nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒01‒08
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Simulation Evidence on Herfindahl-Hirschman Indices as Measures of Competitive Balance By Dorian Owen; Caitlin Owen
  2. Multiproduct Intermediaries and Optimal Product Range By Rhodes, Andrew; Watanabe, Makoto; Zhou, Jidong
  3. How well does consumer-based brand equity align with sales-based brand equity and marketing mix response? By Datta, Hannes; Ailawadi, Kusum L.; van Heerde, H.J.
  4. Challenges and Pitfalls in Cartel Policy and Fining By Boyer, Marcel; Faye, Anne Catherine; Kotchoni, Rachidi
  5. Multimarket Linkages, Cartel Discipline and Trade Costs By Agnosteva, Delina; Syropoulos, Constantinos; Yotov, Yoto
  6. A Simple Model of Brexit under Oligopoly By Collie, David R.

  1. By: Dorian Owen (Department of Economics, University of Otago, New Zealand); Caitlin Owen (Department of Information Science, University of Otago, New Zealand)
    Abstract: Measurement of the degree of competitive balance, how evenly teams are matched, is central to the economic analysis of professional sports leagues. A common problem with competitive balance measures, however, is their sensitivity to the number of teams and the number of matches played by each team, i.e., season length. This paper uses simulation methods to examine the effects of changes in season length on the distributions of several widely used variants of the Herfindahl- Hirschman index applied to wins in a season. Of the measures considered, a normalized measure, accounting for lower and upper bounds, and an adjusted measure perform best, although neither completely removes biases associated with different season lengths.
    Keywords: Herfindahl-Hirschman, Competitive balance, Simulation
    JEL: D63 C63 L83
    Date: 2017–12
  2. By: Rhodes, Andrew; Watanabe, Makoto; Zhou, Jidong
    Abstract: This paper develops a framework for studying the optimal product range choice of a multiproduct intermediary when consumers demand multiple products. In the optimal product selection, the intermediary uses exclusively stocked high-value products to increase store tra¢ c, and at the same time earns pro?t mainly from non-exclusively stocked products which are relatively cheap to buy from upstream suppliers. By doing this the intermediary can earn strictly positive pro?t, including in situations where it does not improve e¢ ciency in selling products. A linkage between product selection and product demand features such as size and shape is established. It is also shown that relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively.
    Keywords: intermediaries; product range; multiproduct demand; search; exclusive contracts
    JEL: D83 L42 L81
    Date: 2017–10
  3. By: Datta, Hannes (Tilburg University, School of Economics and Management); Ailawadi, Kusum L.; van Heerde, H.J. (Tilburg University, School of Economics and Management)
    Abstract: Brand equity is the differential preference and response to marketing effort that a product obtains because of its brand identification. Brand equity can be measured based on either consumer perceptions or on sales. Consumer-based brand equity (CBBE) measures what consumers think and feel about the brand, whereas sales-based brand equity (SBBE) is the brand intercept in a choice or market share model. This paper studies the extent to which CBBE manifests itself in SBBE and marketing mix response using ten years of IRI scanner and Brand Asset Valuator (BAV) data for 290 brands spanning 25 packaged good categories. It uncovers a fairly strong positive association of SBBE with three dimensions of CBBE – Relevance, Esteem, and Knowledge – but a slight negative correspondence with the fourth dimension, Energized Differentiation. It also reveals new insights on the category characteristics that moderate the CBBE-SBBE relationship, and documents a more nuanced association of the CBBE dimensions with response to the major marketing mix variables than heretofore assumed. Implications are discussed for academic researchers who predict and test the impact of brand equity, for market researchers who measure it, and for marketers who want to translate their brand equity into marketplace success.
    Date: 2017
  4. By: Boyer, Marcel; Faye, Anne Catherine; Kotchoni, Rachidi
    Abstract: We analyze significant challenges and pitfalls faced by antitrust authorities in the implementation of competition policies particularly against naked cartels and propose measures principled in economic theory to circumvent these issues. We review leniency programs in different jurisdictions, the private versus public control of cartels, as well as the determination of cartel fines and other punishment instruments. Regarding cartel fines, we first discuss the sometimes-conflicting objectives of restitution and deterrence, then the economic-based versus legal- and proportional-based punishment. Moreover, we assess the proper modeling of cartel dynamics including the probability of detection and conviction, the relevant cartel duration, and the estimation of but-for prices and cartel overcharges.
    Keywords: Cartels; Fines; Competition Policy; Antitrust; Dynamics
    Date: 2017–10
  5. By: Agnosteva, Delina (Towson University); Syropoulos, Constantinos (Drexel University); Yotov, Yoto (Drexel University)
    Abstract: We build a model of tacit collusion between firms that operate in multiple markets to study the effects of trade costs. A key feature of the model is that cartel discipline is endogenous. Thus, markets that appear segmented are strategically linked via the incentive compatibility constraint. Importantly, trade costs affect cartel shipments and welfare not only directly but also indirectly through discipline. Using extensive data on international cartels, we find that trade costs exert a negative and significant effect on cartel discipline. In turn, cartel discipline has a negative and significant impact on trade flows, in line with the model.
    Keywords: endogenous cartel discipline; competitiveness; multimarket contact; welfare; trade costs; trade policy; gravity
    JEL: D43 F10 F12 F13 F15 F42 L12 L13 L41
    Date: 2017–12–05
  6. By: Collie, David R. (Cardiff Business School)
    Abstract: The welfare effects of Brexit on the UK, the EU27 and the rest of the world are analysed in a model of international trade under oligopoly. A hard Brexit where the UK trades according to WTO rules is shown to decrease total UK welfare, to have an ambiguous effect on total EU27 welfare, and to increase total welfare in the rest of the world. Unilateral free trade for the UK is shown to decrease total UK welfare, to increase total EU27 welfare, and to increase total welfare in the rest of the world. A free trade agreement with the rest of the world rather than the EU27 will be beneficial, ceteris paribus, if the rest of the world market is larger than the EU27 market; if the rest of the world tariff is larger than the EU27 tariff; and if firms in the rest of the world have higher costs than EU27 firms. It will not be beneficial if trade between the UK and the rest of the world is more costly than trade between the UK and the EU27 as is likely to be the case since the EU27 is close to the UK.
    Keywords: Brexit; Oligopoly; International Trade; Tariffs; EU
    JEL: F12 F13 L13
    Date: 2017–12

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