nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒04‒25
fourteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Bertrand competition in vertically related markets By Tomomichi Mizuno; Kazuhiro Takauchi
  2. Cournot meets Bayes-Nash : A Discontinuity in Behavior Infinitely Repeated Duopoly Games By Argenton, Cedric; Ivanova-Stenzel, Radosveta; Müller, Wieland
  3. Nonlinear Pricing in Oligopoly: How Brand Preferences Shape Market Outcomes By Gomes, Renato; Lozachmeur, Jean-Marie; Maestri, Lucas
  4. Conflicts of Interest, Ethical Standards, and Competition in Legal Services By Bouckaert, Jan; Stennek, Johan
  5. Multiproduct Cost Passthrough: Edgeworth’s Paradox Revisited By Mark Armstrong; John Vickers
  6. Chamberlin without differentiation: Soft-capacity constrained price competition with free entry By Marie-Laure Cabon-Dhersin; Nicolas Drouhin
  7. The Dynamics of Takeovers through Exchange Offers in the Presence of Competition By Miyata, Ryo; Suzuki, Teruyoshi; Yagi, Kyoko
  8. Gravity with granularity By Breinlich, Holger; Fadinger, Harald; Nocke, Volker; Schutz, Nicolas
  9. Innovation and Appropriability: Revisiting the Role of Intellectual Property By Filippo Mezzanotti; Timothy Simcoe
  10. Most-Favored Entry Clauses in Drug Patent Litigation Settlements as a Potential Reverse Payment By Keith M. Drake; Thomas McGuire
  11. Broadband Price Index in Europe By Leogrande, Angelo; Magaletti, Nicola; Cosoli, Gabriele; Massaro, Alessandro
  12. Analysing the impact of green information system, green packaging, reverse logistics on logistics performance in the construction industry By Elizabeth Chinomona
  13. Competing with precision: incentives for developing predictive biomarker tests By Brekke, Kurt R.; Dalen, Dag Morten; Straume, Odd Rune
  14. Market Effects of New Product Introduction: Evidence from the Brew-at-home Coffee Market By Gayle, Philip; Lin, Ying

  1. By: Tomomichi Mizuno (Graduate School of Economics, Kobe University); Kazuhiro Takauchi (Faculty of Business and Commerce, Kansai University / Research Fellow, Graduate School of Economics, Kobe University)
    Abstract: We build a successive Bertrand model with homogenous good. We show that increasing the pro- duction efficiency of upstream industry can reduce upstream Firms' profits. We also show that increasing the production efficiency of downstream industry may reduce downstream Firms' prof- its. Hence, an industrial policy that aims at improving production efficiency may be undesirable for Firms.
    Date: 2022–04
  2. By: Argenton, Cedric (Tilburg University, School of Economics and Management); Ivanova-Stenzel, Radosveta; Müller, Wieland (Tilburg University, School of Economics and Management)
    Date: 2022
  3. By: Gomes, Renato; Lozachmeur, Jean-Marie; Maestri, Lucas
    Abstract: We study oligopolistic competition by firms practicing second-degree price discrimination. In line with the literature on demand estimation, our theory allows for comovements between consumers’ taste for quality and propensity to switch brands. If low-type consumers are sufficiently less (more) brand loyal than high types, (i) quality provision is inefficiently low at the bottom (high at the top) of the product line, and (ii) informational rents are negative (positive) for high types, while positive (negative) for low types. We produce testable comparative statics on pricing and quality provision, and show that more competition (in that consumers become less brand-loyal) is welfare-decreasing whenever it tightens incentive constraints (so much so that monopoly may be welfare-superior to oligopoly). Interestingly, pure-strategy equilibria fail to exist whenever brand loyalty is sufficiently different across consumers types. Accordingly, price/quality dispersion ensues from the interplay between self-selection constraints and heterogeneity in brand loyalty.
