nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒07‒14
eleven papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Competition and access price regulation in the broadband market By Michiel Bijlsma; Viktória Kocsis; Nelli Valmari
  2. Market Entry and Competitive Strategies in the German B2B Parcel Market By Helmut Dietl; Markus Lang; Martin Lutzenberger; Stephan Wagner
  3. Competition against peer-to-peer networks By Herings P. Jean-Jacques; Peeters Ronald; Yang Michael
  4. Tacit Collusion in Price-Setting Duopoly Markets: Experimental Evidence By Lisa R. Anderson; Beth A. Freeborn; Charles A. Holt
  5. Price Discrimination Bans on Dominant Firms By Degryse, H.A.
  6. Static efficiency in Dutch supermarket chain By Harold Creusen; Arno Meijer; Gijsbert Zwart; Henry van der Wiel
  7. Edgeworth Cycles Revisited By Joseph J. Doyle, Jr.; Erich Muehlegger; Krislert Samphantharak
  8. Partnership contracts, project finance and information asymmetries: from competition for the contract to competition within the contract? By Frederic Marty; Arnaud Voisin
  9. Welfare Effects of Salary Caps in Sports Leagues with Win-Maximizing Clubs By Helmut Dietl; Egon Franci; Markus Lang; Alexander Rathke
  10. Why and how should innovative industries with high consumer switching costs be re-regulated? By Jackie Krafft; Evens Salies
  11. E-commerce and the Market Structure of Retail Industries By Maris Goldmanis; Ali Hortacsu; Chad Syverson; Onsel Emre

  1. By: Michiel Bijlsma; Viktória Kocsis; Nelli Valmari
    Abstract: In most European broadband Internet markets local loop unbundling is mandated under a cost-based regulated access price. We construct a model for differentiated Cournot competition between service-based and infrastructure-based firms, out of which one infrastructure-based firm (the incumbent) supplies to the service-based firms. We seek for and compare the socially optimal and the incumbent’s profit maximizing access price in two scenarios: (i) service-based firms and incumbent supply homogeneous services (partial differentiation), and (ii) all services are horizontally differentiated (uniform differentiation). We show that in both cases the incumbent never forecloses service-based firms if infrastructure-based competition is present or if services are somewhat differentiated. Under uniform differentiation the welfare optimizing access price is below marginal cost, hence the incumbent subsidizes the production of service-based firms and makes zero profit. In the case of partial differentiation, the same result obtains when both markets are concentrated. However, if markets are not concentrated, the socially optimal access fee exceeds the marginal cost.
    Keywords: broadband Internet market; imperfect competition; product differentiation; access regulation
    JEL: L13 L51 L86 L96
    Date: 2008–06
  2. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Martin Lutzenberger (Institute for Strategy and Business Economics, University of Zurich); Stephan Wagner (Chair of Logistics Management, Swiss Federal Institute of Technology Zurich)
    Abstract: This paper analyzes competitive strategies and the impending market entry of a new player in the German Business-to-Business (B2B) parcel market. Currently there a four large service providers in the German B2B parcel market. Each of these incumbent providers operates - albeit with varying degrees of automation - with a classical multi-hub-and-spoke network. The entrant plans to enter the B2B parcel market with a completely new parcel delivery system and network. Such operations shall enable the incumbent to offer new services to potential customers and realize lower costs and prices than the established .rms. We describe the market and contrast the incumbents’ and the entrant’s strategy and operations. We develop a game-theoretic Cournot model with economies of scale and different cost functions to analyze the effect of the entrant’s market entry on competition, market shares, prices, costs and profits. We present calibrated results illustrating the impact of market entry in various scenarios.
    Date: 2008
  3. By: Herings P. Jean-Jacques; Peeters Ronald; Yang Michael (METEOR)
    Abstract: In this paper, we consider the competition of providers of information products against P2P networks that offer illegal versions of the information products. Depending on the generic cost factor of downloading—incorporating factors including, among other things, the degree of legal enforcement of intellectual property rights—we find that the firm may employ pricing strategies to either deter the entry of a network or to accommodate it. In the latter case, we find that the equilibrium price moves in the opposite direction of the generic cost factor of downloading. This counter-intuitive result corresponds to a very subtle form of platform competition between the firm and the network. Furthermore, profits for the firm ambiguously decrease when the generic cost factor of downloading declines, whereas total welfare unambiguously increases. This implies that it may well be welfare enhancing to relax the legal enforcements of intellectual property rights.
    Keywords: Strategy;
    Date: 2008
  4. By: Lisa R. Anderson (Department of Economics, College of William and Mary); Beth A. Freeborn (Department of Economics, College of William and Mary); Charles A. Holt (Department of Economics, University of Virginia)
    Abstract: We study the effect of demand structure on the ability of subjects to tacitly collude on prices by considering Bertrand substitutes and Bertrand complements. We find evidence of collusion in the complements treatment, but no such evidence in the substitutes treatment. This finding is somewhat in contrast with Potters and Suetens (2007) who observe tacit collusion in two treatments with similar underlying demand structures but with no market context.
