbent label maximizes its own profit, and is challenged by an industry standard which maximizes industry profit. Using a nested logit, the result of this multi-stage game depends crucially on the degree of horizontal differentiation. Joint firm profit always increases with the introduction of the industry standard. The industry standard wants to segment the market and strategically distorts its label quality downwards, such that each firm specializes in a different label. Social welfare however increases with the number of labeled products. A policy imposing a minimum label quality is only binding in the case of strategic quality distortion by the industry standard.
    Keywords: Product differentiation, certification, nested logit
    JEL: L15 D43 L13
    Date: 2017
  4. By: Kevin R. Williams (Cowles Foundation, Yale University)
    Abstract: Airfares are determined by both intertemporal price discrimination and dynamic adjustment to stochastic demand. I estimate a model of dynamic airline pricing accounting for both forces with new flight-level data. With model estimates, I disentangle key interactions between the arrival pattern of consumer types and remaining capacity under stochastic demand. I show that the forces are complements in airline markets and lead to significantly higher revenues, as well as increased consumer surplus, compared to a more restrictive pricing regime. Finally, I show that abstracting from stochastic demand leads to a systematic bias in estimating demand elasticities.
    Keywords: Dynamic pricing, Intertemporal price discrimination, Price discrimination, Stochastic demand, Pricing, Airlines, Dynamic discrete choice
    JEL: L11 L12 L93
    Date: 2017–08
  5. By: Tomaso Duso; Florian Szücs; Veit Böckers
    Abstract: In 2008, the European Commission investigated E.ON, a large and vertically integrated electricity company, for the alleged abuse of a joint dominant position by strategically withholding generation capacity. The case was settled after E.ON agreed to divest 5,000 MW generation capacity as well as its extra-high voltage network. We analyze the effect of these divestitures on German wholesale electricity prices. Our identification strategy is based on the observation that energy suppliers have more market power during peak periods when demand is high. Therefore, a decrease in market power should lead to convergence between peak and off-peak prices. Using daily electricity prices for the 2006 - 2012 period and controlling for cost and demand drivers, we find economically and statistically significant convergence effects after the implementation of the Commission’s decision. Furthermore, the price reductions appear to be mostly due to the divestiture of gas and coal plants, which is consistent with merit-order considerations. Placebo regressions support a causal interpretation of our results.
    Keywords: Electricity, wholesale prices, EU Commission, abuse of dominance, ex post evaluation, E.ON
    JEL: K21 L41 L94
    Date: 2017
  6. By: Basant, Rakesh; Mishra, Pulak
    Abstract: In the context of declining degrees of vertical integration in major industries of Indian manufacturing sector during the post-reform period, the present paper is an attempt to examine how such ‘vertical disintegration’ has affected firms’ market power and its implications for competition policy. Using panel dataset of 49 majors industries of Indian manufacturing sector for the period 2003-04 to 2010-11 and applying the system GMM approach to estimate of dynamic panel data models, the paper finds that vertical integration does not cause any significant impact on average market power of firms in an industry. Instead, it is influenced by market size, and selling and technology related efforts. While selling intensity has a positive impact on market power, the impact of market size and technology intensity is found to be negative. Notably, like vertical integration, market concentration, import to export ratio, and capital intensity also do not have any significant impact on market power. The findings of this paper, therefore, have important implications for competition law and policy in general and policies and regulation relating to technology development and international trade in particular.
    Date: 2017–09–26

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