nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒04‒13
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How Large Are Double Markups?By By Perloff, Jeffrey M.
  2. Optimal Reduction of Cartel Fines induced by the Settlement Procedure By Fotis, Panagiotis; Tselekounis, Markos
  3. Network compatibility, intensity of competition and process R&D: A Generalization By Sumit Shrivastav
  4. Technology Policy and Market Structure: Evidence from the Power Sector By Moritz Bohland; Sebastian Schwenen
  5. Complexity of Electricity Markets and their Regulation: Insights from the Turkish Experience. By Oguz, Fuat

  1. By: Perloff, Jeffrey M.
    Keywords: Social and Behavioral Sciences
    Date: 2020–04–10
  2. By: Fotis, Panagiotis; Tselekounis, Markos
    Abstract: EC’s Notice on the conduct of settlement procedures mentions that if the EC decides to reward a firm for settlement in the framework of its Notice, a reduction of 10% on cartel fine will be granted to that firm. In this paper, we compare the cartel profits with the ones derived when the cartel members decide to settle with competition authority so as to find the optimal reduction on cartel fines that fulfills EC’s Notice goal of inducing all cartel firms to participate in the settlement procedure. We find that such reduction is negatively correlated with the likelihood that the cartel would be detected, meaning that a higher probability of cartel detection is required for a lower reduction to be effective.
    Keywords: Antitrust policy; Competition policy; Cartel fines; Settlement Procedure
    JEL: K21 L13 L41
    Date: 2020–03–17
  3. By: Sumit Shrivastav (Indira Gandhi Institute of Development Research)
    Abstract: This paper analyses implications of network compatibility and competition on process innovation in differentiated network goods duopoly. It shows that firms R&D investments are strategic substitutes (complements), if effective network compatibility is less (more) than product substitutability, regardless of the nature of competition. If R&D investments are strategic complements, firms always invest in process innovation and they invest more under Bertrand competition than under Cournot competition. If R&D investments are strategic substitutes, unlike Cournot firms, Bertrand firms dont always undertake process innovation; but, when Bertrand firms also undertake process innovation, Cournot-Bertrand R&D ranking depends on the strength of network externalities.
    Keywords: Network compatibility, Network Externalities, Process R&D, Bertrand-Cournot Compari- son, Product Differentiation
    JEL: L13 D43 O31
    Date: 2020–02
  4. By: Moritz Bohland; Sebastian Schwenen
    Abstract: We show how policies to trigger clean technologies change price competition and market structure. We present evidence from electricity markets, where regulators have implemented different policies to subsidize clean energy. Building on a multi-unit auction model, we show that currently applied subsidy designs either foster or attenuate competition. Fixed, price-independent output subsidies decrease firms’ mark-ups. In contrast, designs that subsidize clean output via a regulatory premium on the market price lead to higher mark-ups. We confirm this finding empirically using auction data from the Spanish power market. Our empirical results show that the design choice for technology subsidies significantly impacts pricing behavior of firms and policy costs for consumers
    Keywords: Subsidies, Clean Energy, Pricing, Electricity
    JEL: D22 D44 D47
    Date: 2020
  5. By: Oguz, Fuat
    Abstract: Electricity pricing models were designed at a time when technology was relatively stable. The natural monopoly model was based on a uni-directional pricing mechanism. Electricity was generated at one end and transferred to the other end. Pollution was not a big issue. There were no solar panels over the houses of consumers. Many contemporary issues of the ecosystem of electricity were not relevant. The tariff model was meant to be a simple one, even though it included many variables. It was not a complex system. This paper argues that a model that was designed within a simple system cannot efficiently adapt to a multidimensional and interdependent system. The use of the old regulatory model within a complex system creates rents and inefficiencies. This paper evaluates the electricity tariff model in Turkey under the light of recent technological advances and changes in the structure of electricity markets. The changes in the institutional environment of the market bring electricity markets closer to a complex system. We argue that the tariff mechanism should also be revised accordingly. We use the Turkish electricity industry as an example, as it reflects the issues in a developing country.
    Keywords: Complexity; electricity distribution; electricity tariffs; regulation; renewables; Turkish electricity industry
    JEL: K2 L9 L94
    Date: 2020–03

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