nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒11‒12
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Spatial models of heterogeneous switching costs By Siciliani, Paolo; Beckert, Walter
  2. A Simple Model of Mergers and Innovation By Giulio Federico; Gregor Langus; Tommaso M. Valletti
  3. Forward Contracts, Market Structure, and the Welfare Effects of Mergers By Nathan Miller; Joseph Podwol
  4. Negative consumer value and loss leading By Caprice, Stéphane; Shekhar, Shiva
  5. Competition in the International Niobium Market: An Econometric Study By Jáilison W. Silveira; Marcelo Resende
  6. Branding and Performance in the Global Beer Market By Erik Strøjer Madsen
  7. Patterns of entry and exit in the deregulated German interurban bus industry By Dürr, Niklas S.; Hüschelrath, Kai

  1. By: Siciliani, Paolo (Bank of England); Beckert, Walter (University of London)
    Abstract: The presence of sticky, often labelled ‘unengaged’, consumers is arguably one of the most intractable issues faced by competition regulators, in that it entrenches incumbency advantage. We develop a spatial linear model of heterogeneous switching costs that allows for asymmetric distributions of heterogeneous switching costs. We not only model uniform pricing and history-based price discrimination, but also the impact of regulatory intervention aimed at making it easier for customers to be upgraded to a better tariff from their current service provider, something we call ‘leakage’. Finally, we analyse firms’ incentive to adopt history-based price discrimination and voluntarily permit ‘leakage’.
    Keywords: Switching costs; unengaged ‘sticky’ customers; spatial linear model; uniform pricing; history-based price discrimination; ‘leakage’
    JEL: D43 L11 L44
    Date: 2017–11–03
  2. By: Giulio Federico; Gregor Langus; Tommaso M. Valletti
    Abstract: We analyze the impact of a merger on firms’ incentives to innovate. We show that the merging parties always decrease their innovation efforts post-merger while the outsiders to the merger respond by increasing their effort. A merger tends to reduce overall innovation. Consumers are always worse off after a merger. Our model calls into question the applicability of the “inverted-U†relationship between innovation and competition to a merger setting.
    Keywords: innovation, R&D, mergers
    JEL: D43 G34 L40 O30
    Date: 2017
  3. By: Nathan Miller (Georgetown University); Joseph Podwol (U.S. Department of Justice)
    Abstract: We examine how forward contracts affect economic outcomes under generalized market structures. In the model, forward contracts discipline the exercise of market power by making profit less sensitive to changes in output. This impact is greatest in markets with intermediate levels of concentration. Mergers reduce the use of forward contracts in equilibrium and, in markets that are sufficiently concentrated, this ampli-fies the adverse effects on consumer surplus. Additional analyses of merger profitability and collusion are provided. Throughout, we illustrate and extend the theoretical re-sults using Monte Carlo simulations. The results have practical relevance for antitrust enforcement.
    Date: 2017–10
  4. By: Caprice, Stéphane; Shekhar, Shiva
    Abstract: Large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost some of their products. Below-cost pricing arises as an exploitative device rather than a predatory device (e.g., Chen and Rey, 2012). Unlike standard textbook models, we show that positive consumer value is not required in these frameworks. Large retailers can sell products offering consumers a negative value. We use our insight to revisit some classic issues in vertical relations.
    Keywords: multiproduct retailers,loss-leading,negative consumer value
    JEL: L13 L81
    Date: 2017
  5. By: Jáilison W. Silveira; Marcelo Resende
    Abstract: Niobium is a highly strategic mineral, in which Brazil holds almost all of the world’s reserves followed by Canada. Niobium has an important role in steel alloys for the aerospace industry and future potential for the industry’s superconductors. The present paper investigates the prevailing market power in niobium at the country level by referencing the residual demand approach advanced by Goldberg and Knetter (1999). The empirical evidence for the American destination market indicates a significant market power for Brazil. However, despite Brazil’s strong dominance in the supply of ferroniobium in comparison to Canada, it has moderate market power, which may suggest that other metals can have a relevant role in composing high performance alloys in terms of complementarity or substitution relationships.
    Keywords: Niobium, residual demand, market power
    JEL: F14 L13 L61
    Date: 2017
  6. By: Erik Strøjer Madsen (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: The mass market for beers is served by a few global breweries in an oligopoly structure covering most of the world market. The homogeneity of their main lager beers are very high and produced at large scaled plants at low costs. However, the breweries spend large amounts of money to promote some of the lager beers as premium beers and at a high and increasing price premium. Based on a database with prices for standard and premium lager, the paper study the development in the consumption of different types of beers on the global market in recent years. We estimate the price premium on premium beers and relate it to the rapid change in the oligopoly structure of the market through the merger and acquisition activities.
    Keywords: Branding, brewing industry, income elasticities of beer
    JEL: L11 L66 M37
    Date: 2017–10–30
  7. By: Dürr, Niklas S.; Hüschelrath, Kai
    Abstract: We study patterns of entry and exit in the German interurban bus industry in the first three years after its deregulation in January 2013. Using a comprehensive data set of all firm and route entries and exits, we find that the industry grew much quicker than originally expected - with particularly a few new entrants being most successful in quickly extending their route networks from regional to national coverage. Although the clear majority of routes is operated on a monopoly basis, competition does play a key role on routes with a sufficiently large base of (potential) customers. From a spatial perspective, three years after deregulation, the entire interurban bus network connects 60 percent of all 644 larger German cities - with the intensity of entry being dependent on the number of inhabitants, average income, the share of under 24 years old and the presence of intermodal competition by intercity railway services.
    Keywords: deregulation,interurban bus services,entry,exit,competition
    JEL: L11 L41 L43 L92 K21 K23
    Date: 2017

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