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on Industrial Competition |
| By: | Zemin(Zachary) Zhong (Haas School of Business, UC Berkeley, Berkeley, CA 94720, USA) |
| Abstract: | Major online platforms such as Amazon and eBay have invested significantly in search technologies to direct consumer searches to relevant products. These technologies lead to targeted search, implying consumers are visiting more relevant sellers first. For example, consumers may directly enter their desirable attributes into search queries, and the platform will retrieve relevant sellers accordingly. The platform may also let consumers refine the search outcomes by various criteria. This study characterizes the role of targeted search, and examines how targeted search affects market equilibrium and platform design. I model targeted search in a differentiated market with many firms where consumers search sequentially for the best product match. Within this setup, I endogenize the search design by allowing the platform to choose the precision of targeted search and the revenue model contract. One of the central results of the analysis is how targeted search affects equilibrium prices. I find its impact on price is not monotonic. When targeting is not too precise, targeted search lowers the equilibrium price. It makes sellers more similar and intensifies price competition, despite the fact that all consumers face sellers with better fit. However, once the targeting becomes sufficiently precise, the equilibrium price increases, because highly targeted search discourages active consumer search and gives sellers monopoly power. Furthermore, I consider two major platform revenue models, commission and promoted slots, with consumer search. The platform, by providing targeted search with precision up to the aforementioned limit, can extract more consumer surplus through higher commission rates, because targeted search improves consumer surplus by lowering search cost, increasing fit, and lowering price. With targeted search up to the limit, the platform can also extract more surplus from sellers by offering promoted slots, because sellers can use promoted slots to better target consumers. However, once targeted search becomes too precise, the market will face a price hike, hurting the platform revenue in both models. Therefore, I find that in both revenue models, the platform may want to limit the precision of targeted search even if improving it is costless, with or without consumer entry. Using a unique dataset from Taobao, I find suggestive evidences that are consistent with the model predictions. |
| Keywords: | Consumer Search; Platform; e-Commerce |
| JEL: | D22 L81 M31 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1603&r=com |
| By: | Kyle Wilson (University of Arizona, Department of Economics, McClelland Hall 401, PO Box 210108, Tucson, AZ 85721-0108); |
| Abstract: | Government investment in infrastructure may crowd out private investment that would have otherwise occurred. But, the threat of government intervention may also induce private firms to invest preemptively in infrastructure, in order to maintain their market position. This leaves the net effect of public competition on private investment unclear. This paper investigates the tension between these competing effects by providing evidence from the setting of internet service provision. Using household survey data and a novel data set of internet plan characteristics, I provide nationwide estimates of demand for internet technologies. I then use these results to estimate a dynamic oligopoly model of private and public internet service providers’ entry and technology adoption decisions, where private firms are driven by profits and municipalities by some (as yet) unknown combination of profits and consumer welfare. Finally, I simulate firms’ actions under a ban on public provision and find evidence that public competition partially, but not completely, crowds out private investment. Ultimately, I find that a ban on municipal provision in 30 states would result in a loss in consumer welfare of $1.11 billion over 20 years. |
| Keywords: | broadband, demand, dynamic, public, crowding out access |
| JEL: | L13 L21 L33 L96 H32 H44 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1616&r=com |
| By: | Daniel Goetz (Princeton University, Department of Economics, Fisher Hall, Princeton, NJ, 08540) |
| Abstract: | I measure how mergers in the market for broadband internet service affect short-run welfare. Mergers between internet service providers (ISPs) with non-overlapping markets may decrease welfare by increasing ISP bargaining leverage against content providers. However, study of this welfare channel has been stymied by a lack of data on interconnection fees between content and internet service providers. I estimate an industry model of demand, plan choice, pricing and interconnection bargaining using data on plan prices, consumer choice sets and bargaining delays between major U.S ISPs and the leading purveyor of streaming video content, Netflix. Intuitively, if delaying agreement over interconnection degrades quality of service to subscribers, then the opportunity cost of lost subscriptions identifies the fee. To map disagreement times and ISP competition into interconnection fees, I develop a multilateral dynamic bargaining model with asymmetric information. ISPs make take-it-or-leave it offers to learn about Netflix's benefit from interconnection, while simultaneously competing for subscribers who value Netflix quality of service. I structurally estimate the model and recover fixed interconnection fees ranging from 44 to 69 million USD. I find that a proposed merger between TimeWarner and Comcast that was challenged by the Federal Communications Commission would have slightly raised interconnection fees and bargaining length, reducing consumer welfare by 1.9 percent. |
| Keywords: | mergers; streaming video; dynamic games of incomplete information; two-sided markets; |
| JEL: | C7 L41 L96 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1607&r=com |
| By: | Saban, Daniela (Stanford University); Weintraub, Gabriel Y. (Columbia University) |
