nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒10‒15
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Entry and Merger Policy By Jaunaux, Laure; Lefouili, Yassine; Sand-Zantman, Wilfried
  2. Competition, collusion and spatial sales patterns: Theory and evidence By Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes
  3. The Law and Economics of List Price Collusion By Willem Boshoff; Johannes Paha
  4. Efficiency in Large markets with Firm Heterogeneity By Swati Dhingra; John Morrow
  5. Product Compatibility as an Strategy to Hinder Entry Deterrence By Guillem Roig
  6. Markets Take Breaks: Dynamic Price Competition with Opening Hours By Eibelshäuser, Steffen; Wilhelm, Sascha
  7. The application of competition policy vis-à-vis intellectual property rights: The evolution of thought underlying policy change By Anderson, Robert D.; Kovacic, William E.

  1. By: Jaunaux, Laure; Lefouili, Yassine; Sand-Zantman, Wilfried
    Abstract: This note examines the optimal merger policy when competition authorities take into account the e¤ects of their policy on firms'entry decisions. We consider a model featuring ex ante uncertainty about profits and consumer surplus, and derive a simple rule governing the optimal policy in that context. More specifically, we show that the ratio between the loss in ex post consumer surplus and the gain in an entrant's profit induced by an ex post anticompetitive merger is a sufficient statistic to determine when competition authorities should be more lenient. Our findings imply in particular that competition authorities may find it optimal to commit to being more lenient towards successful, rather than unsuccessful, entrants.
    Keywords: Merger Policy; Entry; Uncertainty
    JEL: K21 L13 L40
    Date: 2017–10
  2. By: Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes
    Abstract: We study competition in markets with significant transport costs and capacity constraints. We compare the cases of price competition and coordination in a theoretical model and find that when firms compete, they more often serve more distant customers that are closer to plants of competitors. By means of a rich micro-level data set of the cement industry in Germany, we provide empirical evidence in support of this result. Controlling for other potentially confounding factors, such as the number of production plants and demand, we find that the transport distances between suppliers and customers were on average significantly lower in cartel years than in non-cartel years.
    Keywords: capacity constraints,cartel,cement,transport costs
    JEL: K21 L11 L41 L61
    Date: 2017
  3. By: Willem Boshoff (Stellenbosch University); Johannes Paha (Justus-Liebig-University Giessen)
    Abstract: Firms sometimes violate competition laws by agreeing on increases of list prices. The economic effects of such list price collusion are far from clear because the cartel firms might deviate secretly from the elevated prices by granting their customers discounts. This article presents case evidence suggesting that agreements on list prices are not infrequently observed in cartel cases. It also reviews theoretical, empirical, and experimental literature in economics showing under what conditions such list price collusion causes the discounted transaction prices to rise. This is relevant for competition authorities in developing a theory of harm when prosecuting cartels, and also for the customers of the cartel firms when suing the conspirators for the repayment of damages.
    JEL: D43 K21 L41
    Date: 2017
  4. By: Swati Dhingra; John Morrow
    Abstract: Abstract Empirical work has drawn attention to the high degree of productivity differences within industries, and its role in resource allocation. In a benchmark monopolistically competitive economy, productivity differences introduce two new margins for allocational inefficiency. When markups vary across firms, laissez faire markets do not select the right distribution of firms and the market-determined quantities are inefficient. We show that these considerations determine when increased competition from market expansion takes the economy closer to the socially efficient allocation of resources. As market size grow large, differences in market power across firms converge and the market allocation approaches the efficient allocation of an economy with constant markups.
    Keywords: efficiency, productivity, limit theorem, market expansion, competition
    JEL: F1 L1 D6
    Date: 2017–10
  5. By: Guillem Roig
    Abstract: In many markets, firms produce and sell complementary components that form a product system. This paper studies the effects of compatibility in product advertisement and entry decisions in a differentiated product market. While advertising enhances the ability of consumers to mix and match components closer to their preferences, more advertising does not always generate larger welfare. In my model, an incumbent uses advertising to increase the prospects of market competition with the objective to deter potential entry. However, under some parameters, entry deterrence does not occur when products are made compatible. With compatible products, the incumbent either obtains large benefits from accommodation or equilibria when all consumers are aware of the existence of the available products emerge. In this latter case, the amount of advertising cannot be further expanded to protect the incumbent’s monopolistic position. As a result, policies in favor of compatibility may encourage entry and generate larger levels of advertisement.
    Keywords: Product compatibility; Informative advertising; Entry deterrence; Market structure
    JEL: D21 D43 L13 L15
    Date: 2017–10–11
  6. By: Eibelshäuser, Steffen; Wilhelm, Sascha
    Abstract: We study price cycles in the German retail gasoline market. We extend existing models of Bertrand competition by product differentiation, firm size and business hours. With sufficiently low product differentiation, there exists a unique subgame perfect equilibrium featuring Edgeworth price cycles. We test the model's predictions using an extensive data set. Last, we evaluate policy interventions and show that restrictions on price setting or increased market transparency harm consumer welfare.
    JEL: D43 L11 L13 L81
    Date: 2017
  7. By: Anderson, Robert D.; Kovacic, William E.
    Abstract: This paper examines the evolution of national competition (antitrust) policies and enforcement approaches vis-à-vis intellectual property rights (IPRs) and associated anti-competitive practices in major jurisdictions over the past several decades. It focuses especially on the underlying process of economic learning that has, the authors suggest, driven relevant policy changes. Part 2 of the paper outlines the breakthroughs in understanding that have underpinned the evolution of competition policy approaches toward intellectual property licensing arrangements in the US, Canada and the EU. Part 3 elaborates the foundational insights that have motivated competition policy interventions with respect to 'newer' issues such as anti-competitive patent settlements and hold-ups in relation to standard setting processes, in addition to the modern focus on mergers that potentially lessen incentives for innovation and on abuse of dominance/single firm exclusionary practices in IP-intensive network industries. Part 4 outlines some of the core policy concerns and insights driving the increased emphasis that leading competition authorities now devote to policy advocacy and research in relation to the scope and definition of IP rights. Overall, the analysis suggests, firstly, that competition policy applications in the intellectual property sphere are matters of fundamental importance for economic advancement and prosperity, having a direct bearing on innovation, growth and the diffusion of new technologies. Indeed, the roles of IP and competition policy are now sufficiently intertwined and interdependent that neither can be well understood or applied in an optimal fashion in the absence of the other. Secondly, the thought evolution described herein implies that successful policy applications require careful study of market structure and behaviour, not in the abstract but with reference to the particular markets affected. Thirdly, it augurs favourably for the prospects of continuing gradual and incremental convergence in national approaches in this area, even spanning developed and developing countries, on the basis of continual learning and informed self-interest.
    Keywords: intellectual property,patents,international trade and competition policy,antitrust,innovation,mergers,anti-competitive settlements,standards,network industries,competition advocacy
    JEL: K21 L4 L41 L43 O3 O34
    Date: 2017

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