nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒12‒23
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competitive Imperfect Price Discrimination and Market Power By Paul Belleflamme; Wing Man Wynne Lam; Wouter Vergote
  2. Vertically Differentiated Cournot Oligopoly: Effects of Market Expansion and Trade Liberalization on Relative Markup and Product Quality By Ngo Van Long; Zhuang Miao
  3. Third-degree Price Discrimination Versus Uniform Pricing By Dirk Bergemann; Francisco Castro; Gabriel Weintraub
  4. Competition policy and Industrial property: relationship through panel data approach 2007 – 2015 By Herrera Saavedra, Juan Pablo; Lozano Maturana, Ginette; Campo Robledo, Jacobo; Parra Ochoa, Catalina
  5. Communication and Market Sharing: An Experiment on the Exchange of Soft and Hard Information By Freitag, Andreas; Roux, Catherine; Thöni, Christian
  6. Cost Pass-through in the British Wholesale Electricity Market: Implications of Brexit and the ETS reform By Guo, B.; Castagneto Gissey, G.

  1. By: Paul Belleflamme; Wing Man Wynne Lam; Wouter Vergote
    Abstract: Two duopolists compete in price on the market for a homogeneous product. They can ‘profile’ consumers, i.e., identify their valuations with some probability. If both firms can profile consumers but with different abilities, then they achieve positive expected profits at equilibrium. This provides a rationale for firms to (partially and unequally) share data about consumers, or for data brokers to sell different customer analytics to competing firms. Consumers prefer that both firms profile exactly the same set of consumers, or that only one firm profiles consumers, as this entails marginal cost pricing (so does a policy requiring list prices to be public). Otherwise, more protective privacy regulations have ambiguous effects on consumer surplus.
    Keywords: price discrimination, price dispersion, Bertrand competition, privacy, big data
    JEL: D11 D18 L12 L86
    Date: 2019
  2. By: Ngo Van Long; Zhuang Miao
    Abstract: We model an oligopoly where firms are allowed to freely enter and exit the market and choose the quality level of their products by incurring different set-up costs. Using this framework, we study the mix of firms in the long-run Cournot-Nash equilibrium under different cost structures and the effects of market size on market outcomes. Specifically, we consider two alternative specifications of cost structure. In the first specification, quality upgrading requires a large increment in the set-up cost or R&D investment. Under this cost structure, we show that in the Nash equilibrium, each firm specializes in a single quality level, and an increase in the market size leads to (i) an increase in the fraction of firms that specialize in the high quality product, (ii) an increase in the market share of the high quality product, and (iii) a reduction in firms' markups and in markup dispersion. Under the second type of cost structure where quality upgrading only requires higher marginal cost, we find that all firms will produce both types of product, and the value share of the high-quality product increases as the market expands, but in quantity terms, the market share of the high quality product does not change. Finally, we find that trade liberalization has broadly similar effects to that of a market expansion, but the supply of the high-quality product from the smaller economy may decrease.
    JEL: L1 L2 F15
    Date: 2019–12–13
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Anderson School of Management, UCLA); Gabriel Weintraub (Graduate School of Business, Stanford University)
    Abstract: We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one half of the optimal monopoly proï¬ ts. This revenue bound obtains for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight, and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons.
    Keywords: First Degree Price Discrimination, Third Degree Price Discrimination, Uniform Price, Approximation, Concave Demand Function, Market Segmentation
    JEL: C72 D82 D83
    Date: 2019–12
  4. By: Herrera Saavedra, Juan Pablo; Lozano Maturana, Ginette; Campo Robledo, Jacobo; Parra Ochoa, Catalina
    Abstract: In the last century, the relation between competition and innovation has been a subject of particular interest, considering the important role that technological progress plays on economic growth and social welfare. Moreover, for several decades, the interest and discussion in regards to this matter has been the focus of heated debates among economists, jurists; and, most notably, among Competition and Industrial Property Authorities, since competition and innovation are the main axes in any modern approach to industrial policy. This paper examines the relation between competition and innovation, based on the estimation of panel data models for 75 countries between 2007 and 2015. The results show an inverted-U relation between innovation and competition. In other words, increases in competition generates innovation to a certain level (turning point) where the effect of competition on innovation is negative. This is consistent with Aghion et al. (2005) approach. The results are robust to different variables used as a proxy for innovation.
    Keywords: Industrial Property; Competition; Panel Data; GMM; inverted-U
    JEL: C33 L11 L22 M13
    Date: 2019–12
  5. By: Freitag, Andreas (University of Basel); Roux, Catherine (University of Basel); Thöni, Christian
    Abstract: We study the role of communication in collusive market sharing. In a series of Cournot oligopoly experiments with multiple markets and repeated interaction, we vary the types of information that firms can exchange. We distinguish between hard information-verifiable information about past conduct-and soft information- unbinding information about future conduct. We find that the effect of communication on the firms' ability to collude depends on the type of information available: market prices increase only slightly when hard information allows perfect monitoring of rivals' past actions, but the price raise due to soft information, however, is substantial. The explicit consent of each cartel member to a common collusive strategy, even if stated only once, drives this strong effect. Our results point to the types and contents of communication that should be of particular concern to antitrust authorities.
    Keywords: Collusion ; market sharing ; cournot oligopoly ; information; Cmmunication, experiments
    JEL: C91 L13 L41
    Date: 2019–11–29
  6. By: Guo, B.; Castagneto Gissey, G.
    Abstract: This Cost pass-through rates give a useful perspective of market competition. This paper studies how generation costs are passed through to electricity wholesale prices in Great Britain, both theoretically and empirically, between 2015 and 2018. Our empirical results fail to reject the null of 100% pass-through rates for gas prices, carbon prices, and exchange rates, indicating a competitive GB wholesale electricity market. We observe higher pass-through rates in peak compared to off-peak periods, and argue this results from generators bidding at a lower rate during off-peak periods and supplying at minimum load to avoid the cost of shutting down and starting up. We extend the analysis by assessing generators’ bidding behaviour. The study also considers how two key events occurred during the examined period – the 2016 Brexit referendum, and major reformation of the EU Emission Trading System – have affected electricity costs to a typical domestic household, showing they have increased average annual bills by £41 p.a., constituting a 7% rise.
    Keywords: Electricity market, Cost pass-through, Competition, Carbon price, VECM
    JEL: L13 Q48 D41 H23 C32
    Date: 2019–12–05

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