| Abstract: | We consider the problem faced by a procurement agency that runs an auction-type mechanism to construct an assortment of differentiated products with posted prices, offered by strategic suppliers. Heterogeneous consumers then buy their most preferred alternative from the assortment as needed. Framework agreements (FAs), widely used in the public sector, take this form; the central government runs the initial auction and then the public organizations (hospitals, schools, etc.) buy from the selected assortment. This type of mechanism is also relevant in other contexts, including private procurement settings and the design of drug formularies. When evaluating the bids, the procurement agency must consider the optimal trade-off between offering a richer menu of products for consumers versus offering less variety, hoping to engage the suppliers in a more aggressive price competition. We develop a mechanism design approach to study this problem. We characterize the optimal mechanism, which typically restricts the entry of close-substitute products to the assortment to induce more price competition among suppliers, without much damage to variety. We then use the optimal mechanism as a benchmark to evaluate the performance of the Chilean government procurement agency's current implementation of FAs, used to acquire US$2 billion worth of goods per year. Through a combination of theoretical and numerical results we show how the performance of such FAs can be considerably improved by introducing simple modifications to current practice which, similarly to the optimal mechanism, increase price competition among close substitutes. |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3450&r=com |
| By: | Yong Chao (College of Business, University of Louisville, Louisville, KY USA 40292); Lin Liu (College of Business Administration, University of Central Florida, Orlando, FL USA 32816); Dongyuan Zhan (School of Management, University College London, London, UK E14 5AA) |
| Abstract: | This paper studies probabilistic selling with vertically differentiated products when firms compete and consumers anticipate the potential post-purchase regret raised by possibly obtaining the inferior products. Intuitively, anticipated regret hurts the attractiveness of probabilistic selling. However, we find that probabilistic selling can be more profitable, and more likely to arise with anticipated regret than without it. This is due to the ¡°reverse quality discrimination¡± (perceived quality of the random product becomes decreasing in consumer type at the competition margin), which increases the perceived differentiation, and may still maintain sufficient attractiveness of the random product for infra-marginal consumers. Meanwhile, it may hurt the competitor. |
| Keywords: | reverse quality discrimination, probabilistic selling, vertical differentiation, anticipated regret, competition |
| JEL: | L13 L15 M31 D03 D43 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1614&r=com |
| By: | Soohyun Cho (Rutgers Business School, Rutgers, The State University of New Jersey, NJ, USA); Liangfei Qiu (Warrington College of Business, University of Florida, FL, USA); Subhajyoti Bandyopadhyay (Warrington College of Business, University of Florida, FL, USA) |
| Abstract: | One emerging business model for Internet service providers (ISPs) is to allow content providers (CPs) to subsidize Internet access for end consumers. In the present study, we develop a game-theoretical model to analyze the effects of this sponsorship of consumer data usage. The findings indicate that for an ISP, its optimal network management choice of data sponsorship largely hinges on specific market conditions such as the revenue rates of CPs and the fit cost for consumers. If the fit cost is low, the ISP will either allow both CPs to subsidize consumers’ Internet access, or allow only the more competitive CP to subsidize, depending on the CPs’ per-consumer revenue generation rates. If the fit cost is high, it is in the ISP’s interest not to allow any subsidization. The study also identifies the conditions under which an ISP’s network management choices of data sponsorship deviate from the social optimum. By identifying additional revenue models, these findings have direct implications for the telecom industry, for online content providers competing for customer loyalty, and for policymakers vested in this issue. |
| Keywords: | Internet service provider, online content provider, usage subsidization, consumer surplus, social welfare |
| JEL: | C72 D43 L44 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1604&r=com |
| By: | Nocke, Volker; Schutz, Nicolas |
| Abstract: | We develop an aggregative games approach to study oligopolistic price competition with multiproduct firms. We introduce a new class of demand systems, derived from discrete/continuous choice, and nesting CES and logit demand systems. The associated pricing game with multiproduct firms is aggregative and a firm's optimal price vector can be summarized by a uni-dimensional sufficient statistic, the iota-markup. We prove existence of equilibrium using a nested fixed-point argument, and provide conditions for equilibrium uniqueness. In equilibrium, firms may choose not to offer some products. We analyze the pricing distortions and provide monotone comparative statics. Under CES and logit demands, another aggregation property obtains: All relevant information for determining a firm's performance and competitive impact is contained in that firm's uni-dimensional type. Finally, we re-visit classic questions in static and dynamic merger analysis, and study the impact of a trade liberalization on the inter- and intra-firm size distributions, productivity and welfare. |
| Keywords: | Aggregative Game; Discrete/Continuous Choice; Firm Scope; Horizontal Merger; Multiproduct Firms; Oligopoly Pricing; trade liberalization |
| JEL: | D43 F15 L13 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11539&r=com |
| By: | Jiekai ZHANG (INSEE-CREST, 150 Boulevard Gabriel Péri, 92245 MALAKOFF, France) |
| Abstract: | The quantities of advertising on TV are regulated in France, as in many other developed countries. This paper aims at understanding the welfare implication of such regulation. It is the first paper which investigates this issue with a structural econometric model in two-sided market framework. I construct an unique database of per hour data on 12 main broadcast TV stations in France during one year (2014) to estimate structurally the demand and supply in the French broadcast television industry. I identify the shadow prices of regulation caps on advertising quantities, using the difference in estimated marginal costs between the binding and non-binding regulation constraints. A counterfactual experiment is carried out to quantify the exact impact of regulation. The results suggest that the TV channels advertise more without regulation but the overall impact of the current regulatory regime is small. The welfare analysis suggests that the current regulation framework is unnecessary, since it constrained the profit of TV channels without improving significantly the welfare of TV viewers. |
