The Effect of Government Advertising Policies on the Market Power of Cigarette Firms

We estimate market power among cigarette manufacturers over 1952–1984, a period of uniform pricing. We apply the Bresnahan approach; adjust it to the firm level; employ a dynamic model with habit persistence; and add an advertising equation, which helps identify the parameters, increase degrees of freedom, and constrain parameters so we can interpret our results at the firm level, despite the fact that the equations conform to what we might see in a market model. We consider effects of government interventions upon demand and market power and find, for instance, that the 1971 broadcast advertising ban decreased market power.     

中国药品市场的需求实证分析

以经济学理论中的弹性理论为前提,在采用计量经济学方法研究药品需求量与人均可支配收入、人们的健康水平、药品价格等因素间的相关性的基础上,应用excel软件构建药品需求的线性需求函数模型以及对数线性需求函数模型。最终得出结论:随着人们生活水平的提高,药品需求量将显著上升,而药品价格的变化对药品需求影响较小。     

Taking industry structuring seriously: A strategic perspective on product differentiation

Given legal impediments to consolidation and collusion, firms often resort to product differentiation to attain market power. This paper provides a formal analysis of product differentiation as a tool for such industry structuring at both the firm and industry level. We examine: how industry structure differs when firms collaborate on their differentiation decisions, and when the profitability of such collaboration is greatest; how an individual firm's differentiation decisions affect subsequent market outcomes under price competition, such as margin, market share, and profit; how mere differentiation differs from a ‘differentiation advantage’; and how changing a firm's differentiation affects its rivals through both positive externalities (by restraining rivalry) and negative externalities (by shifting competitive advantage). Our results have implications for empirical research, strategy theory, and pedagogy.     

Real Estate Brokers and the Market for Residential Housing

This study explores the role of the real estate broker in the housing market. A model of the demand for broker services by both sellers and buyers is developed and conditional logit estimates are presented. Evidence relating to the effects of the brokerage industry on housing market transactions also is presented. Brokers do not seem to affect the prices of the houses they sell. But they do influence the level of housing consumption by buyers.     

Downstream mergers in vertically related markets with capacity constraints

Motivated by a recent merger proposal in the French outdoor advertising market, we develop a model in which firms are initially endowed with some advertising capacities and compete on two fronts. First, firms compete to acquire additional advertising capacities on an upstream market; a first stage modeled as a second-price auction with externalities. Second, those firms, privately informed on their own costs, use their capacities on the downstream market to supply advertisers whose demand is random; a second stage modeled by means of mechanism design techniques. We study the linkages between the equilibrium outcomes on both markets. When a firm is endowed with more initial capacity, through the acquisition of a competitor for instance, whether it becomes more or less eager to acquire extra capacity on the upstream market depends a priori on fine details of the downstream market. Under reasonable choices of functional forms, we demonstrate that a downstream merger does not create any bias in the upstream market towards the already dominant firm.     

TWO‐SIDED MARKETS WITH PECUNIARY AND PARTICIPATION EXTERNALITIES*

The existing literature on two‐sided markets addresses participation externalities, but it has neglected pecuniary externalities between platforms. In this paper we build a model that incorporates both externalities. In our set‐up, differentiated platforms compete in advertising levels and offer consumers a service free of charge that is financed through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, we find that platform profits can increase with market entry and that there are cases in which the level of advertising rises with entry. We also consider endogenous entry and provide a welfare analysis.     

Competition between multiple asymmetric networks: Theory and applications

This paper presents a tractable model of network competition with many firms, elastic subscriber demand, off-net price discrimination, call externalities, and cost and market share asymmetries. We characterize stability in expectations and equilibrium under firm- and market-level network effects. The model is applied to simulate the effects of termination rates, market maturity, and retail pricing strategies. We show that predictions based on duopoly models can be misleading, in particular concerning the effects of termination rates.     

Estimating demand for cellular phone services in Japan

Since the 1990s, the telecommunications industry has changed dramatically with the wide diffusion of mobile telecommunications. In spite of this, the nature of the cellular phone market has not yet been explored sufficiently. This paper analyzes the demand for cellular phone services using data on the Japanese cellular phone market in the late 1990s. It finds that the market is highly product-differentiated and conventional network externalities are no longer decisive factors in choosing a mobile phone carrier. The evidence also shows that the demand for cellular phone services is quite price-elastic, with estimated elasticity from 1.30 to 2.43 in absolute value.     

