Essays on Industrial Organization and Multi-market Contact
thesisposted on 21.11.2011, 10:18 by Pak Yee Lee
This thesis comprises three essays on industrial organization and multi-market contact. The first chapter models leading firms in innovation markets deciding first whether to share knowledge, and then playing a market entry game. When firms are sufficiently patient, we show that the feasibility of intellectual property disclosure via licensing to outsiders or fringe firms provides a useful additional threat to entry by the punishing firm in the entry game. The opposite is true when firms are impatient; the availability of intellectual property disclosure makes coordination harder. In addition, we show that if the probability that the leading firms will be able to innovate without knowledge sharing is sufficiently high and firms are sufficiently patient, then it is also possible for the firms to enforce a knowledge sharing agreement before innovation has taken place. The second chapter examines the incentives for predatory pricing within multimarkets. It considers an incumbent who is an uncontested monopolist in one market, but faces the threat of entry in a market for a complementary product. The paper shows that the incumbent may be able to defend its monopoly position in the complementary market even when it has a cost disadvantage and produces an inferior quality. The paper also provides conditions under which the incumbent accommodates entry. Accommodation takes place when either the quality of the entrant’s product is sufficiently high, or the entrant has a sufficiently low marginal cost. A surprising result of the analysis is that forbidding firms to price below marginal cost may reduce welfare. The last chapter studies the incentive of a platform owner and an application developer to engage in an exclusive contract in a two-sided market setting with network externalities. The model considers two platform owners competing for advertising revenue with an application developer. We show that it can be optimal for a platform owner to allow a developer to multi-home when doing so has a strong positive effect on advertising in the two-sided market. On the other hand, if the effectiveness of the advertisement response to the number of potential viewers is at an intermediate level, then the developer is willing to accept an exclusive contract offered by a platform owner.