| Keywords: | Advertising, regulation, media, TV, two-sided market, structural estimation, shadow prices, welfare |
| JEL: | C35 D22 D62 H44 L13 L22 L51 L82 L88 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1606&r=com |
| By: | Jiawei Chen (Department of Economics, University of California, Irvine, 3151 Social Science Plaza, Irvine, CA 92697, USA); Michael Sacks (Department of Economics, West Virginia University, 1601 University Ave., PO Box 6025, Morgantown, WV 26506-6025, USA) |
| Abstract: | This paper investigates firms' decisions to reimburse consumers' switching costs in network industries. Prior literature finds that switching costs incentivize firms to harvest their locked-in consumers rather than price aggressively for market dominance, resulting in a lower market concentration. Using a dynamic duopoly model, we show that this result is reversed if firms have the option to reimburse consumers' switching costs. In that case the larger firm offers a bigger reimbursement to switching consumers than the smaller firm does, as an additional instrument to propel itself to market dominance. Consequently, an increase in switching cost increases market concentration. Compared to the case without reimbursements, allowing firms the option to reimburse results in greater consumer welfare despite having a much higher market concentration. Consumers' benefits from a larger network and switching cost reimbursement outweigh the higher price charged by a dominant firm. |
| Keywords: | network goods, price discrimination, reimbursement, switching costs |
| JEL: | L11 L13 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1613&r=com |
| By: | Andrikopoulos, Athanasios; Dassiou, Xeni |
| Abstract: | We examine the impact of exchange rates on profits and prices in differentiated consumable goods markets under imperfect competition. We model the exchange rate exposure of exporting firms operating within price and quantity settings where between and within competition co-exist. We show that these two forms of competition may act as opposing forces in terms of the impact of the exchange rate on the optimal prices (quantities) and profits in both Bertrand and Cournot models. Real and bilateral exchange rate exposure is empirically tested using stock price and profit data from twenty-two multinational firms from nine markets during 1984-2015. |
| Keywords: | Oligopoly Market Structure ; Differentiation ; Firm Behaviour ; Foreign Exchange ; International corporate finance JEL classification numbers: L13 ; D21 ; D22 ; F31 ; G39 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wcreta:25&r=com |
| By: | Batabyal, Amitrajeet; Beladi, Hamid |
| Abstract: | We study the strategic interaction between a new good producer and a remanufacturer who use advertising campaigns to compete for a dominant share of the market for a certain good. Each firm chooses one of three possible strategies for running its advertising campaign. The two rival firms care only about capturing a dominant share of the relevant market. Hence, if a firm expects to capture dominant market share with probability p ∈ [0,1] then its payoff in the game we study is also p. Our analysis leads to four results. First, we provide the normal form representation of the game between the new good producer and the remanufacturer. Second, we specify the game in matrix form. Third, we indicate what happens at each stage of the elimination of strictly dominated strategies. Finally, we show that the iterated elimination of strictly dominated strategies yields a clear and unique prediction about the outcome of the advertising game. |
| Keywords: | Advertising, Duopoly, New Good Producer, Remanufacturer, Dominated Strategy |
| JEL: | D21 L21 M37 |
| Date: | 2016–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74085&r=com |
| By: | Jaspersen, Stefan |
| Abstract: | I provide evidence that fund managers who overweight firms with the most differentiated products ('monopolies') exhibit a superior risk-adjusted performance. This is consistent with information advantages due to a better understanding of qualitative information on a firm's competitive environment. I find that funds with above median monopoly bets outperform by up to 92 basis points annually and trade more successfully in both their monopoly and nonmonopoly sub-portfolios. My identification strategy includes exogenous shocks to information quality using the Sarbanes-Oxley Act and to a firm's product market environment using the 9/11 terrorist attacks. I document that managers who place larger monopoly bets are less likely to invest into rival firms at the same time, have a longer investment horizon, and hold more illiquid and high quality stocks. |
| Keywords: | Mutual fund performance,Information production,Fund manager skill,Investment behavior,Product market competition |
| JEL: | G11 G12 G14 G23 L11 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1607&r=com |
| By: | Chengsi Wang (Department of Economics, University of Mannheim, L7 3-5, Mannheim, 68131, Germany); Julian Wright (Department of Economics, National University of Singapore, 10 Kent Ridge Crescent, 119260, Singapore) |
| Abstract: | Platforms use price parity clauses to prevent sellers charging lower prices when selling through other channels. Platforms justify these restraints by noting they are needed to prevent free-riding, which would undermine their incentives to invest in their platform. In this paper, we study the effect of price parity clauses on three different types of platform investment, and evaluate these restraints taking into account these investment effects. We find, that wide price parity clauses lead to excessive platform investment while without such price parity clauses there is insufficient platform investment. Even taking these investment effects into account, wide price parity clauses always lower consumer surplus and often lowers total welfare. |
