Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Monday, January 30, 2012

The Welfare Effects of Third-Degree Price Discrimination in a Differentiated Oligopoly

Posted by D. Daniel Sokol

Takanori Adachi (School of Economics, Nagoya University) and Noriaki Matsushima (Institute of Social and Economic Research, Osaka University) explore The Welfare Effects of Third-Degree Price Discrimination in a Differentiated Oligopoly.

ABSTRACT: This paper studies the welfare effects of third-degree price discrimination under oligopolistic competition with horizontal product differentiation. We derive a necessary and sufficient condition for price discrimination to improve social welfare: the degree of substitution must be sufficiently greater in the "strong" market (where the discriminatory price is higher than the uniform price) than in the "weak" market (where it is lower). It is verified, however, that consumer surplus is never improved; social welfare improves solely due to an increase in the firms' profits.

January 30, 2012 | Permalink | Comments (0) | TrackBack (0)

The monopoly benchmark on two-sided markets

Posted by D. Daniel Sokol

Christopher Mullera and Enrico Bohme (both Goethe Universitat Frankfurt) presents The monopoly benchmark on two-sided markets.

ABSTRACT: The literature on the effects of market concentration in platform industries or two-sided markets often compares the competitive outcome against a benchmark. This benchmark is either the “joint management” solution in which one decision maker runs all platforms or a “pure” monopoly with just one platform. Literature has not generally discussed, which benchmark is the appropriate one. We show that the appropriate benchmark, i.e. how many platforms the monopolist will operate, depends on whether agents multi- or singlehome, whether the externalities are positive or negative, and in some cases on the properties of the demand functions. Different situations require different benchmarks. Our results also help to anticipate the effects of proposed platform mergers, where the assessment might crucially depend on the number of platforms after a merger.

January 30, 2012 | Permalink | Comments (0) | TrackBack (0)

Informative Advertising, Consumer Search and Transparency Policy

Posted by D. Daniel Sokol

Chengsi Wang, School of Economics, University of New South Wales has written on Informative Advertising, Consumer Search and Transparency Policy.

ABSTRACT: Information about a new or non-frequently purchased product is often produced by both sides of the market. We construct a monopoly pricing model consisting of both seller's information disclosure and consumer's information acquisition. The presence of consumer search, which lowers the probability of making sales, creates incentive for the monopolist to deter search. In contrast with most previous literature, we show that, partial information disclosure arises in equilibrium when the search cost is low. As the search cost increases to medium level, the monopolist hides information but lowers the price to prevent consumers from searching. When the search cost is very high, the monopolist charges high price and hides all information. The equilibrium price is thus non-monotonic in search cost. Information disclosure and consumer search co-exist only when the search cost is low, and thus complement each other. We show that tr! ansparency policies on advertising cannot improve social welfare. Nevertheless, they benefit consumers in a wide range of values of the search costs by improving matching quality and reducing the expense of searching. But for some medium levels of search costs, transparency policies hurt consumers due to the induced high price in equilibrium.

January 30, 2012 | Permalink | Comments (0) | TrackBack (0)

Preference for Variety

Posted by D. Daniel Sokol

Karen Kaiser and Rainer Schwabe (both Banco de Mexico) address Preference for Variety.

ABSTRACT: We consider a decision maker who enjoys choosing from a varied set of alternatives. Building on behavioral evidence, we propose testable axioms which characterize preference for variety, and provide a representation theorem. We go on to illustrate the potential effects of preference for variety in a model of retailing. Consumer welfare may be decreasing in the competitiveness of the retailing sector as competition eliminates the scope for retailers to offer variety. Mainstream consumers with a preference for variety and consumers with eccentric tastes enjoy a symbiotic relationship. Competition over mainstream consumers makes retailers offer more exotic goods, while eccentric consumers subsidize their carrying costs.

January 30, 2012 | Permalink | Comments (0) | TrackBack (0)