厂商市场份额的品牌经济模型及其现实解释

厂商的市场份额决定了其利润率,从而决定了厂商能否在残酷的竞争中生存、增长与发展。而在经济过剩的条件下,消费者的选择决定了厂商的市场份额,货币价格与品牌及品牌信用度决定的选择成本作为消费者选择和购买过程中的局限条件制约和影响着消费者的选择与购买。本文建立起引入品类需求强度系数、价格、选择成本的需求函数,并以此模型解释了厂商市场份额的决定是通过价格机制与品牌机制共同作用而实现的。在理论分析的基础上,对大量的现实进行了解释,在验证该模型的同时,对未来市场竞争及厂商市场份额做出了预测。同时,本文提出了提高厂商市场份额与定价权的＂品类需求强度—品牌信用度＂二维模型,并分别从开发具有较高品类需求强度的品类市场和提高品牌信用度的品牌建设方面给现实中的厂商提供了相应策略。     

The Estimation of a Cusp Model to Describe the Adoption of Word for Windows*

This article revisits earlier work in this journal by Paul Herbig (1991) that proposed a catastrophe model of industrial product adoption under certain conditions. Catastrophe models are useful for modeling situations where organizations can exhibit both smooth and abrupt adoption behavior. It extends Herbig's work by focusing on organizations' adoption of new products when network externalities are an important part of the decision process, and it presents an empirical estimation of the model. Network externalities occur when firms do not want to adopt a new innovation or product unless other firms do. The reason is that they do not want to end up with an innovation that ends up not being a standard of some sort. Mistakes of this nature can be costly as the firm must invest twice and loses time relative to competitors who have not made such a mistake. However, when such externalities exist, for example with regard to technological adoptions, then normal diffusion gives way to sudden discontinuous shifts as all firms seemingly act together an move to a new technology. Since, technology is an area where the authors expect network externalities to exist, that is the focus of this article. The specific application is developed from two sets of panel data on the organizational adoptions of Microsoft's (MS) Word for Windows software by organizations that previously were using either Word for DOS or Word for Macintosh (Mac). The theoretical framework for the analysis is based on work in the economics literature on network externalities. However, the organization and new product development catastrophe model comes primarily from Herbig (1991) . The article focuses on an area of organizational adoption where relatively little empirical research has been done, namely organizational adoption “for use.” Longitudinal data provided by Techtel Corporation is used to develop the estimations. Results of the empirical analysis are consistent with the theoretical framework suggested in Herbig's article and in those found in economics and catastrophe theory literatures. This lends clear support to the idea that organizations will adopt a bandwagon‐type behavior when network externalities are present. It further suggests that in such markets, the standard S‐shaped diffusion curve is not an appropriate model for examining organizational behavior. From a managerial perspective, it means that buyers and sellers may face nonstandard diffusion curves. Instead of S‐shaped curves, the actual curves have a break or rift where sales end, and there is a sudden shift to a new product that is relatively high very early on. Clearly, for new product development (NPD), it suggest that organizations' “for‐use” purchases may be similar to regular consumers and may change rapidly from one product to another almost instantly, as in the case of the switch from vinyl records to compact discs (CDs). From an old product seller's viewpoint, the market is here today and gone tomorrow, while for the new seller it is a sudden deluge of sales requests. To put it in more everyday terms, sudden changes in adoption behavior are a September 11‐type experience for the market. It is the day the world changes.     

What difference does dynamics make? The case of digital cameras

When the well-known BLP model is applied to products with rapid technological changes and declining prices it tends to yield implausible results. A sequence of increasingly sophisticated dynamic demand models, most recently Gowrisankaran and Rysman (2009, hereafter GR), have been developed to overcome these problems. We apply both models to new data on the US digital camera market. In addition, we demonstrate that the GR model can be specified as a BLP model plus an additional set of terms. This suggests that a dynamic model can be estimated as a BLP model plus a non-parametric function which is less computationally demanding. As a first step to implementing this semi-parametric approach we estimate a BLP model augmented with age as a proxy for the non-parametric component. We find that demand for digital cameras is more elastic when demand dynamics is accounted for in both the dynamic model and the BLP model with the age proxy. This suggests that the market is more competitive though the results are consistent with firms engaging in intertemporal price discrimination. Merger simulations predict the lowest price and quantity changes using the GR model.     

