Essays in industrial organization

Adriana Gama Velazquez

doi:10.17077/etd.5k2lvv88

This thesis is composed by three different studies on oligopolies. The first chapter is on oligopolies with perfect complements; the second chapter studies oligopolies with positive network effects and incompatible networks, and the last one deals with a polluting duopoly subject to environmental regulation. Specifically, the first chapter provides a thorough characterization of the properties of Cournot's complementary monopoly model (or oligopoly with perfect complements) in a general setting, including existence, uniqueness and the comparative statics effects of entry. As such, this serves to unify various results from the extant literature that have typically been derived with limited generality. Several studies have suggested that Cournot's complementary monopoly model is the dual problem to the standard Cournot oligopoly model. This result crucially relies on the assumption that the firms have no production costs. The first chapter shows that if the production costs of the firms are different from zero, the nice duality between these two oligopoly settings breaks down. One implication of this breakdown is that, in contrast to the Cournot model, oligopoly with perfect complements can be a game of strategic complements in a global sense even in the presence of production costs. The second chapter models symmetric oligopolies with positive network effects where each firm has its own proprietary network. That is, each firm's network is incompatible with that of its rivals. This chapter provides minimal conditions for the existence of (non-trivial) equilibrium in a general setting; in this model, the equilibria may be either symmetric or asymmetric. For the symmetric equilibria, this chapter analyzes the comparative statics effects of entry. In addition, it compares the equilibrium outcomes of oligopoly markets with compatible and incompatible networks. It shows that firms with compatible networks produce higher quantities than firms with incompatible networks. However, the relationship between prices, profits and consumer surplus is ambiguous, but social welfare is always higher in markets with completely compatible networks. Finally, the third chapter analyzes the incentives to invest in R&D under two environmental policy instruments: the emission and performance standards, in a Cournot model of competition between two symmetric firms. These firms are subject to environmental regulations as their production of a homogeneous good entails pollution. Unlike a few models of output market available in the literature, this approach does not measure the environmental incentives using firms' aggregate cost savings. Instead, it compares the levels of social welfare obtained under both policy instruments. From the derived subgame perfect equilibria of the two games, each game associated with a different instrument, this chapter shows that social welfare under performance standard dominates that under emission standard. It also finds that further comparisons, in particular, the comparison of the investment in R&D, are ambiguous and not aligned with the welfare comparison.

Essays in industrial organization

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