nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒04‒30
ten papers chosen by
Russell Pittman
United States Department of Justice

  1. Incomplete contracts and the internal organization of firms By Philippe Aghion; Nick Bloom; John Van Reenen
  2. Dynamic Competition with Network Externalities: Why History Matters By Halaburda, Hanna; Jullien, Bruno; Yehezkel, Yaron
  3. Credence Goods, Risk Averse, and Optimal Insurance By Ouyang, Yaofu
  4. Reconciling the Firm Size and Innovation Puzzle By Anne Marie Knott; Carl Vieregger
  5. Antitrust Market De nition and the Sensitivity of the Diversion Ratio By Lydia Cheung
  6. How Do Airlines React to Airport Congestion? The Role of Networks By Fageda, Xavier, 1975-; Flores-Fillol, Ricardo
  7. Noisy Information Signals and Endogenous Preferences for Labeled Attributes By Liaukonyte, Jura; Streletskaya, Nadia; Kaiser, Harry
  8. Incentive Compatible Advertising on a Social Network By Eliaz, Kfir; Spiegler, Ran
  9. Environmental Regulation and Choice of Innovation in Oligopoly By Iwata, Hiroki
  10. An Empirical Comparison of Price Transmission between Conventional and Organic Products: The Case of Fresh Carrots By Darbandi, Elham; Saghaian, Sayed H.