Market Share and Price Setting Behavior for Private Labels and National Brands

In this paper, we focus on the nature of demand and competitive response in the market for private label and national branded grocery products. Specifically,we employ less restrictive functional forms than usedin prior research. Specifically, we incorporateLA/AIDS demands and the corresponding price reactionequations to estimate consumer price sensitivities andsupply side price strategies for national brand andprivate label products. Oligopolistic priceinterdependence is explored further by specifyingbrand share, brand Herfindahl, and a measure of thestructure of the local retail markets in the supplyside relations to evaluate explicitly the impact ofmarket structure.In our empirical analysis, we estimate a system of market share and price equations simultaneously inorder to examine (i) the determinants of the demandresponse to pricing and promotion decisions and (ii)the determinants of private label and national brandpricing behavior. Using data for 143 food productcategories and 59 geographic markets, we develop amodel that captures the variation in privatelabel-national brand share and pricing acrosscategories and markets. Key findings include: (i)demand response to price and promotion is decidedlyasymmetric, (ii) price followship between privatelabels and national brands is positive, but notstrong, and (iii) markets characterized by highernational brand market share and higher supermarketconcentration tend to have higher prices forboth national brands and private labels.     

The Solar Shakeout – Capital Market Reactions to Bankruptcy Announcements in the German Solar Industry

This paper investigates how bankruptcy announcements in the German solar industry affect the stock market returns of announcing firms and their competitors. We show that German solar firms experience negative capital market reactions to their own bankruptcy announcements and to the announcements of their competitors. Cross-sectional analysis reveals that these negative information externalities are magnified by higher leverage. Further analysis also indicates that these negative information externalities are valuable predictors in short-term default probability models.     

Investment dynamics in markets with endogenous demand

I examine entry into markets where demand is an increasing function of past sales because of learning, networks, or fashion. Demand is initially unknown (with firms learning in Bayesian fashion) and grows endogenously over time. The competitive expansion path and the efficient/monopoly solution differ not only with respect to levels (the market's investment is too low), but also time patterns : externalities contribute to S-shaped diffusion. There is also path-dependence: small initial differences may determine whether the market will grow or not open. Policy arguments for subsidizing entry into new markets, especially in infant export industries, are examined.     

Switching costs in the US seed industry: Technology adoption and welfare impacts

We evaluate the role of brand and technology switching costs in the US soybean seed industry using a unique dataset of actual seed purchases by about 28,000 farmers from 1996 to 2016. Using a random coefficients logit model of demand, we estimate brand and technology switching costs, characterize the distributions of buyers’ willingness to pay for seed brands and the glyphosate tolerance (GT) trait, and assess the implications of brand and technology switching costs for farmers’ welfare, technology adoption, firm profits, and firm market shares. We find that farmers are willing to pay large premiums for brand labels, and even larger premiums for the GT trait, although there is considerable heterogeneity in these values. Switching costs play an important role in the soybean seed industry. Eliminating these costs would significantly increase buyers’ welfare, reduce seed prices and firm profits, decrease adoption of the GT trait, and impact industry consolidation by expanding smaller firms’ market shares.     

Welfare Analysis of Regulating Mobile Termination Rates in the U.K.

We develop a calibrated simulation model of the U.K. mobile telephony market and use it to analyze the effects of reducing mobile termination rates (MTR's) as recommended by the European Commission. We find that reducing MTR's is likely to increase both consumer surplus and networks' profits. Depending on the strength of call externalities (i.e., benefits to the recipient of a call), social welfare may increase by as much as £1 billion to £4.6 billion per year. We also use the model to estimate the welfare effects of the 2010 merger between Orange and T‐Mobile and find that the merger led to a substantial reduction in consumer surplus.     

Agglomeration effects and performance: a test of the Texas lodging industry

While competition decreases rents for firms, the presence of competitors may create benefits. Competitors that agglomerate, that are physically proximate, may create externalities—production efficiencies or heightened demand that increases rents. When such externalities exist, then who gains from and who contributes to them? We examine how other competitors' traits affect performance in Texas's lodging industry. In rural markets, we find that chain hotels and larger hotels contribute to positive externalities. While expecting those hotels similar to the establishments creating these externalities to gain, we find the opposite. Independent hotels and smaller hotels gain the most. Interestingly, some establishments are harmed. Copyright © 2001 John Wiley & Sons, Ltd.