nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒07‒30
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Monopolistic Competition with GAS Preferences By Paolo Bertoletti; Federico Etro
  2. The Stable Coexistence of Oligopolies and the Competitive Fringe By V. Gonharenko; D. Pokrovsky; S. Shapoval
  3. Environmental Quality and Monopoly Pricing. By Rabah Amir; Isabelle Maret
  4. Optimal Cross-Licensing Arrangements: Collusion versus Entry Deterrence By Choi, Jay Pil; Gerlach, Heiko
  5. Managing Competition on a Two-Sided Platform By Paul Belleflamme; Martin Peitz
  6. Import competition and vertical integration: Evidence from India By Stiebale, Joel; Vencappa, Dev

  1. By: Paolo Bertoletti (Department of Economics and Management, University of Pavia); Federico Etro (Ca' Foscari University, University of Florence and C.R.A.)
    Abstract: We study monopolistic competition equilibria with free entry under symmetric Generalized Additively Separable preferences, whose demand systems feature a single aggregator of prices or quantities. They include Gorman-Pollak preferences (which nest directly and indirectly additive preferences, a homothetic family and other preferences) and implicit CES preferences. With heterogeneous ?rms our extension of the Melitz model produces a variety of pricing and selection effects, and allows us to solve the social planner problem. We illustrate the inefficiency of the market equilibrium for a new speci?cation of generalized translated power preferences, and show its optimality for the entire class of implicit CES preferences.
    Keywords: Monopolistic competition, GAS preferences, Heterogeneous fi?rms
    JEL: D11 D43 L11
    Date: 2018–07
  2. By: V. Gonharenko (National Research University Higher School of Economics); D. Pokrovsky (National Research University Higher School of Economics); S. Shapoval (National Research University Higher School of Economics)
    Abstract: In this paper, we introduce a simple new theory on mixed competition between oligopolistic firms and the competitive fringe, assuming a comparative advantage for big firms and free entry for small _rms. Oligopolies are defined as conglomerates, each part of which benefits from joint operations through lower costs. Our theory implies that (i) industries with a few oligopolies arise as a stable outcome of mixed competition; (ii) mixed competition differs from the monopolistic competition of single-product firms due to the underproduction of oligopolistic firms and differs from pure oligopolistic competition sine constraints on this underproduction are imposed by the competitive fringe; (iii) a positive shock in the market size an strengthen or weaken the competitiveness of the economy through the growth of the number of oligopolies
    Keywords: mixed market structure; monopolistic competition; oligopolistic firms; general equilibrium; market size
    JEL: D4 L10 F11
    Date: 2018
  3. By: Rabah Amir; Isabelle Maret
    Abstract: This paper investigates various aspects of a monopolist’s pricing and environmental quality choice, as two simultaneous decisions and with each as a separate decision, the other variable being exogenously fixed. Green quality is modeled as in Spence (1975), and the present analysis builds on his pioneering work. We contrast the private and the first-best socially optimal solutions. While the latter follows the intuitive property of assigning a higher price to higher quality, the former solution does so under a natural condition of log-supermodular demand. This condition is studied in some detail, and related to properties of an underlying utilty function. We complete this characterization of optimal pricing by providing two different counter-intuitive examples where the two-dimensional interaction is such that the monopolist ends up charging a lower optimal price than the social planner, as well as producing a lower quality. Finally, we investigate respective sufficient conditions under which (i) the private and first-best solutions coincide, and (ii) the two-dimensional problem reduces to a one-dimensional problem where the firm picks a single quality-price ratio.
    Keywords: environmental quality, green goods, green awareness, multi-distortion monopoly pricing.
    JEL: Q50 L00 D60
    Date: 2018
  4. By: Choi, Jay Pil (Michigan State University, Department of Economics); Gerlach, Heiko (University of Queensland)
    Abstract: This paper analyzes optimal cross-licensing arrangements between incumbent firms in the presence of potential entrants. The optimal cross-licensing royalty rate trades off incentives to sustain a collusive outcome vis-a-vis incentives to deter entry with the threat of patent litigation. We show that a positive cross-licensing royalty rate, which would otherwise relax competition and sustain a collusive outcome, dulls incentives to litigate against entrants. Our analysis can shed light on the puzzling practice of royalty free cross-licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry-deterrence mechanism.
    Keywords: cross-licensing arrangements; patent litigation; collusion; entry deterrence
    JEL: D43 L13 O30
    Date: 2018–07–10
  5. By: Paul Belleflamme; Martin Peitz
    Abstract: On many two-sided platforms, users on one side not only care about user participation and usage levels on the other side, but they also care about participation and usage of fellow users on the same side. Most prominent is the degree of seller competition on a platform catering to buyers and sellers. In this paper, we address how seller competition affects platform pricing, product variety, and the number of platforms that carry trade.
    Keywords: Network effects, two-sided markets, platform competition, intermediation, pricing, imperfect competition
    JEL: D43 L13 L86
    Date: 2018–07
  6. By: Stiebale, Joel; Vencappa, Dev
    Abstract: Recent theoretical contributions provide conflicting predictions about the effects of product market competition on firms' organizational choices. This paper uses a rich firm-product-level panel data set of Indian manufacturing firms to analyze the relationship between import competition and vertical integration. Exploiting exogenous variation from changes in India's trade policy, we find that foreign competition, induced by falling output tariffs, increases backward vertical integration by domestic firms. The effects are concentrated in rather homogenous product categories, among firms that mainly operate on the domestic market, and in relatively large firms. Our results are robust towards different sub-samples and hold with or without conditioning on various firm- and product-level characteristics including input tariffs and firm-year fixed effects. We also provide evidence that vertical integration is associated with higher physical productivity, lower marginal costs and rising markups.
    Keywords: Trade Liberalization,Competition,Vertical Integration,Innovation
    JEL: F14 L25 L22 L23
    Date: 2018

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