Antitrust & Competition Policy Blog

Product innovation and imitation in a duopoly with differentiation by attributes

Posted by D. Daniel Sokol Reynald-Alexandre Laurent (PSE - Paris-Jourdan Sciences Economiques - CNRS : - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris, addresses Product innovation and imitation in a duopoly with differentiation by attributes. ABSTRACT: This paper considers a probabilistic duopoly in which products are described by their specific attributes, this form of differentiation embodying the horizontal and vertical dimensions. Consumers make discrete choices and follow a random decision rule based on these attributes. A three-stage game is studied in which firms develop new attributes for their products (innovation), then may imitate the attributes of the competing product and finally compete in price. At the equilibrium, the firm selling the less appreciated product is generally incited to imitate its rival. Confronted to a threat of imitation, the benchmark firm sometimes decreases strategically its attribute index in order to diminish its unit cost of innovation and the differentiation on the market, deterring the imitation in this way. This strategy is efficient when imitation costs are sufficiently concave. In the opposite case, it is preferable for the be! nchmark firm to accept the imitation. Thus, according to the shape of imitation costs, equilibria with "deterrence" or with "accommodation" "accommodation" occur, completing the current typology of strategic responses to a threat of imitation.

As Antitrust Case Ends, Microsoft is Victorious in Defeat

Posted by D. Daniel Sokol

Robert H. Lande University of Baltimore - School of Law Norman W. Hawker Western Michigan University - Haworth College of Business argue As Antitrust Case Ends, Microsoft is Victorious in Defeat.

ABSTRACT: As the final judgment in the celebrated Microsoft case ends, this piece very briefly assesses the impact of its remedy. When evaluated in terms of its most important goals, the remedy has proven to be a failure. Microsoft's monopoly power in the PC operating systems market is now as great as it was when the case was brought in 1998 or the remedy was ordered in 2002. The article also very briefly discusses the implications of this remedy for Google and AT&T.

Perfect Surcharging and the Tourist Test Interchange Fee

Posted by D. Daniel Sokol

Hans Zenger (DG Comp) has published a paper on Perfect Surcharging and the Tourist Test Interchange Fee.

ABSTRACT: Two widely discussed pricing benchmarks in the literature on payment cards markets are the "tourist test" interchange fee (Rochet and Tirole, 2011), which internalizes usage externalities in payment card markets, and "perfect surcharging" by merchants (Rochet and Tirole, 2002). This paper shows that these benchmarks are allocatively equivalent. Implications for the regulatory treatment of interchange fees and no-surcharge rules are discussed.