nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒02‒06
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Bertrand duopoly game with differentiated products reconsidered By Xiaoliang Li; Bo Li
  2. Multiproduct Cost Passthrough: Edgeworth's Paradox Revisited By armstrong, mark; Vickers, John
  3. Circular Business Models: Product Design and Consumer Participation By Buehler, Stefan; Chen, Rachel; Halbheer, Daniel
  4. Joint procurement by heterogeneous buyers By Isabel Helmrath; Matthias Hunold; Johannes Muthers
  5. Self-Efficacy and Entrepreneurial Performance of Start-Ups By Caliendo, Marco; Kritikos, Alexander S.; Rodriguez, Daniel; Stier, Claudia

  1. By: Xiaoliang Li; Bo Li
    Abstract: In this paper, we explore a dynamic Bertrand duopoly game with differentiated products, where firms are boundedly rational and consumers are assumed to possess an underlying CES utility function. We mainly focus on two distinct degrees of product substitutability. Several tools based on symbolic computations such as the triangular decomposition method and the PCAD method are employed in the analytical investigation of the model. The uniqueness of the non-vanishing equilibrium is proved and rigorous conditions for the local stability of this equilibrium are established for the first time. Most importantly, we find that increasing the substitutability degree or decreasing the product differentiation has an effect of destabilization for our Bertrand model, which is in contrast with the relative conclusions for the Cournot models. This finding could be conducive to the revelation of the essential difference between dynamic Cournot and Bertrand oligopolies with differentiated goods. In the special case of identical marginal costs, we derive that lower degrees of product differentiation mean lower prices, higher supplies, lower profits, and lower social welfare. Furthermore, complex dynamics such as periodic orbits and chaos are reported through our numerical simulations.
    Date: 2023–01
  2. By: armstrong, mark; Vickers, John
    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, including how it can arise with uniform pricing. We then give a general analysis of the case of linear marginal cost and demand conditions, and characterize which matrices of cost passthrough terms are consistent with profit maximization. When the firm supplies at least one pair of substitute products we show how Edgeworth's paradox always occurs with a suitable choice of cost function. We then establish 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.
    Keywords: Multiproduct pricing; Edgeworth's paradox of taxation; cost passthrough; Ramsey pricing
    JEL: D42 H22 L12
    Date: 2023–01
  3. By: Buehler, Stefan; Chen, Rachel; Halbheer, Daniel
    Abstract: This paper develops an analytical framework to study how firms should design a product by choosing its recyclability and price when consumers adopt a life-cycle approach and decide whether to recycle an end-of-life product. We show that, under a linear business model, the firm offers a non-recyclable product even if consumers care about recyclability. Under a circular business model, the firm generates revenue from both sales and recycling, and determines recyclability by balancing the marginal changes in the consumers’ expected end-of-life utility and the unit production cost net of the expected value of the recovered resources. We identify conditions under which the firm offers a fully recyclable product and all consumers return the product for recycling. In addition, we show that stronger consumer concerns about recyclability and a higher market value of the recovered resources increase recyclability, but have an ambiguous impact on price, demand, profit, and the waste footprint of the firm. Further, we characterize conditions under which transitioning from a linear to a circular business model is profitable and socially desirable. Finally, we examine how the firm can boost circularity by leveraging deposit-refund systems, product buyback, or retaining product ownership.
    Keywords: Circular business model, waste footprint, resource footprint, recycling, reverse supply chain, pricing
    JEL: D21 L21 M21 M31 Q53
    Date: 2023–01
  4. By: Isabel Helmrath (University of Siegen); Matthias Hunold; Johannes Muthers
    Abstract: We analyze self- and joint procurement of countries with heterogeneous demand for a good offered by a price discriminating monopolist. We find that not only countries with low but also with high demand can benefit from committing to jointly procure equal quantities at a uniform price, even if the supplier is capacity constrained. Free-riding of outside buyers as well as too much heterogeneity of insiders make the buyer group unstable. Uniform price procurement without a quantity restriction is only stable with intra-group transfers. We relate our findings to the COVID-19 vaccine procurement of the European Union.
    Keywords: joint procurement, group purchase, heterogeneous buyer group, vaccine procurement, price discrimination
    JEL: C79 D42 L12
    Date: 2022–11
  5. By: Caliendo, Marco (University of Potsdam); Kritikos, Alexander S. (DIW Berlin); Rodriguez, Daniel (University of Potsdam); Stier, Claudia (University of Potsdam)
    Abstract: Self-efficacy reflects the self-belief that one can persistently perform difficult and novel tasks while coping with adversity. As such beliefs reflect how individuals behave, think, and act, they are key for successful entrepreneurial activities. While existing literature mainly analyzes the influence of the task-related construct of entrepreneurial self-efficacy, we take a different perspective and investigate, based on a representative sample of 1, 405 German business founders, how the personality characteristic of generalized self-efficacy influences start-up performance as measured by a broad set of business outcomes up to 19 months after business creation. Outcomes include start-up survival and entrepreneurial income, as well as growthoriented outcomes such as job creation and innovation. We find statistically significant and economically important positive effects of high scores of self-efficacy on start-up survival and entrepreneurial income, which become even stronger when focusing on the growth-oriented outcome of innovation. Furthermore, we observe that generalized self-efficacy is similarly distributed between female and male business founders, with effects being partly stronger for female entrepreneurs. Our findings are important for policy instruments that are meant to support firm growth by facilitating the design of more target-oriented offers for training, coaching, and entrepreneurial incubators.
    Keywords: entrepreneurship, firm performance, general self-efficacy, survival, job creation, innovation
    JEL: L26 M13 D91
    Date: 2023–01

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