nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒01‒14
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Monopolistic Competition, As You Like It By Paolo Bertoletti; Federico Etro
  2. Cartel Stability under Quality Differentiation By Iwan Bos; Marco Marini
  3. Mixed Market Structure, Competition and Market Size: How Does Product Mix Respond? By Aya Elewa
  4. How does the competitive intensity affect the firm's product strategies? By Lee, Kyungyul; Kwon, Youngsun
  5. Circulation of loyalty: Relationships between mobile messenger service and offline flagship store By Kim, Junghwan; Choi, Mideum; Hwang, ShinYoung
  6. Endowment Structure, Industry dynamics and Vertical Production Structure in China-Theory and Evidence By Jim H. Shen; Leilei Shen; Jun Zhang
  7. Central- versus Self-Dispatch in Electricity Markets By Holmberg, Pär; Tangerås, Thomas; Ahlqvist, Victor
  8. On entry cost dynamics in Australia’s National Electricity Market By Simshauser, P.; Gilmore, J.

  1. By: Paolo Bertoletti; Federico Etro
    Abstract: We study monopolistic competition with asymmetric preferences over a variety of goods provided by heterogeneous firms, and show how to compute equilibria through the Morishima measures of substitution. Further results concerning pricing and entry emerge under homotheticity and when demands depend on common aggregators, as for Generalized Additively Separable preferences (encompassing additive, Gorman-Pollak and implicit CES preferences). We discuss selection effects of changes in aggregate productivity, expenditure and market size, and present applications to trade, with markups variable across goods, and macroeconomics, with markups depending on aggregate variables.
    Keywords: Monopolistic competition, Asymmetric preferences, Heterogeneous firms, Generalized separability, Variable markups
    JEL: D11 D43 L11
    Date: 2018
  2. By: Iwan Bos; Marco Marini
    Abstract: This note considers cartel stability when the cartelized products are vertically differentiated. If market shares are maintained at pre-collusive levels, then the firm with the lowest competitive price-cost margin has the strongest incentive to deviate from the collusive agreement. The lowest-quality supplier has the tightest incentive constraint when the difference in unit production costs is sufficiently small.
    Date: 2018–12
  3. By: Aya Elewa (Paris School of Economics)
    Abstract: Assuming a double heterogeneity; within industry firm heterogeneity and within firm product heterogeneity, this paper investigates how multiproduct firms respond to tougher competition and greater market size across destinations. Building a theoretical model where monopolistically competitive and oligopolistic firms coexist in the same market, the paper studies how an increase in market size affects both types of firms’ behavior. The model shows that the final impact of bigger market size on the product-mix of multiproduct firms depends on the level of fixed entry costs. For low level of entry costs, big firms increase their product-mix when they export to larger markets as they benefit from scope economies. Yet, when fixed costs are prohibitive, a larger market induces firms to skew their export sales toward their core product. Very strong confirmation of this non-monotonic effect of market size was found for Egyptian exporters across export market destinations.
    Date: 2018–10–28
  4. By: Lee, Kyungyul; Kwon, Youngsun
    Abstract: Competitive intensity is a level of competition intensification in a market or an industry. This is expressed in various forms and some paper measured the competitive intensity as the number of products that newly released each year in an industry (Putsis & Bayus, 2001). In other paper, they analyzed the competitive intensity as a market structure such as market concentration (Stavins, 2001) or the number of firms competing in one industry (Giachetti & Dagnino, 2014). Overall, the competitive intensity represents the complex competition within the market. Then how does competitive intensity affects to the company or to the organizational level? In modern times, corporate product innovation takes place rapidly, and the number of products and companies competing in a market is increasing geometrically. Unlike the past, a market that is monopolized by a single or few companies is hard to find except for public goods. In the smartphone market, 11 companies had competed in 2008, but the number of competing companies had risen dramatically, with more than 45 companies competed in 2016. The number of smartphones also rose sharply, with 50 new phones had launched in 2008, but about 545 new smartphones introduced in 2016. Disadvantage of the increase in the competitive intensity for the firm is that it has a major negative impact on the competitive advantage (D'Aveni, 1994). The decline in the competitive advantage of firms due to the rise of these competitive intensities makes them act newly when they enter or compete in the market...