| Keywords: | search, vertical restraints, intermediation, investment |
| JEL: | D40 L11 L14 L42 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1617&r=com |
| By: | Thomas Fagart (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This article considers the classic model of irreversible investment under imperfect competition and stochastic demand and characterizes the markov perfect equilibrium. To do so, I introduce a new way to define strategies permitting the players to create endogenous jumps in the state variable. The markov equilibrium is then similar to the open-loop equilibrium, meaning that the irreversibility of investment does not create a preemption effect in this model. This is due to the form of investment's cost, which creates an incentive to invest as soon as possible, reducing the strategic interaction to the one of a static problem. |
| Abstract: | Cet article considère le modèle classique d'investissement irréversible en environnement Brownien lorsque la concurrence est imparfaite et caractérise l'équilibre Markovien. Pour ce faire, j'introduis une nouvelle façon de définir des stratégies permettant aux joueurs de faire sauter la variable d'état. L'équilibre Markovien est alors similaire à l'équilibre en Open-loop, ce qui signifie que, dans ce modèle, l'irréversibilité de l'investissement ne crée pas un effet de préemption dans ce modèle. Cela est dû à la forme du coût de l'investissement qui crée une incitation à investir dès que possible, en réduisant l'interaction stratégique entre les entreprises à celui d'un problème statique. |
| Keywords: | Capacity investment,Cournot competition,Markov-perfect equilibrium,Real option games,Differential games,Investissement en capacité,Concurrence à la Cournot,Equilibre markovien,Option réelle,Jeux différentielle |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01243559&r=com |
| By: | Reddy, Kotapati Srinivasa |
| Abstract: | The prolific competition and unanticipated customer loyalty gave the ideological thought to craft combat strategies among firms, now it became a warriors’ battle. To achieve this, global firms are designing tactics to become a gladiator by choosing merger & acquisition as a synergistic choice. M&A is an opportunity for target firm shareholders in a high premium, on the other hand escalating monopoly by an acquirer in the respective market. These inorganic options will increase the capitalism in mixed economy countries that result in the loss of government control on public sector enterprises and sick industries. Availing this gap, the present conceptual study is aimed to introduce a new weapon for emerging market nations to protect state control and keep public belief. Exclusively, we try to accommodate and suggest a new financial arrangement or scheme against the existing model, i.e. Leveraged buyout (LBO). Finally, this array is supported by the Indian sick industries as case examples which were disappearing now. It also ensures that the economic sustainability and progress of nation would be achieved by the proposed ‘Contract Merger’ model. |
| Keywords: | Corporate restructuring; turnaround; merger; acquisition; LBO; disinvestment |
| JEL: | G3 G34 G38 M1 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74263&r=com |
| By: | Simplice Asongu (Yaoundé/Cameroun); Enowbi Batuo (University of Westminster, UK.); Jacinta Nwachukwu (Coventry University, UK.); Vanessa Tchamyou (Yaoundé, Cameroon) |
| Abstract: | This study assesses how information diffusion dampens the adverse effect of market power on the price and quantity of loans provided by a panel of 162 banks from 39 African countries for the period 2001-2011. The empirical evidence is based on three endogenity-robust estimation techniques, namely: (i) Two Stage Least Squares (2SLS), (ii) Generalised Method of Moments (GMM) and (iii) Instrumental Variable Quantile Regressions (QR). Three key results emerge. First, from the GMM results, a mobile phone penetration rate of 54.29, rising to 57 per 100 people are predicted to neutralise the adverse effect of market power on the average loan price and quantity respectively. Second, from the QR, mobile phone penetration rates of 56.20, 52.04 and 42.76 per 100 people is needed to nullify the negative effect of market power on loan quantity at the 0.10th, 0.25th and 0.90th quintiles respectively. Third, a considerably lower internet penetration rate of 9.49 per 100 people is required to counteract the negative impact of market power on loan quantity at the 0.90th quintile. |
| Keywords: | Financial access; Market power; Information asymmetry; ICT; Africa |
| JEL: | G20 G29 L96 O40 O55 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:16/039&r=com |
| By: | Carlos-Enrique, Cardoso-Vargas |
| Abstract: | This paper presents a brief review of the current conditions of economic competition in the sector of air travel in Mexico. So, this shows the most relevant legal framework for the sector and highlights of recent years; the document also shows the conditions of competition in the market through the analysis of concentration indices, prices, relationship between prices and market power, competition intra and inters airports and barriers to free competition. The results show a slight increase in economic concentration in the sector, however, in terms of the legislation this situation does not provide evidence that this competition process being affected. The main constraints on competition appear to be the prevailing physical barriers in the operation of the Mexico City International Airport and some aspects of current legislation. |
| Keywords: | Economic competition, competition policy, airline industry in Mexico |
| JEL: | L40 L52 L93 |
| Date: | 2015–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74294&r=com |
| By: | Gorecki, Paul |
