nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒10‒01
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Oligopoly Price Discrimination: The Role of Inventory Controls By James D. Dana Jr.; Kevin R. Williams
  2. Vertical Contracting with Endogenous Market Structure By Marco Pagnozzi; Salvatore Piccolo; Markus Reisinger
  3. Do Digital Platforms Reduce Moral Hazard? The Case of Uber and Taxis By Meng Liu; Erik Brynjolfsson; Jason Dowlatabadi
  4. Managing Competition on a Two-Sided Platform By Paul Belleflamme; Martin Peitz
  5. Airline Alliances and Service Quality By Jan K. Brueckner; Ricardo Flores-Fillol

  1. By: James D. Dana Jr. (Northwestern University); Kevin R. Williams (Cowles Foundation, Yale University)
    Abstract: Inventory controls, used most notably by airlines, are sales limits assigned to individual prices. While typically viewed as a tool to manage demand uncertainty, we argue that inventory controls can also facilitate intertemporal price discrimination in oligopoly. In our model, competing firms first choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes less elastic over time, as is the case in airline markets, a monopolist can easily price discriminate; however, we show that oligopoly firms generally cannot. We also show that using inventory controls allows oligopoly firms to set increasing prices, regardless of whether or not demand is uncertain.
    Keywords: Capacity-pricing games, Intertemporal price discrimination, Oligopoly models, Inventory controls
    JEL: D21 D43 L13
    Date: 2018–06
    URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:2136r&r=ind
  2. By: Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Bergamo and CSEF); Markus Reisinger (Frankfurt School of Finance & Management)
    Abstract: A manufacturer chooses the optimal retail market structure and bilaterally and secretly contracts with each (homogeneous) retailer. In a classic framework without asymmetric information, the manufacturer sells through a single exclusive retailer in order to eliminate the opportunism problem. When retailers are privately informed about their (common) marginal cost, however, the number of competing retailers also affects their information rents and the manufacturer may prefer an oligopolistic market structure. We characterize how the manufacturer’s production technology, the elasticity of final demand, and the size of the market affect the optimal number of retailers. Our results arise both with price and quantity competition, and also when retailers’ costs are imperfectly correlated.
    Keywords: asymmetric information, distribution network, opportunism, retail market structure, vertical contracting.
    JEL: D43 L11 L42 L81
    Date: 2018–09–21
    URL: http://d.repec.org/n?u=RePEc:sef:csefwp:509&r=ind
  3. By: Meng Liu; Erik Brynjolfsson; Jason Dowlatabadi
    Abstract: Digital platforms like Uber can enhance market transparency and mitigate moral hazard via ratings of buyers and sellers, real-time monitoring, and low-cost complaint channels. We compare driver choices at Uber with taxis by matching trips so they are subject to the same optimal route. We also study drivers who switch from taxis to Uber. We find: (1) drivers in taxis detour about 7% on airport routes, with non-local passengers experiencing longer detours; (2) these detours lead to longer travel times; and (3) drivers on the Uber platform are more likely to detour on airport routes with high surge pricing.
    JEL: D8 D86 L15 L91 M52
    Date: 2018–09
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:25015&r=ind
  4. By: Paul Belleflamme (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Martin Peitz (Department of Economics and MaCCI, University of Mannheim)
    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: 2018–06
    URL: http://d.repec.org/n?u=RePEc:aim:wpaimx:1820&r=ind
  5. By: Jan K. Brueckner; Ricardo Flores-Fillol
    Abstract: Convenient scheduling, characterized by adequate flight frequency, is the main quality attribute for airline services. However, the effect of airline alliances on this important dimension of service quality has received almost no attention in the literature. This paper fills this gap by providing such an analysis in a model where flight frequency affects schedule delay and connecting layover time. While an alliance raises service quality when layover time has zero cost, the reverse occurs when layover time is costly. The source of this surprising result is that costly layovers eliminate the additive structure of the full trip price, which consists of the sum of the subfares plus the weighted sum of the reciprocal flight frequencies when layover cost is zero. The paper also shows that nonaligned carriers adjust frequencies to suit passenger preferences in business and leisure markets, while an alliance is less responsive to such preference differences. With hub-airport congestion, greater internalization by allied carriers tends to reduce frequency, but this force is not enough to overturn the positive alliance effect in the low-cost layover case.
    Keywords: service quality, alliance, double marginalization, congestion
    JEL: D43 L13 L40 L93 R40
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7226&r=ind

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