nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒02‒04
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cost Efficiencies and Upward Pricing Pressure By Jessica Dutra; Tarun Sabarwal
  2. Timing of R&D Decisions and Output Subsidies in a Mixed Duopoly with Spillovers By Lee, Sang-Ho; Muminov, Timur; Chen, Jiaqi
  3. On the Microfoundation of Linear Oligopoly Demand By Bos, Iwan; Vermeulen, Dries
  4. Cartel stability in experimental auctions By Jeroen (J.) Hinloopen; Sander (A.M.) Onderstal; Leonard Treuren
  5. Collusion with intertemporal price dispersion By de Roos, Nicholas; Smirnov, Vladimir
  6. Central- versus Self-Dispatch in Electricity Markets By Ahlqvist, V.; Holmberg, P; Tangeras, T.
  7. Feasibility Study of Company Investment on Public Cigarette Manufacturing Companies By Huda, Syamsul; Hakim, Heikal Muhammad Zakaria

  1. By: Jessica Dutra (Department of Economics, The University of Kansas); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: We investigate the accuracy of UPP as a tool in antitrust analysis when there are cost efficiencies from a horizontal merger. We include model-based, merger-specific cost efficiencies in a tractable manner and extend the standard UPP formulation to account for these efficiencies. The efficacy of the new UPP formulations is analyzed using Monte Carlo simulation of 40,000 mergers (8 scenarios, 5,000 mergers in each scenario). We find that the new UPP formulations yield substantial gains in prediction of post-merger prices, as compared to existing practice, and there are substantial gains in merger screening accuracy as well. Moreover, the new UPP formulations outperform the standard UPP formulation at higher thresholds for all the standard cases in the paper. The results support the inclusion of model-based cost efficiencies in the standard UPP formulation for more accurate antitrust decision-making.
    Keywords: upward pricing pressure, merger efficiency, monte carlo, UPP, mergers, antitrust, unilateral effects, cost efficiencies
    JEL: L11 L41 L13
    Date: 2018–12
  2. By: Lee, Sang-Ho; Muminov, Timur; Chen, Jiaqi
    Abstract: This study considers a mixed duopoly with research spillovers and examines the interplay between firms’ R&D decisions and government’s output subsidies. We investigate and compare the timing of the game between ex-ante R&D and ex-post R&D decisions where the R&D decisions are chosen before the output subsidy is determined in the former case while the order is reversed in the latter case. We show that the equilibrium outcomes can be opposite between the two cases because both public and private firms have different objectives in choosing R&D investments, but the spillovers rate is a key factor that determines their incentives. In particular, we show that the output subsidy is smaller (larger) and the welfare is larger (smaller) under the ex-ante R&D decisions for a higher (lower) degree of spillovers rate. Finally, privatization increases the welfare in both cases only when spillovers rate is weak.
    Keywords: Mixed duopoly; Research spillovers, Ex-ante R&D; Ex-post R&D, Output subsidy
    JEL: H21 L13 L32
    Date: 2019–01–14
  3. By: Bos, Iwan (Organisation and Strategy); Vermeulen, Dries (QE / Operations research)
    Abstract: We critically assess the representative consumer model that forms the foundation of a well-known class of linear oligopoly demand structures. It is argued that this approach has several limitations. We present an alternative microeconomic foundation by deriving the same demand system directly from a population of heterogeneous buyers. Our approach can be easily adapted to different demand specifications.
    Keywords: microfoundations, oligopoly theory, product differentiation, representative consumer models
    JEL: B40 L10
    Date: 2019–01–28
  4. By: Jeroen (J.) Hinloopen (University of Amsterdam; CPB); Sander (A.M.) Onderstal (University of Amsterdam); Leonard Treuren (University of Amsterdam)
    Abstract: Using laboratory experiments, we compare the stability of bidding rings in the English auction and the first-price sealed-bid auction in a heterogeneous-value setting. In both a re-matching condition and a fixed-matching condition, we observe that biddings rings are more stable in the English auction than in the first-price sealed-bid auction. In both conditions, the first-price sealed-bid auction dominates the English auction in terms of average revenue and the revenue spread. The English auction outperforms the first-price sealed-bid auction in terms of efficiency.
    Keywords: Cartel stability; English auction; First-price sealed-bid auction; Laboratory experiments
    JEL: C92 D44 L41
    Date: 2019–01–27
  5. By: de Roos, Nicholas; Smirnov, Vladimir
    Abstract: We develop a theory of optimal collusive intertemporal price dispersion. Dispersion clouds consumer price awareness, encouraging firms to coordinate on dispersed prices. Our theory generates a collusive rationale for price cycles and sales. Patient firms can support optimal collusion at the monopoly price. For less patient firms, monopoly prices must be punctuated with fleeting sales. The most robust structure involves asymmetric price cycles resembling Edgeworth cycles. Low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions. However, for sufficiently low attentiveness, price rises are also a concern, limiting the power of obfuscation.
    Keywords: Collusion; obfuscation; price dispersion.
    Date: 2019–01
  6. By: Ahlqvist, V.; Holmberg, P; Tangeras, T.
    Abstract: In centralized markets, producers submit detailed cost data to the dayahead 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: 2019–01–18
  7. By: Huda, Syamsul; Hakim, Heikal Muhammad Zakaria
    Abstract: The number of tobacco manufacturing companies is decreasing significantly, above 60 (sixty) companies on average every year. However, the cigarette companies contribute a significant amount to the state revenues, with an increase of more than 5 (five) trillion rupiah every year. Based on the data, we want to know the feasibility of investing in a cigarette company in the future. The method used includes four stages starting from data collection, data analysis, preliminary data processing, and concluding. We use three sample companies in this research: PT. Bentoel Internasional Investama Tbk, PT. Gudang Garam Tbk, and PT. HM Sampoerna Tbk. The results showed that based on the ROI, NPV, IRR, and BEP, PT. Gudang Garam Tbk. is the most feasible, followed by PT. HM Sampoerna Tbk, during PT. Bentoel Internasional Investama Tbk not feasible for investment.
    Keywords: investment feasibility; ROI; NPV; IRR; BEP
    JEL: G11 L6
    Date: 2019–01–05

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