| Abstract: | This paper addresses, for the taxi market in Ireland, whether judicial, legislative and regulatory processes promote taxi users’ welfare or taxi license holders’ welfare. It is argued that the 2000 decision to remove quantitative restrictions on taxi numbers favoured taxi users; the 2010 decision to re impose such restrictions, with the exception of wheelchair accessible taxis) had the effect of favouring taxi license holders, while doing little to meet its declared object to increase the number of wheelchair accessible taxis and the ready availability of such vehicles for wheelchair customers. Whether the late 2000s/early 2020s will be a rerun of the late 1990s, with increasing waiting times for taxi users, is a moot point. An applicant refused a taxi license might, as in 2000, successfully bring a High Court case contesting the legal basis for the present quantitative restrictions. The Competition and Consumer Protection Commission might spark debate on taxi regulatory policy, while the Minister for Transport, Tourism and Sport might issue a policy direction to the National Transport Authority, the taxi regulator, requiring it to clarify the objectives and benchmarks for success of its existing prohibition on taxi licenses and to consider how best to create incentives for those with wheelchair accessible taxis to use them to service wheelchair users. |
| Keywords: | regulation; taxi; wheelchair accessible |
| JEL: | L5 |
| Date: | 2016–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74099&r=com |
| By: | Lamantia, F. (University of Amsterdam); Negriu, A. (University of Amsterdam); Tuinstra, J. (University of Amsterdam) |
| Abstract: | We study a dynamic oligopoly market model where quantity setting firms can choose one of two production technologies. We find that boundedly rationality in production (best-reply dynamics) and technology choice (evolutionary selection of better performing technologies) as sources of market dynamics, can generate endogenous instability and complicated dynamics, including chaotic fluctuations and co-existing attractors with fractal basins of attraction. By studying successively more complex versions of our model we analyze these two different sources of instability separately and also investigate their interaction. We find that boundedly rational production decisions amplify technological instability whereas boundedly rational technology decisions do not contribute to the production-driven destabilization of the Nash equilibrium. In any case, whenever the two types of decisions interfere in an endogenously unstable market, fluctuations follow a visibly different pattern compared to the fluctuations of a market with only one source of instability. Finally, we show that an innovation policy that aims to alter the market equilibrium without taking into account off-equilibrium dynamics may, in an intrinsically dynamic world, generate welfare losses by destabilizing a stable equilibrium and/or by raising the amplitude of market fluctuations. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ams:ndfwpp:16-08&r=com |
| By: | Sahni, Navdeep S. (Stanford University); Nair, Harikesh S. (Stanford University) |
| Abstract: | Recent advances in advertising technology have lead to the development of "native advertising", which is a format of advertising that mimics the other non-sponsored content on the medium. While advertisers have rapidly embraced the format on a variety of digital media, regulators have expressed serious concerns about whether this format materially deceives consumers when the advertising disclosure is incomplete or inappropriate. This has reignited a longstanding debate about the distinction between advertising and content, and how it affects consumers. This paper contributes to this debate by providing empirical evidence from randomized experiments conducted on native advertising at a mobile restaurant-search platform. We experimentally vary the format of paid-search advertising, the extent to which ads are disclosed to over 200,000 users, and track their anonymized browsing behavior including clicks and conversions. Our research design uses comparisons of revealed preferences under experimentally manipulated treatment and control conditions to assess the potential for consumer confusion and deception. A design based on revealed preference is important to speaking to the "material" standard of regulators, and to assessing "confusion" while avoiding direct questioning of consumers. We find that native advertising benefits advertisers, and detect no evidence of deception under typically used formats of disclosure currently used in the paid-search marketplace. Further investigation shows that the incremental conversions due to advertising are not driven by users clicking on the native ads. Rather, the benefits from advertising are driven by users seeing the ads and later clicking on the advertiser's "organic" listings. Thus, we find little support of typical native advertising "tricking" users and driving them to advertisers. Users seem to view ads and deliberately evaluate the advertisers. Overall, our results imply the incentives of the platform, advertisers and regulators with respect to disclosure are aligned: consumers value the clear disclosure regulators demand, and it benefits advertisers and improves monetization for the platform. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3395&r=com |
| By: | Seiler, Stephan (Stanford University); Yao, Song (Northwestern University); Wang, Wenbo (Hong Kong University of Science and Technology) |
| Abstract: | We leverage a temporary block of the Chinese microblogging platform Sina Weibo due to political events, to estimate the causal effect of online word-of-mouth content on product demand in the context of TV show viewership. Based on this source of exogenous variation, we estimate an elasticity of TV show ratings (market share in terms of viewership) with respect to the number of relevant comments (comments were disabled during the block) of 0.016. In terms of the behavioral mechanism, we find more post-show microblogging activity increases demand, whereas comments posted prior to the show airing do not affect viewership. These patterns are inconsistent with informative or persuasive advertising effects and suggest a complementarity between TV consumption and anticipated post-show microblogging activity. |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3372&r=com |
| By: | Stanislao Gualdi (CentraleSupélec); Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) |
| Abstract: | We propose a simple dynamical model of the formation of production networks among monopolistically competitive firms. The model subsumes the standard general equilibrium approach a la Arrow-Debreu but displays a wide set of potential dynamic behaviors. It robustly reproduces key stylized facts of firms' demographics. Our main result is that competition between intermediate good producers generically leads to the emergence of scale-free production networks. |
