nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒07‒29
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price Competition in a Vertizontally Differentiated Duopoly By Bos, Iwan; Peeters, Ronald
  2. Monopolistic competition and optimum product selection: why and how heterogeneity matters By Nocco, Antonella; Ottaviano, Gianmarco I. P.; Salto, Matteo
  3. Necessary and sufficient condition for equilibrium of the Hotelling model By Satoshi Hayashi; Naoki Tsuge
  4. Competition Policy within the Coordinated and Hierarchical Market Tradition: The Case of Germany and France By Bos, Iwan
  5. Effort under alternative pay contracts in the ride-sharing industry By Belloc, Filippo
  6. Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry By Dennis, Patrick; Gerardi, Kristopher S.; Schenone, Carola
  7. Drivers of Online Grocery Shopping By Etumnu, Chinonso E.; Foster, Kenneth A.; Widmar, Nicole Olynk; Lusk, Jayson L.; Ortega, David L.
  8. Capacity mechanisms and the technology mix in competitive electricity markets By Holmberg, P.; Ritz, R.
  9. How does online streaming affect antitrust remedies to centralized marketing? The case of European football broadcasting rights By Budzinski, Oliver; Gänßle, Sophia; Kunz-Kaltenhäuser, Philipp
  10. Benefits of Regulation vs. Competition Where Inequality Is High: The Case of Mobile Telephony in South Africa By Ryan Hawthorne; Lukasz Grzybowski

  1. By: Bos, Iwan (Organisation and Strategy); Peeters, Ronald (university of otago, dunedin)
    Abstract: This paper analyzes price competition in a duopoly market in which products are both horizontally and vertically differentiated. Firms offer a basic and a premium product to buyers, some of whom are brand loyal. We establish the existence of a unique and symmetric Nash pricing equilibrium. Equilibrium prices are increasing in the degree of horizontal differentiation and the amount of brand loyal customers. The equilibrium price of the basic (premium) good is decreasing (increasing) in the quality difference and profits can increase in costs when this difference is high enough. If the pricing decision is taken at the product (division) level, then there is again a unique (and symmetric) Nash equilibrium. Equilibrium prices and profits are lower than in the centralized case and demand for the basic product is higher when the quality difference is sufficiently large. Welfare is unambiguously lower with decentralized pricing.
    Keywords: vertizontal differentiation, pricing, multiproduct oligopoly
    JEL: D43 L13
    Date: 2019–06–20
  2. By: Nocco, Antonella; Ottaviano, Gianmarco I. P.; Salto, Matteo
    Abstract: After some decades of relative oblivion, the interest in the optimality properties of monopolistic competition has recently re-emerged due to the availability of an appropriate and parsimonious framework to deal with firm heterogeneity. Within this framework we show that non-separable utility, variable demand elasticity and endogenous firm heterogeneity cause the market equilibrium to err in many ways, concerning the number of products, the size and the choice of producers, the overall size of the monopolistically competitive sector. More crucially with respect to the existing literature, we also show that the extent of the errors depends on the degree of firm heterogeneity. In particular, the ine¢ ciency of the market equilibrium is largest when selection among heterogenous firms is needed most, that is, when there are relatively many firms with low productivity and relatively few firms with high productivity.
    Keywords: monopolistic competition; product diversity; firm heterogene-ity; selection; welfare
    JEL: J1 L81
    Date: 2017–07–20
  3. By: Satoshi Hayashi; Naoki Tsuge
    Abstract: We study a model of vendors competing to sell a homogeneous product to customers spread evenly along a linear city. This model is based on Hotelling's celebrated paper in 1929. Our aim in this paper is to present a necessary and sufficient condition for the equilibrium. This yields a representation for the equilibrium. To achieve this, we first formulate the model mathematically. Next, we prove that the condition holds if and only if vendors are equilibrium.
    Date: 2019–07
  4. By: Bos, Iwan (Organisation and Strategy)
    Abstract: We discuss German and French competition policy in relation to the Hierarchical and Coordinated free market models. It is shown that both policies initially fitted well to the Hierarchical model, but over time transformed to a system primarily compatible with the Coordinated free market philosophy. We furthermore argue that this transformation is not (yet) complete in the sense that both the German and the French government can still intervene directly in competition cases concerning market structure.