    Keywords: collusion, Bertrand, experiment
    JEL: C9 L1
    Date: 2008–07–10
  5. By: Degryse, H.A. (Tilburg University, Tilburg Law and Economics Center)
    Date: 2008
  6. By: Harold Creusen; Arno Meijer; Gijsbert Zwart; Henry van der Wiel
    Abstract: In this study, we analyse changes in market power in the Dutch supermarket chain and discuss the effects on welfare. The supermarket chain includes consumers, supermarkets, buyer groups and food manufactures. We look at the theoretical background of market power. Special attention has been paid to recent theories of buyer power of retailers in the vertical chain. Theory suggests that supermarkets can enhance their buyer power by, for instance, using own private brands as an outside option in bargaining with manufacturers. Using firm-level data, indicators reveal that profit margins of both supermarkets and of manufacturers have declined between 1993 and 2005. Hence, competition on these markets seems to have become tougher and mark-ups lower over time. Furthermore, we find no significant empirical indications that supermarkets were able to use their buyer power to shift profits from manufacturers to supermarkets after 1993. Finally, all else equal, in terms of welfare consumers have benefited from fiercer competition in terms of lower prices.
    Keywords: Supermarket; price cost margins; buyer power; seller power; welfare
    JEL: D40 D61 L11
    Date: 2008–04
  7. By: Joseph J. Doyle, Jr.; Erich Muehlegger; Krislert Samphantharak
    Abstract: Some gasoline markets exhibit remarkable price cycles, where price spikes are followed by a string of small price declines until the next price spike. This pattern is predicted from a model of competition driven by Edgeworth cycles, as described by Maskin and Tirole. We extend the Maskin and Tirole model and empirically test its predictions with a new dataset of daily station-level prices in 115 US cities. One innovation is that we also examine cycling within cities, which allows controls for city fixed effects. Consistent with the theory, and often in contrast with previous empirical work, we find that the least and most concentrated markets are much less likely to exhibit cycling behavior; and the areas with more independent retailers that have convenience stores are more likely to cycle. We also find that the average gasoline prices are relatively unrelated to cycling behavior.
    JEL: D4 L11 L70
    Date: 2008–07
  8. By: Frederic Marty (Observatoire Français des Conjonctures Économiques); Arnaud Voisin (University of Nice)
    Date: 2008
  9. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Egon Franci (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Alexander Rathke (Institute for Empirical Research in Economics, University of Zurich)
    Abstract: This paper studies the welfare effect of a percentage-of-revenue salary cap in a European context with win-maximizing clubs. It shows that a percentage-of-revenue cap increases competitive balance and decreases the overall salary payments in the league, therefore contributing to financial stability. A percentage-of-revenue cap will always increase social welfare if the weight on aggregate club surplus in the welfare function is sufficiently high. Additionally, if fans’ preferences for aggregate talent are sufficiently high then the percentage-of-revenue cap will also increase social welfare, no matter how much weight the league puts on financial stability.
    Keywords: Salary Caps, Social Welfare, Competitive Balance, Team Sports League
    JEL: L83
    Date: 2008
  10. By: Jackie Krafft; Evens Salies (Observatoire Français des Conjonctures Économiques)
    Date: 2008
  11. By: Maris Goldmanis; Ali Hortacsu; Chad Syverson; Onsel Emre
    Abstract: While a fast-growing body of research has looked at how the advent and diffusion of e-commerce has affected prices, much less work has investigated e-commerce's impact on the number and type of producers operating in an industry. This paper theoretically and empirically takes up the question of which businesses most benefit and most suffer as consumers switch to purchasing products online. We specify a general industry model involving consumers with differing search costs buying products from heterogeneous-type producers. We interpret e-commerce as having reduced consumers' search costs. We show how such reductions reallocate market shares from an industry's low-type producers to its high-type businesses. We test the model using U.S. data for three industries in which e-commerce has arguably decreased consumers' search costs considerably: travel agencies, bookstores, and new auto dealers. Each industry exhibits the market share shifts predicted by the model. Interestingly, while the industries experienced similar changes, the specific mechanisms through which e-commerce induced them differed. For bookstores and auto dealers, industry-wide declines in small outlets reflected market-specific impacts, evidenced by the fact that more small-store exit occurred in local markets where consumers' use of e-commerce channels grew fastest. For travel agencies, on the other hand, the shifts reflected aggregate changes driven by airlines cutting agent commissions as consumers started buying tickets online.
    JEL: D4 L1 L8
    Date: 2008–07

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