    Date: 2018
  5. By: Kim, Junghwan; Choi, Mideum; Hwang, ShinYoung
    Abstract: LINE, the global mobile messenger service provider, has been extending its online business to the offline platform. Among many services, LINE FRIENDS, which manages the character business of LINE, launched an offline flagship store in Korea, Japan, and Southeast Asia (LINE FRIENDS, 2018.01.25). Among the 45 stores around the world, LINE FRIENDS opened a large scale flagship store in New York in August 2017. Characters which were originally created for online stickers soon became the key business component of the flagship store. LINE FRIENDS has collaborated with renowned global brands such as LAMY, MR MARIA, THERMOS, SWAROVSKI, BROMPTON, and L'OCCITANE. People who visit offline flagship stores can not only buy collaboration products but also enjoy time at the character themed cafe. KAKAO which operates a major mobile messenger service in Korea has also launched its first flagship store in April 2014. Around 10 thousands visitors are reported to visit KAKAO's flagship store (KAKAO FRIENDS) every day...
    Date: 2018
  6. By: Jim H. Shen; Leilei Shen; Jun Zhang (Department of Economics, SOAS University of London, UK)
    Abstract: This paper proposes a theoretical model and shows that the comparative advantage of China’s factor endowment allows firms specializing in the midstream stage to gain at least as much as firms that specialize in the two ends of the supply chain (capital-intensive stage and labour-intensive stage) in terms of labour productivity and profitability, if and only if they have at least as much viability and use intermediate level of capital intensity. The empirical results are consistent with the theory’s predictions. Our findings on China’s industry supply chain production patterns provide a new angle on the division of gains in the vertical production network driven by the endowment structure. This could have far-reaching implications for the industrial development of other middle-income countries.
    Keywords: Comparative Advantage, Factor Endowment Structure, labour-intensive, capital-intensive, industry chains, viability, labour productivity
    JEL: F12 F23 L14
    Date: 2018–12
  7. By: Holmberg, Pär (Research Institute of Industrial Economics (IFN)); Tangerås, Thomas (Research Institute of Industrial Economics (IFN)); Ahlqvist, Victor (Research Institute of Industrial Economics (IFN))
    Abstract: In centralized markets, producers submit detailed cost data to the day-ahead market, and the market operator decides how much should be produced in each plant. This differs from decentralized markets that rely on self-commitment and where producers send less detailed cost information to the operator of the day-ahead market. Ideally centralized electricity markets would be more effective, as they consider more detailed information, such as start-up costs and no-load costs. On the other hand, the bidding format is rather simplified and does not allow producers to express all details in their costs. Moreover, due to uplift payments, producers have incentives to exaggerate their costs. As of today, US has centralized wholesale electricity markets, while most of Europe has decentralized wholesale electricity markets. The main problem with centralized markets in US is that they do not provide intra-day prices which can be used to continuously up-date the dispatch when the forecast for renewable output changes. Intra-day markets are more flexible and better adapted to deal with renewable power in decentralized markets. Iterative intra-day trading in a decentralized market can also be used to sort out coordination problems related to non-convexities in the production. The downside of this is that increased possibilities to coordinate increase the risk of getting collusive outcomes. Decentralized day-ahead markets in Europe can mainly be improved by considering network constraints in more detail.
    Keywords: Wholesale electricity markets; Market clearing; Centralization; Decentralization; Unit-commitment; Self-dispatch
    JEL: D44 L13 L94
    Date: 2018–12–17
  8. By: Simshauser, P.; Gilmore, J.
    Abstract: In theory, well designed electricity markets should deliver an efficient mix of technologies at least-cost. But energy market theories and energy market modelling are based upon equilibrium analysis and in practice electricity markets can be off-equilibrium for extended periods. Near-term spot and forward contract prices can and do fall well below, or substantially exceed, relevant entry cost benchmarks and associated long run equilibrium prices. However, given sufficient time higher prices, on average or during certain periods, create incentives for new entrant plant which in turn has the effect of capping longer-dated average spot price expectations at the estimated cost of the relevant new entrant technologies. In this article, we trace generalised new entrant benchmarks and their relationship to spot price outcomes in Australia’s National Electricity Market over the 20-year period to 2018; from coal, to gas and more recently to variable renewables plus firming, notionally provided by – or shadow priced at – the carrying cost of an Open Cycle Gas Turbine. This latest entry benchmark relies implicitly, but critically, on the gains from exchange in organised spot markets, using existing spare capacity. As aging coal plant exit, gains from exchange may gradually diminish with ‘notional firming’ increasingly and necessarily being met by physical firming. At this point, the benchmark must once again move to a new technology set.
    Keywords: Variable Renewable Energy, Electricity Prices, Power System Planning
    JEL: D61 L94 L11 Q40
    Date: 2018–12–21

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