nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒03‒29
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Partial Compatibility in Oligopoly By Federico Innocenti; Domenico Menicucci
  2. Evidence Production in Merger Control: The Role of Remedies By Markus Dertwinkel-Kalt; Christian Wey
  3. The Economics of Platform Liability By Yassine Lefouili; Leonardo Madio
  4. Does Envelopment through Data Advantage Call for New Regulation? By Gregor Langus; Vilen Lipatov
  5. Pricing Coordination in a Spatial Context: Evidence from the Retail Vehicular Natural Gas Market of Peru By Vásquez Cordano, Arturo Leonardo; Rojas, Pedro; Aurazo, José

  1. By: Federico Innocenti; Domenico Menicucci
    Abstract: This paper examines the issue of product compatibility in an oligopoly with three multi-product firms. Whereas most of the existing literature focuses on the extreme cases of full compatibility or full incompatibility, we look at asymmetric settings in which some firms make their products compatible with a standard technology and others do not. Our analysis reveals each firm’s individual incentive to adopt the standard, and allows to study a two-stage game in which first each firm chooses its technological regime (compatibility or incompatibility), then price competition occurs given the regime each firm has selected at stage one. When firms are ex ante symmetric, we find that for each firm, compatibility weakly dominates incompatibility. In a setting in which a firm’s products have higher quality than its rivals’ products, individual incentives to make products incompatible emerge, first for the firm with higher quality products, then also for the other firms, as the quality difference increases. This paper sheds lights on markets in which some firms adopt the standard technology but other firms use proprietary systems.
    Keywords: Compatibility, Spatial competition, Vertical differentiation, Asymmetric equilibrium, Competitive Bundling
    JEL: D43 L13
    Date: 2021–03
  2. By: Markus Dertwinkel-Kalt; Christian Wey
    Abstract: We analyze evidence production in merger control as a delegation problem in an inquisitorial competition policy system. The antitrust agency’s incentives to produce evidence on the efficiency of a merger proposal depend critically on its action set. Allowing for a compromising remedy solution reduces information acquisition incentives, and could therefore reduce consumer welfare. The effort-frustrating effect of the remedy solution can be eliminated if a remedy solution can be implemented only after evidence on the efficiency of a merger proposal has been produced.
    Keywords: merger remedies, merger control, antitrust
    JEL: L13 L40 K21
    Date: 2021
  3. By: Yassine Lefouili; Leonardo Madio
    Abstract: Public authorities in many jurisdictions are concerned about the proliferation of illegal content and products on online platforms. In this paper, we provide an economic appraisal of platform liability that highlights the effects of a stricter liability rule on several key variables such as prices, terms and conditions, business models, and investments. We also discuss the impact of the liability regime applying to online platforms on competition between them and the incentives of third parties relying on them. Finally, we analyze the potential costs and benefits of measures that have received much attention in recent policy discussions.
    Keywords: liabilities rules, online platforms, illegal content and products, intellectual property
    JEL: K40 K42 K13 L22 L86
    Date: 2021
  4. By: Gregor Langus; Vilen Lipatov
    Abstract: Envelopment is an effective form of market entry that facilitates competition among platforms. Nevertheless, many commentators have focused on the anticompetitive potential of envelopment, and some have argued for regulation of platforms because of that concern. These calls for regulation are not supported by robust formal analysis or comprehensive empirical evidence. We analyze a visible recent contribution by Condorelli and Padilla (2020a,b) and explain why the model that they put forward is not ripe for policy advice in relation to concerns with envelopment.
    Keywords: envelopment, entry deterrence, data, competition of multi-market platforms
    JEL: K21 L13 L40
    Date: 2021
  5. By: Vásquez Cordano, Arturo Leonardo; Rojas, Pedro; Aurazo, José
    Abstract: This paper aims to assess the degree of market power in the Peruvian retail market for Vehicular Natural Gas (VNG) using a generalized spatial competition model proposed by Capozza and Van Order (1978). This model nests Loschian, Hotelling-Smithies, and Greenhut-Ohta models through a single coefficient, so-called the spatial conjectural variation parameter. This paper exploits the fact that the marginal cost of natural gas is known and constant for all VNG stations due to the regulatory treatment in Peru, which ensures the proper identification of the conjectural variation parameter and gives information about the behavior of pricing coordination among firms. Our database contains information on retail VNG prices, sold VNG quantities, and other characteristics of 34 counties in Metropolitan Lima and Callao in Peru from 2011 to 2015. The results suggest the existence of some degree of coordination in prices associated with spatial collusion. This result is consistent with the Peruvian Antitrust Authority verdict that determined the existence of a case of price collusion in this retail market in 2019.
    Keywords: Vehicular Natural Gas, Market Power Measurement, Spatial Competition, Peru, Oligopoly, Generalized Method of Moments, Collusive Behavior, Energy Cartel.
    JEL: L11 L95 Q4 L41 C31 C36
    Date: 2021–02

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