| Keywords: | Macroeconomic Modelling,Agent-based Computational Economics |
| Date: | 2016–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-01370207&r=com |
| By: | Simplice Asongu (Yaoundé/Cameroun); Sara Le Roux (Oxford Brookes University, Oxford); Vanessa S. Tchamyou (Yaoundé/Cameroon) |
| Abstract: | This study investigates the role of information sharing offices (public credit registries and private credit bureaus) in reducing market power for financial access in the African banking industry. The empirical evidence is based on a panel of 162 banks from 42 countries for the period 2001-2011. Three simultaneity-robust empirical strategies are employed, namely: (i) Two Stage Least Squares with Fixed Effects in order to account for simultaneity and the observed heterogeneity; (ii) Generalised Method of Moments (GMM) to control for simultaneity and time-invariant omitted variables and (iii) Instrumental Variable Quantile regressions to account for simultaneity and initial levels of financial access. In order to ensure that information sharing offices influence market power for loan price (quantity) to decrease (increase), public credit registries should have between 3.156% and 3.3% coverage, while private credit bureaus should have between 1.443 and 18.4% coverage. The established thresholds are cut-off points at which information sharing offices completely neutralise the negative effect of market power on financial access. The thresholds are contingent on the dimension (loan price versus loan quantity) and distribution (conditional mean versus conditional distribution) of financial access. |
| Keywords: | Financial access; Market power; Information sharing |
| JEL: | G20 G29 L96 O40 O55 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:16/036&r=com |
| By: | Alexandre CROUTZET; Pierre LASSERRE |
| Abstract: | There are many instances where property rights are imperfectly defined, incomplete, or imperfectly enforced. The purpose of this normative paper is to address the following question:are there conditions under which partial property rights are economically efficient in a renewable resource economy? To address this question, we treat the level of completeness of property rights as a continuous variable in a renewable resource economy. By design, property rights restrict access to the resource, so that they may allow a limited number of firms to exercise market power. We show that there exists a level of property rights completeness that leads to first-best resource exploitation; this level is different from either absent or complete property rights. Complete rights are neither necessary nor sufficient for efficiency in presence of market power. We derive an analytic expression for the optimal level of property rights completeness and discuss its policy relevance and information requirements. The optimal level depends on i) the number of firms; ii) the elasticity of input productivity and iii) the price elasticity of market demand. We also find that a greater difference between the respective values of input and output requires stronger property rights. In fact, high profits both imply a severe potential commons problem and may be the expression of market power; strong property rights limit the commons problem; their incompleteness offsets market power. Biology also impacts the optimal quality of property rights: when the stock of resource is more sensitive to harvesting efforts, optimal property rights need to be more complete. |
| Keywords: | institutions, property rights, entry, market power oligopoly, common access |
| JEL: | K L1 Q2 Q3 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:10-2016&r=com |
| By: | Ifrach, Bar (Airbnb); Weintraub, Gabriel Y. (Columbia University) |
| Abstract: | In this paper we introduce a new computationally tractable framework for Ericson and Pakes (1995)-style dynamic oligopoly models that overcomes the computational complexity involved in computing Markov perfect equilibrium (MPE). First, we define a new equilibrium concept that we call momentbased Markov equilibrium (MME), in which firms keep track of their own state, the detailed state of dominant firms, and few moments of the distribution of fringe firms' states. Second, we provide guidelines to use MME in applied work and illustrate with an application how it can endogenize the market structure in a dynamic industry model even with hundreds of firms. Third, we develop a series of results that provide support for using MME as an approximation. We present numerical experiments showing that MME approximates MPE for important classes of models. Then, we introduce novel unilateral deviation error bounds that can be used to test the accuracy of MME as an approximation in large-scale settings. Overall, our new framework opens the door to study novel issues in industry dynamics. |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3449&r=com |
| By: | Gu, Yiquan (Management School, University of Liverpool); Wenzel, Tobias (Department of Economics, University of Bath) |
| Abstract: | This paper studies firms’ obfuscation choices in a duopoly setting where two firms differ in their marginal costs of production. We show that the high-cost firm chooses maximum obfuscation while the lowcost firmchooses minimal (maximal) obfuscation if the cost advantage is large (small). We argue that price regulation might be a useful policy in such an environment for two reasons: Introducing a price cap benefits consumers as it i) makes pricing more competitive and ii) reduces firms’ incentives to obfuscate. Moreover, a price cap benefits social welfare as it shifts production to the more efficient low-cost firm. |
| Keywords: | Obfuscation, Consumer Protection, Price Cap |
| JEL: | D18 L13 L51 |
| Date: | 2015–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:xjt:rieiwp:2015-04&r=com |
