nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒06‒11
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. All-Pay Oligopolies: Price Competition with Unobservable Inventory Choices By Joao Montez; Nicolas Schutz
  2. The Unilateral Accident Model under a Constrained Cournot-Nash Duopoly By Gérard Mondello; Evens Salies
  3. An Experimental Analysis of the Complications in Colluding when Firms are Asymmetric By Charles F. Mason
  4. On Supply Function Equilibria in a Mixed Duopoly By Carlos, Gutiérrez-Hita; Vicente-Pérez, José
  5. An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly By Nocke, Volker; Schutz, Nicolas
  6. Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing By Elena Argentesi; Paolo Buccirossi; Roberto Cervone; Tomaso Duso; Alessia Marrazzo

  1. By: Joao Montez; Nicolas Schutz
    Abstract: We study a class of games where stores source unobservable inventories in advance, and then simultaneously set prices. Our framework allows for firm asymmetries, heterogeneous consumer tastes, endogenous consumer information through advertising, and salvage values for unsold units. The payoff structure relates to a complete-information all-pay contest with outside options, non-monotonic winning and losing functions, and conditional investments. In the generically unique equilibrium, stores randomize their price choice and, conditional on that choice, serve all their targeted demand—thus, some inventories may remain unsold. As inventory costs become fully recoverable, the equilibrium price distribution converges to an equilibrium of the associated Bertrand game (where firms first choose prices and then produce to order). This suggests that with production in advance, the choice between a Cournot analysis and a Bertrand-type analysis, as properly generalized in this paper, should depend on whether or not stores observe rivals’ inventories before setting prices.
    Keywords: Oligopoly, inventories, production in advance, all-pay contests, Bertrand convergence
    JEL: L13 D43
    Date: 2018–05
    URL: http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_020_2018&r=ind
  2. By: Gérard Mondello (Université Côte d'Azur, France; GREDEG CNRS); Evens Salies (OFCE)
    Abstract: This paper extends the basic unilateral accident model to allow for Cournot competition. Two firms compete with production input and prevention as strategic variables under asymmetric capacity constraints. We find that liability regimes exert a crucial influence on the equilibrium price and outputs. Strict liability leads to higher output and higher risk compared to negligence. We also study the conditions under which both regimes converge.
    Keywords: Tort Law, Strict Liability, Negligence Rule, Imperfect Competition, Oligopoly, Cournot Competition
    JEL: D43 L13 L52 K13
    Date: 2018–06
    URL: http://d.repec.org/n?u=RePEc:gre:wpaper:2018-14&r=ind
  3. By: Charles F. Mason
    Abstract: I study an indefinitely repeated game where firms differ in size. Attempts to form cartels in such an environment, for example by rationing outputs in a manner linked to firm size differences, have generally struggled. Any successful cartel has to set production shares in a manner that ensures no firm will defect. But this can require allocating sellers disproportionate shares, which in turn makes these tacit agreements difficult to create and enforce. I analyze some experimental evidence in support of this last proposition.
    Keywords: asymmetric cartel, repeated game, experiments
    JEL: D80 L15
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7047&r=ind
  4. By: Carlos, Gutiérrez-Hita (Departamento de Estudios Económicos y Financieros); Vicente-Pérez, José (Departamento Fundamentos Análisis Económico)
    Abstract: In this paper we present a mixed duopoly model of supply function competition under uncertainty with product differentiation. We find that, regardless the nature of product heterogeneity, the best response of the private firm always arises as strategic complement. Contrary to this, state-owned firm's best response arises either as strategic complement or substitute depending on the product heterogeneity. As a result of the ex post realization of the demand uncertainty, different equilibria are reached.
    Keywords: Supply Function Equilibria; Mixed oligopoly; Differentiated products
    JEL: D43 H42 L13
    Date: 2018–05–28
    URL: http://d.repec.org/n?u=RePEc:ris:qmetal:2018_001&r=ind
  5. By: Nocke, Volker; Schutz, Nicolas
    Abstract: Using an aggregative games approach, we analyze horizontal mergers in a model of multiproduct-firm price competition with nested CES or nested logit demands. We show that the Herfindahl index provides an adequate measure of the welfare distortions introduced by market power, and that the induced change in the naively-computed Herfindahl index is a good approximation for the market power effect of a merger. We also provide conditions under which a merger raises consumer surplus, and conditions under which a myopic, consumer-surplus-based merger approval policy is dynamically optimal. Finally, we study the aggregate surplus and external effects of a merger.
    Keywords: Aggregative Game; Herfindahl index; Horizontal Merger; market power; Multiproduct Firms; Oligopoly Pricing
    JEL: L13 L40
    Date: 2018–05
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:12905&r=ind
  6. By: Elena Argentesi; Paolo Buccirossi; Roberto Cervone; Tomaso Duso; Alessia Marrazzo
    Abstract: Assortment decisions are key strategic instruments for firms responding to local market conditions. We assess this claim by studying the effect of a national merger between two large Dutch supermarket chains on prices and on the depth as well as composition of assortment. We adopt a difference-in-differences strategy that exploits local variation in the merger’s effects, controlling for selection on observables when defining our control group through a matching procedure. We show that the local change in competitive conditions due to the merger did not affect individual products’ prices but it led the merging parties to reposition their assortment and increase average category prices. While the low-variety and low-price target’s stores reduced the depth of their assortment when in direct competition with the acquirer’s stores, the latter increased their product variety. By analyzing the effect of the merger on category prices, we find that the target most likely dropped high priced products, while the acquirer added more of them. Thus, the merging firms reposition their product offerings in order to avoid cannibalization and lessen local competition. Further, we show that other dimensions of heterogeneity, such as market concentration, whether a divestiture was imposed by the Dutch competition authority, and the re-branding strategy of the target stores, are important for explaining the post-merger dynamics. A simple theoretical model of local-market variety competition explains most of our findings.
    Keywords: variety, assortment, mergers, ex-post evaluation, retail sector, supermarkets, grocery
    JEL: L10 L41 L66 L81 D22 K21 C23
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7035&r=ind

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 http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. 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.