nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒05‒03
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. History-Based Price Discrimination with Imperfect Information Accuracy and Asymmetric Market Shares By Stefano Colombo; Clara Graziano; Aldo Pignataro
  2. Strategic Leaks in First-Price Auctions and Tacit Collusion: The Case of Spying and Counter-Spying By Cuihong Fan; Byoung Heon Jun; Elmar G. Wolfstetter

  1. By: Stefano Colombo; Clara Graziano; Aldo Pignataro
    Abstract: The paper considers a duopoly model in which firms inherited asymmetric market shares and history-based price discrimination is viable. However, firms can identify only a share of their own consumers depending to the degree of information accuracy. We derive the pricing strategies and we analyze the relationship between information accuracy and asymmetric market shares, showing under which circumstances there exists an equilibrium in pure strategies. We show that history-based price discrimination makes the dominant firm’s profits always lower than those of the rival, with an ambiguous effect of the information accuracy on industry profits. Moreover, we prove that the level of information accuracy has a decreasing effect on social welfare, while it affects consumer surplus non-monotonically, according to the size of asymmetry in the inherited market shares.
    Keywords: history-based price discrimination, information accuracy, asymmetric market shares
    JEL: D80 D43 L10
    Date: 2021
  2. By: Cuihong Fan; Byoung Heon Jun; Elmar G. Wolfstetter
    Abstract: We analyze strategic leaks due to spying out a rival’s bid in a first-price auction. Such leaks induce sequential bidding, complicated by the fact that the spy may be a counterspy who serves the interests of the spied at bidder and reports strategically distorted information. This ambiguity about the type of spy gives rise to a non-standard signaling problem where both sender and receiver of messages have private information and the sender has a chance to make an unobserved move. Whereas spying without counterspy exclusively benefits the spying bidder, the potential presence of a counterspy yields a collusive outcome, even if the likelihood that the spy is a counterspy is arbitrarily small. That collusive impact shows up in all equilibria and is strongest in the unique pooling equilibrium which is also the payoff dominant equilibrium.
    Keywords: auctions, tacit collusion, espionage, second-mover advantage, signaling, incomplete information
    JEL: L12 L13 L41 D43 D44 D82
    Date: 2021

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