    Keywords: competition; price discrimination; asymmetric information; preference correlation; price dispersion
    JEL: D82
    Date: 2022–03–29
  4. By: Bouckaert, Jan (University of Antwerp); Stennek, Johan (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We study how the legal profession manages representational conflicts of interest. Such conflicts arise when the same law firm represents clients with adverse interests. They may compromise the legal process, ultimately jeopardizing social welfare. We argue that current ethical standards, emphasizing disqualification over Chinese walls, may actually worsen the clients’ situation. Instead, the clients’ interests are today mainly protected by law firms being small. Despite low market concentration, law firms enjoy high earnings as representational conflicts create negative network externalities at the firm level. These profits are not eroded even in the long run as entry occurs through firm splitups.
    Keywords: law firms; professional services; dual representation; representational conflicts of interest; ethical standards; Chinese walls; recusals; negative network externalities; competition; self-regulation
    JEL: K40 L13 L22 L44 L84
    Date: 2022–04
  5. By: Mark Armstrong; John Vickers
    Abstract: Edgeworth’s paradox of taxation occurs when an increase in the unit cost of a product causes a multiproduct monopolist to reduce prices. We give simple illustrations of the paradox, we show how it can arise with uniform pricing, and we give an analysis of the case of linear marginal cost and demand conditions. We show how the matrix of cost-passthrough terms must be similar to a positive definite matrix. When the firm supplies two substitute products we show how the paradox always occurs with a suitable choice of cost function. We then show a connection between Ramsey pricing and the paradox in a form relating to consumer surplus, and use it to find further examples where consumer surplus increases with cost.
    Date: 2022–03–25
  6. By: Marie-Laure Cabon-Dhersin (LERN - Laboratoire d'Economie Rouen Normandie - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université); Nicolas Drouhin (CREM - Centre de recherche en économie et management - CNRS - Centre National de la Recherche Scientifique - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - UNICAEN - Université de Caen Normandie - NU - Normandie Université, UNICAEN UFR SEGGAT - Université de Caen Normandie - UFR de Sciences Économiques, Gestion, Géographie et Aménagement des Territoires - UNICAEN - Université de Caen Normandie - NU - Normandie Université)
    Abstract: We show that the long-term properties of price and cost in Chamberlin's (1933) monopolistic competition model can be reproduced with a soft-capacity constrained price competition oligopoly model for a homogeneous good with free entry.
    Keywords: price competition,soft-capacity constraint,free entry,U-shaped cost function,monopolistic competition,Chamberlin
    Date: 2022
  7. By: Miyata, Ryo; Suzuki, Teruyoshi; Yagi, Kyoko
    Abstract: This study examines the characteristics of takeovers in the presence of competition using a threestage model. We first investigate the property of the equilibrium of mergers and takeovers in a frictionless market, and then analyze the effect that the existence of the competitors had on this process. We apply a general surplus function, rather than a specific one, eliminating the modifying effects of this factor from our study. Our model predicts that the existence of heavy competition in the takeover increases the number of unsuccessful or incomplete deals. Furthermore, we find that the shareholders of the target in a competitive market can choose the timing of accepting an offer, without the need to observe the surplus benefit of the deal. Our model shows that the presence of competition does not always provide the target shareholders with an advantage.
    Keywords: Merger and acquisitions, real options, competitions,
    Date: 2022–03
  8. By: Breinlich, Holger; Fadinger, Harald; Nocke, Volker; Schutz, Nicolas
    Abstract: We evaluate the consequences of oligopolistic behavior for the estimation of gravity equations for trade flows. With oligopolistic competition, firm-level gravity equations based on a standard CES demand framework need to be augmented by markup terms that are functions of firms' market shares. At the aggregate level, the additional term takes the form of the exporting country's market share in the destination country multiplied by an exporter-destination-specific Herfindahl-Hirschman index. For both cases, we show how to construct appropriate correction terms that can be used to avoid problems of omitted variable bias. We illustrate the quantitative importance of our results for combined French and Chinese firm-level export data as well as for a sample of product-level imports by European countries. Our results show that correcting for oligopoly bias can lead to substantial changes in the coefficients on standard gravity regressors such as distance or the impact of currency unions.