| By: | Isabelle Liotard (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - CNRS - Centre National de la Recherche Scientifique); Valérie Revest (TRIANGLE - Triangle : action, discours, pensée politique et économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne - Institut d'Études Politiques [IEP] - Lyon - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Longtemps, l'innovation a été perçue comme un processus purement interne, conduit au sein de l'entreprise, cette dernière la considérant comme un trésor à faire fructifier et à maintenir dans son périmètre. En effet, durant les 19 ème et 20 ème siècles, les firmes ont eu pour objectif de développer leur projet en interne, et de détenir de manière exclusive les droits sur leur processus d'innovation et/ou de création. Or, depuis quelques décennies, des entreprises innovantes appartenant à des industries variées choisissent de plus en plus de faire appel à leur environnement extérieur pour développer une partie de leurs innovations. L'enjeu est crucial : pour alimenter un processus d'innovation toujours risqué, complexe, long et couteux, la R&D interne « seule » ne suffit plus. L'acquisition de connaissances externes, combinée aux activités de R&D interne apparaît alors comme un mécanisme efficace pour accroître l'ensemble des connaissances technologiques produites par les entreprises, dans un contexte d'Innovation Ouverte (Open Innovation), aux fortes dimensions participatives et collaboratives. Cette alchimie associant dimension interne et externe a pris depuis plusieurs formes, visant à assurer notamment la complémentarité des ressources : réseaux de partenaires – privés et /ou publics, accords de licences, coalitions ou partenariats autour de projets technologiques, clusters, pôles de compétitivité (Teece, 1986). L'objectif de cet article est d'analyser l'apparition d'une nouvelle configuration d'organisation de la recherche et de l'innovation portée par Internet. Le développement sans précédent du Web a conduit à la mise en place de nouvelles structures d'intermédiation visant à accélérer la captation de savoirs externes par les entreprises. Innocentive, fondée en 2000, représente la première plateforme d'intermédiation mettant en relation des entreprises confrontées à un problème lié à leur recherche et des « apporteurs de solutions » du monde entier (Lakhani et al, 2007). Au travers d'une plateforme en accès libre, des entreprises postent des « questions » technologiques (plus ou moins larges) et proposent pour chaque défi, une prime afin de récompenser la meilleure solution proposée après une période de concours. Nous montrons que l'originalité d'une telle plateforme provient de la nature du rôle d'intermédiation joué par les gestionnaires de la plateforme, qui ne se limite par à un simple rôle de mise en relation entre deux groupes d'acteurs, mais qui consiste à extraire et transformer des savoirs académiques en solutions opérationnelles pour des entreprises. Un second résultat concerne les propriétés et caractéristiques d'Innocentive. Cette plateforme se distingue tant des communs au sens propre (logiciel libre, Wikipédia..) que des formes multiples d'entreprises collaboratives et ouvertes dont Internet a permis l'essor. On la désignera comme un « hybride », naviguant entre innovation ouverte et innovation fermée, entre biens communs et biens privés. S'appuyant sur une communication autour de l'Innovation Ouverte, la plateforme utilise l'architecture de l'Internet (un commun) et des savoirs existants (dont certains sont de l'ordre du bien commun) pour assurer une marchandisation des connaissances et leur privatisation. L'un de ses traits centraux est ainsi de 2 s'appuyer sur des mécanismes de « crowdsourcing » (externalisation ouverte faisant appel à la foule des internautes) pour alimenter les processus d'innovations des firmes clientes et partenaires de la plateforme. La première section met en lumière l'intermédiation active proposée par Innocentive. La seconde section se focalise sur les caractéristiques de la plateforme à travers le prisme de l'Open Innovation et de la notion de biens communs de la connaissance. |
| Keywords: | innovation , contest , Internet |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01302451&r=com |
| By: | Francisco Robles (Universitat de Barcelona) |
| Abstract: | We consider a market with only one seller and many buyers. The seller owns several indivisible objects on sale. Each buyer can receive many objects and has a gross-substitutes valuation for every package of objects. The gross-substitutes condition guarantees the non-emptiness of the core of the market (Ausubel and Milgrom, 2002). Moreover, the Vickrey outcome (Vickrey, 1961) of the market leads to a core payoff in which each buyer gets his maximum core payoff. The aim of this paper is to analyze the following mechanism. Simultaneously, each buyer requests a package by announcing how much he would pay for it. After all buyers' requests, the seller decides the final assignment of packages and the prices. If a buyer gets a package of objects, it must be his request or an allocation at least as good as his request. The subgame perfect equilibrium outcomes of the mechanism correspond to the Vickrey outcome of the market.. |
| Keywords: | assignment model, mechanism, implementation, Vickrey outcome. |
| JEL: | C71 C72 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ewp:wpaper:353web&r=com |
| By: | Elberg, Andres (Universidad Diego Portales); Gardete, Pedro M. (Stanford University); Macera, Rosario (Pontificia Universidad Catolica); Noton, Carlos (University of Chile) |
| Abstract: | We investigate whether promotion depth has dynamic effects on subsequent promotion sensitivity. In a large-scale field experiment we vary the promotion depth of top sale products across 17 categories in 12 supermarket stores. During the first half of the experiment we manipulate promotion depth by assigning staggered promotions with 30% and 10% discounts to treated and control stores, respectively. In the second half the staggering scheme assigns an even 10% to all stores. We find that treated customers are 14% more likely to buy promoted items during the second half of the experiment, and that the basket proportion of promoted items bought increases in approximately 21%. This purchase behaviour is consistent with a model of sequential search in which higher discounts alter the beliefs of rational consumers, who favours search over promoted items during the second half. The heightened promotion sensitivity leaves retailers facing a sort of prisoners dilemma: every retailer would be better off in the absence of promotions, deviations, however, are profitable. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3401&r=com |
| By: | Gardete, Pedro M. (Stanford University); Bart, Yakov (Northeastern University) |
