nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒10‒18
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Quality Differentiation in Durable Goods Monopoly Always Yields Strictly Positive Profits By Didier Laussel; Ngo Van Long
  2. Production structure, output and profits - A note By Dögüs, Ilhan
  3. Behavior-based Price Discrimination in the Domestic and International Mixed duopoly By Okuyama, Suzuka
  4. Price and quality competition in a mixed duopoly : Differential game approach By Okuyama, Suzuka
  5. Monopoly Capitalism in the Digital Era By Andrea Coveri; Claudio Cozza; Dario Guarascio
  6. Selecting valuation distributions: non-price decisions of multi-product firms By Stefanie Bossard; Armin Schmutzler
  7. Competition and Mergers with Strategic Data Intermediaries By David Bounie; Antoine Dubus; Patrick Waelbroeck

  1. By: Didier Laussel; Ngo Van Long
    Abstract: A monopolist producing vertically differentiated durable goods can offer in each period a sequence of price-quality menus to segment the market. We show that, contrary to the Coase conjecture for the homogeneous durable good monopoly, thanks to the ability to produce differentiated durable goods, in all Markov-Perfect Equilibria, the profit of a monopolist that cannot commit to future price-quality menus is bounded below by a strictly positive value independent of the discount factor.
    Keywords: product quality, durable good monopoly, second-degree price discrimination, Coase conjecture
    JEL: C73 D42 L12
    Date: 2021
  2. By: Dögüs, Ilhan
    Abstract: This paper argues that the case of product differentiation of concentrated markets (i.e., innovation competition) is one where production per unit of profit of non-financial corporations is lower than in competitive mass production and profit share is not an increasing function of capacity utilisation. Rather the desired excess capacity is higher compared since the break-even point where total costs and revenues equalize tends to be lower. The argument is supported with descriptive annual data for the period 1947-2019 in the USA.
    Keywords: product differentiation,market structure,capacity utilisation,profits
    JEL: D24 E12 L11
    Date: 2021
  3. By: Okuyama, Suzuka
    Abstract: We investigate mixed markets in which a social welfare-maximizing public firm and a private firm engage in behavior-based price discrimination. We consider two cases: one where the private firm is completely owned by domestic shareholders and one where it is completely owned by foreign shareholders. In the domestic mixed duopoly, BBPD is irrelevant from the viewpoint of social welfare. This is because poaching does not occur. In the international mixed duopoly, BBPD reduces the public firm’s market share but improves domestic social welfare. This is because the outflow to foreign shareholders decreases. We also consider domestic and international pure duopoly and find that the presence of public firms reduces welfare loss caused by BBPD.
    Keywords: Behavior-based price discrimination, Mixed oligopoly, Foreign firms, Privatization
    JEL: D43 H42 L13
    Date: 2021–10–08
  4. By: Okuyama, Suzuka
    Abstract: This paper investigates price and quality competition in a mixed duopoly market, where a state-owned welfare-maximizing public firm competes against a profit-maximizing private firm. We use a differential game approach with a Hotelling spatial competition framework. We extend Cellini et al.(2018) by incorporating a state-owned public firm and derive open- and closed-loop solutions. The steady-state quality levels are optimal in the open-loop solution. Numerical results show that the steady-state quality level of the public firm in the closed-loop solution does not necessarily lower than that in the open-loop solution. As a private firm's investment is large, the public firm’s incentive for quality improvement increases since there exists intertemporal strategic substitutability between investment and quality. Competition and privatization policies are neutral under the open-loop solution but not under the closed-loop solution. Competition policy improves social welfare with an increase in quality and privatization policy improves it with an decrease in quality in the closed-loop solution.
    Keywords: Mixed oligopoly, Privatization, Differential-game, Quality.
    JEL: H42 L13
    Date: 2021–08–30
  5. By: Andrea Coveri; Claudio Cozza; Dario Guarascio
    Abstract: The paper applies the radical view of Monopoly Capitalism to the digital platform economy. Based on the seminal ideas of Hymer and Zeitlin that led Cowling and Sugden to define the large monopolistic firm as a means to plan production from a unique centre of strategic decision-making, we attempt to develop a framework where digital platforms are conceived as an evolution of large transnational corporations. Power and control in our Monopoly Capitalism view are then meant not only in terms of market relations, but rather as levers for coordinating global production and influencing world societies. Applying this framework to the Amazon case, we highlight the key analytical dimensions to be considered: not only Amazon dominates other firms and suppliers through its diversification and a direct control of data and technology; its power is also linked to global labour fragmentation and uneven bargaining power vis-à-vis world governments, as in the Hymer and Cowling's tradition.
    Keywords: Monopoly Capital; Monopoly Power; Digital Platforms; Amazon; Multinational corporation.
    Date: 2021–10–06
  6. By: Stefanie Bossard; Armin Schmutzler
    Abstract: This paper analyzes decisions of multi-product firms regarding product selection, innovation and advertising as choices of consumer valuation distributions. We show that a profit-maximizing monopolist chooses these distributions so as to maximize the dispersion of the valuation differences between goods across consumers. By contrast, she chooses the willingness-to-pay to be maximally or minimally dispersed, depending on the set of available distributions. In our benchmark model with uniform valuation differences, prices are increasing in valuation difference heterogeneity, but in more general settings this is not necessarily true. Moreover, the relation between willingness-to-pay heterogeneity and prices may well be non-monotone. Over wide parameter ranges, the firm’s choice of valuation distribution does not maximize net consumer surplus. This problem is exacerbated when the firm has access to strategies that distort valuation heterogeneity or willingness-to-pay heterogeneity.
    Keywords: Product choice, multiproduct firms, product heterogeneity, valuation distributions, consumer confusion
    JEL: D43 L13 M30
    Date: 2021–10
  7. By: David Bounie; Antoine Dubus; Patrick Waelbroeck
    Abstract: We analyze competition between data intermediaries collecting information on consumers, which they sell to firms for price discrimination purposes. We show that competition between data intermediaries benefits consumers by increasing competition between firms, and by reducing the amount of consumer data collected. We argue that merger policy guidelines should investigate the effect of the data strategies of large intermediaries on competition and consumer surplus in related markets.
    Keywords: data, mergers, competition, consumer surplus
    JEL: L13 L40 L86
    Date: 2021

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