    Keywords: gravity equation; oligopoly; CES demand; aggregative game
    JEL: F12 F14 L13
    Date: 2021–03–15
  9. By: Filippo Mezzanotti; Timothy Simcoe
    Abstract: It is more than 25 years since the authors of the Yale and Carnegie surveys studied how firms seek to protect the rents from innovation. In this paper, we revisit that question using a nationally representative sample of firms over the period 2008-2015, with the goal of updating and extending a set of stylized facts that has been influential for our understanding of the economics of innovation. There are five main findings. First, while patenting firms are relatively uncommon in the economy, they account for an overwhelming share of R&D spending. Second, utility patents are considered less important than other forms of IP protection, like trade secrets, trademarks, and copyrights. Third, industry differences explain a great deal of the level of firms’ engagement with IP, with high-tech firms on average being more active on all forms of IP. Fourth, we do not find any significant difference in the use of IP strategies across firms at different points of their life cycle. Lastly, unlike age, firms of different size appear to manage IP significantly differently. On average, larger firms tend to engage much more extensively in the protection of IP, and this pattern cannot be easily explained by differences in the type of R&D or innovation produced by a firm. We also discuss the implications of these findings for innovation research and policy.
    Date: 2022–03
  10. By: Keith M. Drake; Thomas McGuire
    Abstract: Settlements of drug patent disputes that involve a potential payment from the brand to the generic signal a possible collusive profit split with a threat to competition, and have undergone intensive scrutiny in the literature on law and economics. A common feature of these brand-generic settlements, so-called “most-favored entry” (MFE) clauses, have not been investigated to the same extent. The expectation that brand drug companies make settlement decisions rationally implies that an otherwise unexplained brand payment above savings from expected future litigation costs derives from a delay in competition achieved by the settlement. This paper applies the condition of brand rationality to settlements with MFE clauses, with the added consideration that an MFE clause may affect two dates: the date of entry for the settling generic and the date of entry of third-party generic challengers. A brand payment from an MFE clause above future expected litigation costs implies delays in at least one and possibly two of these expected dates for competition. We find that MFE clauses can constitute a reverse payment. When a payment takes the form of an MFE clause, the pay-above-saved-litigation-cost criterion is, however, vulnerable to suggesting that a settlement is not anticompetitive, when in fact it is.
    JEL: D22 D43 K21 L41
    Date: 2022–02
  11. By: Leogrande, Angelo; Magaletti, Nicola; Cosoli, Gabriele; Massaro, Alessandro
    Abstract: This article analyzes the determinants of the "Broadband Price Index" in Europe. The data used refer to 28 European countries between 2014 and 2021. The database used is the Digital, Economy and Society Index-DESI of the European Commission. The data were analyzed using the following econometric techniques, namely Panel Data with Random Effects, Panel Data with Fixed Effects, Pooled OLS, WLS and Dynamic Panel. The value of the "Broadband Price Index" is positively associated with the DESI Index, and "Connectivity" while it is negatively associated with "Fixed Broadband Take Up", "Fixed Broadband Coverage", "Mobile Broadband", "e-Government", "Advanced Skills and Development", "Integration of Digital Technology", "At Least Basic Digital Skills ", "Above Basic Digital Skills "," At Least Basic Software Skills ". A cluster analysis was carried out below using the k-Means algorithm optimized with the Silhouette coefficient. The analysis revealed the existence of three clusters. Finally, an analysis of the machine learning algorithms was carried out to predict the future value of the "Broadband Price Index". The result shows that the most useful algorithm for prediction is the Artificial Neural Network-ANN with an estimated value equal to an amount of 9.21%.
