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on Industrial Competition |
| By: | Cong Pan |
| Abstract: | This paper studies how a retailer decides the length of product line in a vertically related industry. We study a market with two product varieties. Each retailer decides the number of varieties it procures from an upstream manufacturer. The manufacturer may open an online store and encroach on the resale market. In the case of a monopoly retailer, anticipating the online store’s encroachment, the retailer may be willing to shorten its product line, although it can choose a full-length one. In the case of duopoly retailers, on the other hand, retailers may make their product lines completely overlapped, partially overlapped, or non-overlapped. Moreover, the total surplus may decrease due to the efficiency loss in the online channel, although the competition in the resale market becomes more intense. |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0976&r=com |
| By: | Cosmin L. Ilut; Rosen Valchev; Nicolas Vincent |
| Abstract: | Price rigidity is central to many predictions of modern macroeconomic models, yet, standard models are at odds with certain robust empirical facts from micro price datasets. We propose a new, parsimonious theory of price rigidity, built around the idea of demand uncertainty, that is consistent with a number of salient micro facts. In the model, the monopolistic firm faces Knightian uncertainty about its competitive environment, which has two key implications. First, the firm is uncertain about the shape of its demand function, and learns about it from past observations of quantities sold. This leads to kinks in the expected profit function at previously observed prices, which act as endogenous costs of changing prices and generate price stickiness and a discrete price distribution. Second, the firm is uncertain about how aggregate prices relate to the prices of its direct competitors, and the resulting robust pricing decision makes our rigidity nominal in nature. |
| JEL: | C1 D8 E3 L11 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22490&r=com |
| By: | Andre Boik; Shane Greenstein; Jeffrey Prince |
| Abstract: | In several markets, firms compete not for consumer expenditure but instead for consumer attention. We model and characterize how households allocate their scarce attention in arguably the largest market for attention: the Internet. Our characterization of household attention allocation operates along three dimensions: how much attention is allocated, where that attention is allocated, and how that attention is allocated. Using click-stream data for thousands of U.S. households, we assess if and how attention allocation on each dimension changed between 2008 and 2013, a time of large increases in online offerings. We identify vast and expected changes in where households allocate their attention (away from chat and news towards video and social media), and yet we simultaneously identify remarkable stability in how much attention is allocated and how it is allocated. Specifically, we identify (i) persistence in the elasticity of attention according to income and (ii) complete stability in the dispersion of attention across sites and in the intensity of attention within sites. We illustrate how this finding is difficult to reconcile with standard models of optimal attention allocation and suggest alternatives that may be more suitable. We conclude that increasingly valuable offerings change where households go online, but not their general online attention patterns. This conclusion has important implications for competition and welfare in other markets for attention. |
| JEL: | D12 L81 L86 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22427&r=com |
| By: | Ben Shiller (Brandeis University) |
| Abstract: | Person-specific pricing was rarely observed in the past because reservation prices were unobtainable. I investigate whether this still holds now that detailed individual behaviors are tracked. Individuals' expected demand functions are estimated by combining a classic economic model with machine learning techniques to address overfitting and high dimensionality. I find that tailoring prices based on web browsing histories increases profits by 14.55%, and results in some consumers paying nearly double the price others do for the same product. Using only demographics to personalize prices raises profits by only 0.30%, suggesting the percent profit gain from personalized pricing has increased 48-fold. This is a revised version. The original title of this paper was: "First Degree Price Discrimination Using Big Data", working paper #58 from 2013. |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:108&r=com |
| By: | Blake Allison (Department of Economics, Emory University); Jason Lepore (Department of Economics, California Polytechnic State University) |
| Abstract: | We present a novel approach to analyzing models of price competition. By realizing price competition as a class of all-pay contests, we are able to generalize the models in which pricing behavior can be characterized, accommodating convex (possibly asymmetric) cost structures and general demand rationing schemes. Using this approach, we identify necessary and sufficient conditions for a pure strategy equilibrium and use them to demonstrate the fragility of deterministic outcomes in pricing games. Consequently, we characterize bounds on equilibrium pricing and profits of all mixed strategy equilibria and examine the effect of demand and supply shifts on those bounds. Our focus on bounds can be motivated by the potential for multiple non-payoff equivalent equilibria, as we identify two types of equilibrium strategies through a derivation of sufficient conditions for uniqueness of equilibrium. |
| Keywords: | Price competition, Contest, Demand rationing, Convex costs, Capacity constraints |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cpl:wpaper:1607&r=com |
| By: | Wendy C.Y. Li; Bronwyn H. Hall |
| Abstract: | We develop a forward-looking profit model to estimate the depreciation rates of business R&D capital. By using data from Compustat, BEA, and NSF between 1987 and 2008, and the newly developed model, we estimate both constant and time-varying industry-specific R&D depreciation rates. The estimates are the first complete set of R&D depreciation rates for major U.S. high-tech industries. They align with the main conclusions from recent studies that the rates are in general higher than the traditionally assumed 15 percent and vary across industries. The relative ranking of the constant R&D depreciation rates among industries is consistent with industry observations and the industry-specific time-varying rates are informative about the dynamics of technological change and the levels of competition across industries. Lastly, we also present a cross-country comparison of the R&D depreciation rates between the U.S. and Japan, and find that the results reflect the relative technological competitiveness in key industries. |
| JEL: | D20 G12 L20 O30 O32 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22473&r=com |
| By: | Thierry Mayer; Marc J. Melitz; Gianmarco I.P. Ottaviano |
| Abstract: | We document how demand shocks in export markets lead French multi-product exporters to re-allocate the mix of products sold in those destinations. In response to positive demand shocks, those French firms skew their export sales towards their best performing products; and also extend the range of products sold to that market. We develop a theoretical model of multi-product firms and derive the specific demand and cost conditions needed to generate these product-mix reallocations. Our theoretical model highlights how the increased competition from demand shocks in export markets – and the induced product mix reallocations – induce productivity changes within the firm. We then empirically test for this connection between the demand shocks and the productivity of multi-product firms exporting to those destinations. We find that the effect of those demand shocks on productivity are substantial – and explain an important share of aggregate productivity fluctuations for French manufacturing. |
| JEL: | D24 F12 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22433&r=com |
| By: | Fan, Ying; Yang, Chenyu |
| Abstract: | This paper studies (1) whether, from a welfare point of view, oligopolistic competition leads to too few or too many products in a market, and (2) how a change in competition affects the number and the composition of product offerings. We address these two questions in the context of the U.S. smartphone market. Our findings show the market contains too few products and that a reduction in competition decreases both product number and product variety. These results suggest that merger policies should be stricter when we take into account the effects of a merger on product choice in addition to those on pricing. |
| Keywords: | endogenous product choice; merger; product proliferation; smartphone industry |
| JEL: | L13 L15 L41 L63 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11423&r=com |
| By: | Ben Dkhil, Inès |
| Abstract: | The regulation has the greatest role in forcing the introduction and the establishment of competition in the fixed telecom markets by facilitating the entrants’ access conditions to the incumbent’s infrastructure facilities (the local loop). Recently, the sole way to ensure the development of telecom industry consists to promote innovation and investment in network infrastructure technologies. This paper provides a critical review of both recent theoretical and empirical literature that address the issues of regulation on innovation and investment in the fixed telecommunication in-frastructures. |
| Keywords: | bottleneck, access regulation policies, investment in network upgrade, service-based competition, facility-based competition. |
| JEL: | K21 L1 L12 L51 |
| Date: | 2014–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72910&r=com |