nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒02‒26
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Effects of Entry under the Coexistence of Oligopolistic and Monopolistic Competition By Kenji Fujiwara
  2. On the merger paradox and asymmetric product differentiation By Tsuyoshi Toshimitsu; Tetsuya Nakajima
  3. Place-based entrepreneurship and innovation policy for industrial diversification By Grillitsch, Markus
  4. Bertrand Competition with Asymmetric Costs: A Solution in Pure Strategies By Demuynck, Thomas; Herings, P. Jean-Jacques; Saulle, Riccardo D.; Seel, Christian
  5. Human Judgment and AI Pricing By Ajay K. Agrawal; Joshua S. Gans; Avi Goldfarb
  6. Supply chain innovations and partial ownership By Hunold, Matthias; Shekhar, Shiva

  1. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: This paper proposes a model of a continuum of industries in which some industries are monopolistically competitive, the others are oligopolistic, and they interact in a labor market. We use this model to examine the effects of an increase in the number of oligopolistic firms. We first show that this raises the equilibrium wage and induces exit of monopolistically competitive firms. Then, we find that the profits of each oligopolistic firm and the whole oligopolistic industry decrease. Finally, we establish that if the elasticity of substitution is the same in all industries, welfare improves as a result of an increase in the oligopolistic firms.
    Keywords: Monopolistic competition, oligopoly, general equilibrium, entry, welfare
    JEL: D43 L13 L40
    Date: 2018–02
  2. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University); Tetsuya Nakajima (Faculty of Economics, Osaka City University)
    Abstract: Assuming asymmetric product differentiation, we reconsider the merger paradox in the cases of quantity-setting and price-setting games. We investigate whether emergence of the merger paradox depends on the degree of product differentiation of the outsider, irrespective of the mode of competition. In particular, being different from the result of Deneckere and Davidson (1985), we show that the merger paradox arises in the case of price-setting games if the degree of product differentiation of the outsider is sufficiently small.
    Keywords: merger paradox; quantity-setting game, price-setting game, asymmetric product differentiation
    JEL: D43 L12 L13 L41
    Date: 2018–02
  3. By: Grillitsch, Markus (Lund University)
    Abstract: This paper proposes a conceptual and analytical framework for the development of place-based entrepreneurship and innovation policies aiming at industrial diversification. The starting point for this paper is the entrepreneurial ecosystem concept, which is frequently used to inform such policies. However, this concept does not specify the causal mechanisms driving industrial diversification. Furthermore, it remains questionable to what extent the concept can be applied to different regional contexts. In order to address these shortfalls, this paper i) discusses the barriers and opportunities for industrial diversification in different regional contexts, and ii) introduces a place-based policy framework for new industrial path development through entrepreneurship and innovation policies.
    Keywords: economic diversification; new industrial path development; innovation; entrepreneurship; entrepreneurial ecosystems; place-based policy
    JEL: L50 O10 O30 O38 R10 R58
    Date: 2018–02–06
  4. By: Demuynck, Thomas (universite libre de bruxelles); Herings, P. Jean-Jacques (General Economics 1 (Micro)); Saulle, Riccardo D. (General Economics 1 (Micro)); Seel, Christian (General Economics 1 (Micro))
    Abstract: We consider two versions of a Bertrand duopoly with asymmetric costs and homogeneous goods. They differ in whether predatory pricing is allowed. For each version, we derive the Myopic Stable Set in pure strategies as introduced by Demuynck, Herings, Saulle, and Seel (2017). We contrast our prediction to the prediction of Nash Equilibrium in mixed strategies.
    Keywords: Bertrand Competition, Asymmetric Costs, Myopic Stable Set
    JEL: C70 C72 D43
    Date: 2018–02–08
  5. By: Ajay K. Agrawal; Joshua S. Gans; Avi Goldfarb
    Abstract: Recent artificial intelligence advances can be seen as improvements in prediction. We examine how such predictions should be priced. We model two inputs into decisions: a prediction of the state and the payoff or utility from different actions in that state. The payoff is unknown, and can only be learned through experiencing a state. It is possible to learn that there is a dominant action across all states, in which case the prediction has little value. Therefore, if predictions cannot be credibly contracted upfront, the seller cannot extract the full value, and instead charges the same price to all buyers.
    JEL: D81 L12 O33
    Date: 2018–02
  6. By: Hunold, Matthias; Shekhar, Shiva
    Abstract: We show that competing downstream firms may rather invest in their inefficient inhouse production than help improve the technology of the efficient supplier, even if this is costless. Even worse, a downstream firm can have strong incentives to decrease the efficiency of the supplier in order to improve its outside options. We demonstrate that non-controlling partial backward ownership can align the incentives of the supplier and its customers with respect to supply chain innovations.
    Keywords: knowledge spillover,innovation,minority shareholdings,supply chain efficiency,vertical partial ownership
    JEL: L22 L40
    Date: 2018

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