    Keywords: Innovation, and Invention: Processes and Incentives; Management of Technological Innovation and R&D; Diffusion Processes; Open Innovation
    JEL: O3 O30 O31 O32 O33
    Date: 2022–03–05
  12. By: Elizabeth Chinomona (Vaal University of Technology, P Bag X021, 1900, Vanderbijlpark, South Africa Author-2-Name: Marie Brinda Bikissa-Macongue Author-2-Workplace-Name: Vaal University of Technology, P Bag X021, 1900, Vanderbijlpark, South Africa Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - Due to their prominent position in the market, construction companies are increasingly required to control and minimise the internal and external environmental impact of their day-to-day activities. To achieve this, all over the world, construction companies have gradually adopted different environmentally-friendly practices promoting the preservation of the environment. Generally, many of these practices are carried out in the area of green supply chain management (GSCM) and logistics performance where there is a great potential to reduce the rate of pollution generated. Therefore, the purpose of the study is to analyse the effective GSCM factors which are green information systems, green packaging, and reverse logistics necessary to improve the logistics performance of their companies. Methodology/Technique - For this study, a quantitative approach was adopted. A judgmental or purposive sampling technique was applied to collect data from 400 respondents. Data were analysed with the aid of two software namely, Statistical package for social science (SPSS 27.0) and Analysis of moment structures (AMOS 27.0). In addition, Confirmatory factors analysis and Structural equation modeling were used to analyse the relationship between constructs and test the hypotheses. Finding/Novelty - In addition, the study implied that construction companies that comply with the different laws and regulations established, develop and implement a green information system, as well as a good reverse logistics system, are more likely to reduce the environmental impact of their activities, while optimising their economic viability. The study suggests that by adopting GSCM and improving their logistics performance, construction companies will be able to improve their environmental performance. Therefore, it is recommended that construction companies keep giving more attention to GSCM and logistics performance as it is the most innovative means by which they can get cost efficiency and environmental responsibility simultaneously. Type of Paper - Empirical"
    Keywords: Green supply chain management; Logistics performance; Reverse logistics; Green packaging, Green information system, Sustainability
    JEL: J33 L1 L7
    Date: 2022–03–31
  13. By: Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Dalen, Dag Morten (BI Norwegian Business School); Straume, Odd Rune (University of Minho and University of Bergen)
    Abstract: We study the incentives of drug producers to develop predictive biomarkers, taking into account strategic interaction between drug producers and health plans. For this purpose we develop a two-dimensional spatial framework that allows us to capture the informational role of biomarkers and their effects on price competition and treatment choices. Although biomarkers increase the information available to prescribers, we identify an anticompetitive effect on the prices set by producers of therapeutically substitutable drugs. We also nd that better information about each patient s most therapeutically appropriate drug does not necessarily lead to more efficient treatment outcomes.
    Keywords: Pharmaceutical markets; Precision medicine; Therapeutic competition; Predictive biomarkers
    JEL: I11 I18 L13 L65
    Date: 2022–03–31
  14. By: Gayle, Philip; Lin, Ying
    Abstract: The introduction of new products has always been an important source of economic development and improvement in consumer welfare. With retail coffee data spanning five years after the single-cup brew coffee pods were introduced to grocery chains, this paper empirically studies the market effects of new product introduction in the brew-at-home coffee market. We use a structural model of demand and supply to capture the changes in consumers’ preference for this new product over time. The demand estimates suggest that consumers’ relative preference and willingness-to-pay for the new product grew substantially over the sample periods. The analysis reveals the extent to which the introduction and growing presence of the new product simultaneously expanded the relevant market and cannibalized the sales of pre-existing substitute products (traditional auto-drip brew coffee products). Furthermore, we quantify the annually expanding welfare gains of the average consumer attributable to the new product.
    Keywords: New product introduction; Willingness-to-pay; Market-expansion; Demand-cannibalization; Brew-at-home coffee market
    JEL: D12 L13 L66
    Date: 2022–02–28

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