  1. By: Philippe Aghion; Nick Bloom; John Van Reenen
    Abstract: We survey the theoretical and empirical literature on decentralization within firms. We first discuss how the concept of incomplete contracts shapes our views about the organization of decision-making. We then overview the empirical evidence on the determinants of decentralization and on the effects of decentralization on firm performance. A number of factors highlighted in the theory are shown to be important in accounting for delegation, such as heterogeneity and congruence of preferences as proxied by trust. Empirically, competition, human capital, and IT also appear to foster decentralization. There are substantial gaps between theoretical and empirical work and we suggest avenues for future research in bridging this gap (JEL O31, O32, O33, F23).
    JEL: L22 L23
    Date: 2014–05
  2. By: Halaburda, Hanna; Jullien, Bruno; Yehezkel, Yaron
    Abstract: We consider dynamic competition among platforms in a market with network exter- nalities. A platform that dominated the market in the previous period becomes \focal" in the current period, in that agents play the equilibrium in which they adopt the focal platform whenever such equilibrium exists. Yet when faced with higher-quality competition, can a low-quality platform remain focal? In the finite-horizon case, the unique equilibrium is efficient for \patient" platforms; with an infinite time horizon, however, there are multiple equilibria where either the lowor high-quality platform dominates. If qualities are stochastic, the platform with a better average quality wins with a higher probability, even when its realized quality is lower, and this probability increases as platforms become more patient. Hence social welfare may decline as platforms become more forward looking.
    Keywords: network externalities, dynamic competition, coordination
    JEL: L1
    Date: 2016–03
  3. By: Ouyang, Yaofu
    Abstract: We analyze a credence goods market with risk averse consumers when the assumptions of both liability and verifiability hold. In the basic model, we show that the consumer's risk-aversion would induce expert's overtreatment behavior and thus cause social inefficiency. But the probability of overtreating deceases with the degree of consumer's risk-aversion or the coefficient of absolute risk aversion(CRRA). Furthermore, we extend the basic model with insurance option. We assume there exists a perfectly competitive insurance market where the consumer could purchase insurance. Two sets of equilibria indexed by expert's pricing strategy could be specified. The equilibrium outcome shows that social efficiency could always be achieved and the expert could obtain all the social surplus in the equilibrium.
    Keywords: Credence Goods, Risk Averse, Insurance
    JEL: D81 D82 I11
    Date: 2016–03
  4. By: Anne Marie Knott; Carl Vieregger
    Abstract: Since Schumpeter, there has been a long-standing debate regarding the optimal firm size for innovation. Empirical results have settled into a puzzle: R&D spending increasing with scale while R&D productivity decreases with scale. Thus large firms appear irrational. We propose the puzzle stems from the fact that product and patent counts undercount large firm innovation. To test that proposition we use recently available NSF BRDIS survey data of firms R&D practices as well as a broader measure of R&D productivity. Using the broader measure, we find that both R&D spending and R&D productivity increase with scale—thus resolving the puzzle. We further find that while large firms and small firms differ in the types of R&D they conduct, there is no type whose returns decrease in scale—there are merely types for which the small firm penalty is less severe.
    Date: 2016–03
  5. By: Lydia Cheung (School of Economics, Faculty of Business and Law, Auckland University of Technology)
    Abstract: The diversion ratio is a key ingredient for merger analysis, as mentioned in the new Horizontal Merger Guidelines (2010) in the U.S. and similar documents abroad. It is a measure of substitutability between merging goods, which determines the potential for price increase post-merger. There is little existing research on how the diversion ratio is to be estimated. This paper is the rst one to explore estimation issues through standard demand estimation techniques and how changes in the antitrust market de nition a ect the resultant diversion ratios. I use random draws of supermarket products from a supermarket dataset to show that the estimated diversion ratios are, in fact, not greatly a ected by market de nition. They have the same magnitude as baseline estimates and the rst signi cant gures vary within a small range.
    Keywords: horizontal merger; unilateral price e ect; di erentiated products; upward pricing pressure; diversion ratio; elasticity
    JEL: D12 L11 L13 L41
    Date: 2016–02
  6. By: Fageda, Xavier, 1975-; Flores-Fillol, Ricardo
    Abstract: In this paper, we investigate the relationship between airline network structure and airport congestion. More specifically, we study the ways in which airlines adjust frequencies to delays (as a measure of airport congestion) depending on the network type they operate. Our results suggest that network structure has a fundamental impact. Thus, while airlines operating fully-connected configurations reduce frequencies in response to more frequent delays, airlines operating hub-and-spoke structures increase frequencies. Therefore, network airlines have incentives to keep frequencies high even if this is at the expense of a greater congestion at their hub airports. This result sheds light on previously unclear results in the literature. Keywords: airline networks; airport congestion; delays. JEL Classification Numbers: L13; L93; R41.
    Keywords: Aeroports, Aviació comercial, Oligopolis, Transport, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus,
    Date: 2015
  7. By: Liaukonyte, Jura; Streletskaya, Nadia; Kaiser, Harry
    Abstract: Consumer preferences for labeled products are often assumed to be exogenous to the presence of labels. However, the label itself (and not the information on the label) can be interpreted as a noisy warning signal. We measure the impact of “Contains” labels and additional information about the labeled ingredients, treating preferences for labeled characteristics as endogenous. We find that for organic food shoppers, the “Contains” label absent additional information serves as a noisy warning signal leading them to overestimate the riskiness of consuming the product. Provision of additional information mitigates the large negative signaling effect of the label.
    Keywords: Demand Shifts and Rotations, Experimental Economics, Labeling, Signaling effect, Willingness-to-Pay, Agricultural and Food Policy, Labor and Human Capital, L13, C21, M31, Q13, Q18,
    Date: 2015
  8. By: Eliaz, Kfir; Spiegler, Ran
    Abstract: A platform that operates a social network allows firms to post display ads to network members. Each member is interested in exactly one type of product. The network structure is correlated with the profile of member's privately known preferences over product types. The platform's policy consists of a display rule (which specifies the stationary probability with which each product is shown to each network member, as a function of the network structure) and an advertising fee (which the platform charges from firms as a function of their reported type). We provide conditions for the existence of an incentive-compatible policy that maximizes and fully extracts firms' surplus. This objective is easier to attain when the network is more informative of members' preferences, consumers are more attentive to advertising and their frequency of repeated purchases is higher, and advertisers are less informed of the network structure. We provide a more detailed characterization when the network is generated according to the "stochastic block model", thus linking our model to the "community detection" problem in Network Science.
    Date: 2016–04
  9. By: Iwata, Hiroki
    Abstract: This study investigates the effect of an environmental regulation on the innovation choice of firms in an oligopoly. Most existing studies on environmental regulations and innovations examine the optimal behavior of firms when one innovation project is feasible. In our model, firms are allowed to choose from multiple types of innovation projects. Our main contributions are that we derive the conditions under which environmentally friendly and cost reducing innovations are selected in Bertrand competition and we show how environmental regulation affects innovation choice.
    Keywords: environmental regulation; innovation; the Porter hypothesis
    JEL: D21 Q55 Q58
    Date: 2016–03–25
  10. By: Darbandi, Elham; Saghaian, Sayed H.
    Abstract: In a competitive market, a rise in output prices at the wholesale level is expected to be passed through to consumers via retailers, Asymmetric price transmission exists when an increase in the producer price moves faster and more completely to consumers than do a reduction in the producer price. The research question is how product heterogeneity and differentiation can affect the price transmission in the carrots markets. Carrots are primarily consumed fresh and are the 7th most consumed fresh vegetable in the U.S. and carrot consumption has been increasing over the past few decades. we investigate price linkage of carrots at terminal and retail levels for two different quality of this product, organic and conventional. According to the VECM model results, the speed of price adjustment in the conventional carrot market is 0.354 in absolute value, while for the organic carrot market is 0.026. This result is an indication of asymmetric price transmission with respect to speed, and shows price adjustment in the organic carrot market is relatively slow pointing to inefficiency in this market. These results have important policy implications, and in case of price shocks, could have differential welfare consequences for consumers and producers
    Keywords: Price Transmission, Organic Products, Fresh Carrots, Agribusiness, Agricultural and Food Policy,
    Date: 2016

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