| Abstract: | We consider a cheap-talk game in which the persuader is able to collect information about the receiver's preferences in order to tailor communication and induce a favorable action. We find that the sender prefers not to learn the receiver's preferences with certainty, but to remain in a state of partial willful ignorance. The receiver prefers complete privacy except when information is necessary to induce communication from the sender. Surprisingly, joint welfare is always maximized by the sender's first-best level of information acquisition. The implications of our results are discussed in the contexts of online advertising, sales, dating and job search. |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3400&r=com |
| By: | Wen Wen (University of Texas at Austin, McCombs School of Business, 2110 Speedway, Austin, TX 78712); Feng Zhu (Harvard University, Harvard Business School, Morgan Hall 431, Boston, MA 02163) |
| Abstract: | How do complementors respond to the threat of platform owner entry, and how do such responses differ from the responses to actual entry? Using the mobile platform Android as our research setting, we examine how app developers on Android adjust their rate and direction of innovation efforts and prices in response to Google’s entry threat and actual entry into to the app markets. Based on a difference-indifferences empirical framework, we find that app developers that are affected by Google’s entry reduce their innovation efforts on affected apps after entry threats increase; after Google’s actual entry, they reduce innovation efforts on affected apps further and also increase these apps’ prices. However, we find that affected app developers do not withdraw from the platform completely—once the threat occurs, they shift innovation efforts from affected apps to other unaffected apps, as indicated by an increase in updates on unaffected apps during both the entry-threat and actual-entry period. |
| Keywords: | platform owner entry; entry threat; innovation; mobile app industry |
| JEL: | L11 L86 O32 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1610&r=com |
| By: | Marinovic, Ivan (Stanford University); Skrzypacz, Andrzej (Stanford University); Varas, Felipe (Duke University) |
| Abstract: | We study firm's incentives to invest and build reputation for quality, when quality can be certified at a cost. We consider two types of equilibria: one in which certification decisions are made based on firm's reputation and the second in which they are made based on the time since last certification. We show that reputation-based certification has a very limited effect on incentives to invest in quality, so that in equilibrium the firm invests only its reputation is the lowest. We also show that the firm in this case suffers from an over-certification trap in which the benefits of reputation are dissipated by excessive certification. These problems can be avoided with time-based certification, which can allow first-best investment in quality for sufficiently small certification cost, despite investment being unobservable. We also show that the optimal certification duration results in the firm certifying when its reputation is high. |
| JEL: | C73 D82 D83 D84 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3371&r=com |
| By: | José García-Quevedo (IEB, Universitat de Barcelona); Agustí Segarra-Blasco (GRIT, Universitat Rovira i Virgili); Mercedes Teruel |
| Abstract: | Theoretical and empirical approaches have stressed the existence of financial constraints in firms’ innovative activities. Although a large number of innovation projects are abandoned before their completion, the empirical evidence has focused on the determinants of innovation while failed projects have received little attention. This paper analyses the role of financial obstacles on the likelihood of abandoning an innovation project by using panel data of potential innovative Spanish firms for the period 2005–2013. Our analysis differentiates between internal and external barriers on the probability of abandoning a project and we examine whether the effects are different depending on the stage of the innovation process. Controlling for potential endogeneity, we use a bivariate probit model to take into account the simultaneity of financial constraints and the decision to abandon an innovation project. Our results show that financial constraints most affect the probability of abandoning an innovation project during the concept stage. |
| Keywords: | barriers to innovation, failure of innovation projects, financial constraints |
| JEL: | O31 D21 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:xrp:wpaper:xreap2016-02&r=com |
| By: | Sahni, Navdeep S. (Stanford University); Nair, Harikesh S. (Stanford University) |
| Abstract: | In a large-scale field experiment, we demonstrate that advertising can serve as a signal that enhances consumers' evaluations of advertised goods. We implement the experiment on a mobile search platform that provides listings and reviews for an archetypal experience good, restaurants. In collaboration with the platform, we randomize more than 200,000 consumers into exposure or no exposure of ads for about 600+ local restaurants. In conditions in which consumers are exposed to advertising, we also randomly vary the disclosure to the consumer of whether a restaurant's listing is an ad. This enables us to isolate the effect on outcomes of a consumer knowing that a listing is sponsored--a pure signaling effect. We find that this disclosure alone increases calls to the restaurant by 77%, holding fixed all other attributes of the ad. This effect is higher when the consumer uses the platform away from his typical city of search, when the uncertainly about restaurant quality is larger, and for restaurants that have received fewer ratings in the past. Further, on the supply side, newer, higher rated and more popular restaurants advertise more on the platform. Taken together, we interpret these results as consistent with a signaling equilibrium in which ads serve as implicit signals that enhance the appeal of the advertised restaurants. Both consumers and firms seem to benefit from the signaling. Consumers shift choices systematically towards restaurants that are better rated (at baseline) in the disclosure condition compared to the no disclosure condition, and advertisers gain from the improved conversion induced by disclosure. Further, our results imply that search-platforms would gain from clear sponsorship disclosure, and thus holds implications for platform design. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3392&r=com |