    Date: 2019–06–20
  5. By: Belloc, Filippo
    Abstract: We study hours worked by drivers in the peer-to-peer transportation sector with cross-side network effects. Medallion lease (regulated market), commission-based (Uber-like pay) and profit-sharing ("pure" taxi coop) compensation schemes are compared. Our static model shows that network externalities matter, depending on the number of active drivers. When the number of drivers is limited, in the presence of positive network effects, a regulated system always induces more hours worked, while the commission fee influences the comparative incentives towards effort of Uber-like pay versus profit-sharing. When the number of drivers is infinite (or close to it), the influence of network externalities on optimal effort vanishes.
    Keywords: Uber, network effects, ride-sharing, pay schemes, effort, taxi industry
    JEL: J22 J33 L91
    Date: 2019–06–27
  6. By: Dennis, Patrick (University of Virginia); Gerardi, Kristopher S. (Federal Reserve Bank of Atlanta); Schenone, Carola (University of Virginia)
    Abstract: Institutional investors often own significant equity in firms that compete in the same product market. These "common owners" may have an incentive to coordinate the actions of firms that would otherwise be competing rivals, leading to anti-competitive pricing. This paper uses data on airline ticket prices to test whether common owners induce anti-competitive pricing behavior. We find little evidence to support such a hypothesis, and show that the positive relationship between average ticket prices and a commonly used measure of common ownership previously documented in the literature is generated by the endogenous market share component, rather than the ownership component, of the measure.
    Keywords: common ownership; airline prices; institutional ownership; competition
    JEL: G33 G34 G38 L11 L41
    Date: 2019–07–01
  7. By: Etumnu, Chinonso E.; Foster, Kenneth A.; Widmar, Nicole Olynk; Lusk, Jayson L.; Ortega, David L.
    Keywords: Marketing
    Date: 2019–06–25
  8. By: Holmberg, P.; Ritz, R.
    Abstract: Capacity mechanisms are increasingly used in electricity market design around the world yet their role remains hotly debated. In this paper, we introduce a new benchmark model of a capacity mechanism in a competitive electricity market with many different generation technologies. We consider two policy instruments, a wholesale price cap and a capacity payment, and show which combinations of these instruments induce socially-optimal investment by the market. Changing the price cap or capacity payment affects investment only in peak generation plant, with no equilibrium impact on baseload or mid-merit plant. We obtain a rationale for a capacity mechanism based on the internalization of a system-cost externality – even where the price cap is set at the value of lost load. In extensions, we show how increasing renewables penetration enhances the need for a capacity mechanism, and outline an optimal design of a strategic reserve with a discriminatory capacity payment.
    Keywords: Investment, wholesale electricity market, capacity mechanism, capacity auction, strategic reserve
    JEL: D41 L94
    Date: 2019–07–09
  9. By: Budzinski, Oliver; Gänßle, Sophia; Kunz-Kaltenhäuser, Philipp
    Abstract: The collective sale of football broadcasting rights constitutes a cartel, which, in the European Union, is only allowed if it complies with a number of conditions and obligations, inter alia, partial unbundling and the no-single-buyer rule. These regulations were defined with traditional TV-markets in mind. However, the landscape of audiovisual broadcasting is quickly changing with online streaming services gaining popularity and relevance. This also alters the effects of the conditions and obligations for the centralized marketing arrangements. Partial unbundling may lead to increasing instead of decreasing prices for consumers. Moreover, the combination of partial unbundling and the no-single-buyer rule forces consumers into multiple subscriptions to several streaming services, which increases transaction costs. Consequently, competition authorities need to rethink the conditions and obligations they impose on centralized marketing arrangements in football. We recommend restricting the exclusivity of (live-)broadcasting rights and mandate third-party access to program guide information to redesign the remedies.
    Keywords: collective sale of broadcasting rights,sports economics,antitrust,competition policy,centralized marketing,sports and media,football,online media
    JEL: K21 L40 L83 L82
    Date: 2019
  10. By: Ryan Hawthorne; Lukasz Grzybowski
    Abstract: We test for the distributional effects of regulation and entry in the mobile telecommunications sector in a highly unequal country, South Africa. Using six waves of a consumer survey of over 134,000 individuals between 2009-2014, we estimate a discrete-choice model allowing for individual-specific price-responsiveness and preferences for network operators. Next, we use a demand and supply equilibrium framework to simulate prices and the distribution of welfare without entry and mobile termination rate regulation. We find that regulation benefits consumers significantly more than entry does, and that high-income consumers and city-dwellers benefit more in terms of increased consumer surplus.
    Keywords: mobile telecommunications, competition, entry, discrete choice, inequality
    JEL: L13 L40 L50 L96
    Date: 2019

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