Three essays in industrial organization

Robert Edward Lee, Purdue University

Abstract

Essay I provides a survey of the literature dealing with price leadership with the hope of furthering insights as to the role and impact of this phenomenon in determining market performance. Essay II analyzes a duopolistic price setting game in which firms have loyal consumer segments, but cannot distinguish them from price sensitive consumers. We adapt a variant of Varian's (1980) simultaneous price setting game due to Narasimhan (1988) to analyze price leader equilibria. Properties of the equilibria with an exogenously specified leader are used to motivate the construction of a game of timing with ex post inflexible prices in which the firm with the larger segment of loyal consumers becomes an endogenously determined price leader. This formally demonstrates a point, sometimes made in the traditional industrial organization literature, that consumer loyalty may play an important role in establishing the existence and identity of a price leader. Essay III examines the case in which capacity constrained firms that compete in a repeated fashion are allowed to enter into self-enforcing collusive agreements involving both price and market share. This is done in an effort to characterize the set of collusive equilibria that arise when both the collusive price and market share are determined endogenously. Our model suggests that when firms are allowed to bargain over price and market share in determining a collusive agreement the Pareto-frontier of the set of sustainable collusive outcomes may involve prices that are below the monopoly price (even when the monopoly price is in the set) and, in certain circumstances, these prices may not be symmetric across the colluding firms. Under such circumstances the actual form of the agreement that arises will depend upon the relative bargaining power and capacities of the firms involved.

Degree

Ph.D.

Advisors

Kovenock, Purdue University.

Subject Area

Economics

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