nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒02‒19
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Product Differentiation with Multiple Qualities By Francesca Barigozzi; Ching-to Albert Ma
  2. Signals Sell: Product Lines when Consumers Differ Both in Taste for Quality and Image Concern By Friedrichsen, Jana
  3. Optimal export policy with upstream price competition By Tomomichi Mizuno; Kazuhiro Takauchi
  4. Endogenous and Selective Service Choices After Airline Mergers By Sophia Ying Li; Joe Mazur; Yongjoon Park; James W. Roberts; Andrew Sweeting; Jun Zhang
  5. Strengthened competition in payment services By Demary, Markus; Rusche, Christian
  6. Leniency, Asymmetric Punishment and Corruption: Evidence from China By Perrotta Berlin, Maria; Qin, Bei; Spagnolo, Giancarlo

  1. By: Francesca Barigozzi (Department of Economics, University of Bologna); Ching-to Albert Ma (Boston University)
    Abstract: We study subgame-perfect equilibria of the classical quality-price, multistage game of vertical product differentiation. Each firm can choose the levels of an arbitrary number of qualities. Consumers' valuations are drawn from independent and general distributions. The unit cost of production is increasing and convex in qualities. We characterize equilibrium prices, and the effects of qualities on the rival's equilibrium price in the general model. We present necessary and sufficient conditions for equilibrium differentiation in any of the qualities.
    Keywords: multidimensional product differentiation, quality and price competition
    JEL: D43 L13
    Date: 2017–11
  2. By: Friedrichsen, Jana (Humboldt-Universität zu Berlin)
    Abstract: This paper analyzes optimal product lines when consumers differ both in their taste for quality and in their desire for social image. The market outcome features partial pooling and product differentiation that is not driven by heterogeneous valuations for quality but by image concerns. A typical monopoly outcome is a two-tier product line resembling a \"masstige\" strategy as observed in luxury goods markets. Products can have identical quality and differ only in price and image, thereby rationalizing quality-equivalent line extensions. Under competition, both average quality and market coverage are (weakly) higher but monopoly can yield higher welfare than competition.
    Keywords: image concern; conspicuous consumption; two-dimensional screening; nonlinear pricing;
    JEL: L12 L15 D11 D21 D82
    Date: 2018–02–08
  3. By: Tomomichi Mizuno (Graduate School of Economics, Kobe University); Kazuhiro Takauchi (Faculty of Business and Commerce, Kansai University)
    Abstract: We constructed a third-market model with a vertical trading structure in which input suppliers engage in the homogeneous price competition `a la Dastidar (1995). We show that in the case of downstream Bertrand competition, a non-monotonic export policy may appear, that is, the optimal export policy can change like a tax–subsidy–tax as the degree of product-substitutability rises. We also show that when the number of domestic input suppliers is at an intermediate level, the conventional result in which the optimal policy is an export subsidy (tax) if downstream is Cournot (Bertrand) rivalry remains. We further discuss welfare comparisons between downstream Cournot and Bertrand cases.
    Keywords: Upstream price competition; Export subsidy/tax; Non-monotonic policy; Product substitutability
    JEL: F12 F13 L13 D43
    Date: 2018–02
  4. By: Sophia Ying Li; Joe Mazur; Yongjoon Park; James W. Roberts; Andrew Sweeting; Jun Zhang
    Abstract: We estimate a model of service choice and price competition in airline markets, allowing for the carriers that provide nonstop service to be a selected subset of the carriers competing in the market. Our model can be estimated without an excessive computational burden and we use the estimated model to illustrate the effects of selection on equilibrium market structure and to show how accounting for selection can change predictions about post-merger market power and repositioning, in ways that are consistent with what has been observed after actual mergers, and possible merger remedies.
    JEL: C31 C35 C54 L13 L4 L93
    Date: 2018–01
  5. By: Demary, Markus; Rusche, Christian
    Abstract: Starting on January 13, 2018, the Second Payment Services Directive (PSD2) will apply in the European Union. Among other things, the Directive's aim is to adapt regulation to the innovations in payment services and to promote the Single Market for non-cash payments. However, PSD2 will only strengthen competition between payment services under a common standard for the access to banking accounts.
    Date: 2018
  6. By: Perrotta Berlin, Maria; Qin, Bei; Spagnolo, Giancarlo
    Abstract: Fostering whistleblowing through leniency and asymmetric sanctions is regarded as a potentially powerful anti-corruption strategy in the light of its success in busting cartels. The US Department of Justice started a pilot program of this kind in 2016. It has been argued, however, that introduced in China in 1997, these policies did not help against corruption. We map the evolution of the Chinese anti-corruption legislation and aggregate enforcement data, documenting a large and stable fall in prosecuted cases after the 1997 reform. The fall is consistent with reduced corruption detection, but under specific assumptions also with improved deterrence. To resolve the ambiguity, we collect and analyze a random sample of case files from corruption trials. Results point indeed at a negative effect of the 1997 reform on corruption detection and deterrence, but plausibly linked to its poor design: contrary to what theory prescribes, it increased leniency also for bribe-taking bureaucrats that cooperate after being denounced, enhancing their ability to retaliate against whistleblowing bribe-givers.
    Keywords: Corruption; Leniency; Deterrence; China
    JEL: K14 N45 P37
    Date: 2018–01

This nep-ind issue is ©2018 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.