Three essays on industrial organization

Abstract

This thesis consists of three chapters. Chapter 1 explores the impact of compatibility regulation on the technological transition in industries with indirect network externalities. This chapter contrasts the scenario where firms make their own compatibility decisions with the scenario where compatibility is mandatory and shows that firms are better off in the first scenario and worse off in the second scenario. In some cases, technological transition takes place if there is no regulation, but may not take place if the compatibility regulation is in place. Beside regulation, the technological transition in these industries may be held back by either the coordination problem or the compensation problem. The analysis culminates by showing conditions in which these problems can be eliminated. Chapter 2 explores the code-release decision of profit-maximizing software firms. Equilibrium results show that firms will not release code if the complementarity coefficient is either too low or too high. If the open source community can produce high quality open source software, then both firms may adopt the open source approach. If the open source community is moderately efficient and the complementarity coefficient falls in a middle range, then the decision to adopt open source approach depends on the efficiency gap between the two firms. Chapter 3 explores the impact of keyword auction on online retailers' pricing strategies. The incumbent has positioning advantage on the search engine but the new entrant can bid for the sponsored advertisement place and neutralize such advantage. In equilibrium, preemptive advertisement exists. In one scenario, there is a pure equilibrium in which the incumbent charges a higher price and outbids the entrant in the sponsored ads auction. In the other scenario, there is a unique mixed equilibrium in which the incumbent can only partially deter the entrant from moving up.