nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒08‒21
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Low quality as a signal of high quality By Clements, Matthew T.
  2. The effects of Entry in thin markets By Alex Dickson
  3. Distance Selling, Internet and Price Dynamics. By Askenazy, P.; Celerier, C.; Irac, D.
  4. Competition and Innovation: Pushing Productivity Up or Down? By Brouwer, E.; Wiel, H.P. van der
  5. Price regulation in oligopoly. By Corchón, Luis C.; Marcos, Félix
  6. Quality Perceptions of Private Label Brands Conceptual Framework and Agenda for Research By . Abhishek; Abraham Koshy
  7. Public Monopoly and Economic Efficiency: Evidence from the Pennsylvania Liquor Control Board's Entry Decisions By Katja Seim; Joel Waldfogel
  8. The Evolution of Brand Preferences: Evidence from Consumer Migration By Bart J. Bronnenberg; Jean-Pierre H. Dube; Matthew Gentzkow

  1. By: Clements, Matthew T.
    Abstract: If a product has two dimensions of quality, one observable and one not, a firm can use observable quality as a signal of unobservable quality. The correlation between consumers' valuation of high quality in each dimension is a key determinant of the feasibility of such signaling. A firm may use price alone as a signal, or price and quality together. Both signals tend to be used when the market is very uninformed, whereas price signaling alone tends to be used when the market is moderately informed. If high observable quality is inexpensive to provide, then it cannot signal high unobservable quality, and low observable quality is always an indication that unobservable quality is high. --
    Keywords: Signaling,quality
    JEL: D82 L15
    Date: 2010
  2. By: Alex Dickson (Department of Economics, Strathclyde University)
    Abstract: We consider entry of additional firms into the market for a single commodity in which both sellers and buyers are permitted to interact strategically. We show that the market is quasi-competitive, in that the inclusion of an additional sellerlowers the price and increases the volume of trade, as expected. However, whilst buyers benefit from this change under reasonable conditions on preferences, we cannot conclude that sellers are always made worse off in the face of more intense competition, contrary to the conventional wisdom. We characterize the conditions under which entry by new sellers may raise the equilibrium profit of existing sellers, which will depend in an intuitive way on the elasticity of a strategic analog of demand and the market share of existing sellers, and encompass completely standard economic environments.
    Keywords: bilateral oligopoly; entry; comparative statics.
    JEL: C72 D21 D43 L13
    Date: 2010–07
  3. By: Askenazy, P.; Celerier, C.; Irac, D.
    Abstract: The share of retail sales made via distance selling has increased steadily, driven by Internet sales. Meanwhile, a large body of research has been devoted to measuring the impact of online shopping on consumer prices. These studies are based primarily on microeconomic data and they reveal contrasting effects due to diverging microeconomic behaviours. This paper aims to use a macro-sector estimation to show how the price-decreasing effects of Internet shopping outweigh the price-increasing effects. In that purpose, we use French price index series and distance selling sales covering about 30 sectors, from 1990 to 2007. We find that downward effects dominate: the recent development of distance selling, due to the development of online selling, results in lower prices.
    Keywords: E-Commerce, Price, Competition.
    JEL: D12 E31 L8
    Date: 2010
  4. By: Brouwer, E.; Wiel, H.P. van der (Tilburg University, Center for Economic Research)
    Abstract: This paper examines the relationship between competition, innovation and productivity for the Netherlands. We use industry level data aggregated from micro data as well as moments from firm level data for the period 1996-2006. We match innovation data from Community Innovation Survey with accounting data to link innovative activities with performance at the industry level. We find strong evidence for a positive impact of competition on Total Factor Productivity (TFP) at the industry level. Competition directly increases TFP by reducing X-ineficiencies and removing inefficient forms from markets, but also through more innovation. Nonetheless, there exists an inverted U- curve between competition and innovation for the Netherlands, at least for manufacturing industries. Yet, our results indicate that a negative effect of competition on productivity through lower innovation expenditures arises only at very high levels of competition.
    Keywords: competition;innovation;profit elasticity;productivity
    JEL: D40 L16 O31
    Date: 2010
  5. By: Corchón, Luis C.; Marcos, Félix
    Abstract: In this paper we consider price regulation in oligopolistic markets when firms are quantity setters. We consider a market for a homogeneous good with a special form of the demand function (Ï-linearity), constant returns to scale and identical firms. Marginal costs can take two values only: low or high. The regulator knows all parameters except marginal costs. Assuming that the regulator is risk neutral, we characterize the optimal policy and show how this policy depends on the basic parameter of demand and costs
    Date: 2010–01
  6. By: . Abhishek; Abraham Koshy
    Abstract: The paper examines how retailers can influence the quality perceptions for private label brands by providing additional information cues to the customers. The nature of additional information cues may have differential impact on quality perceptions of private label brands vis-à-vis national brands. The paper proposes extrinsic high scope cues – in form of manufacturer’s name and public quality label – to improve the quality perceptions of private label brands. Furthermore, the familiarity of the product may influence the quality perceptions, consequently influencing the purchase decision. The paper also proposes differential impact of information cues across different product categories on quality perceptions of private label brands. [W.P. No.2008-02-04]
    Keywords: quality, perceptions, label, brands, extrinsic, high scopes, manufacture, public quality
    Date: 2010
  7. By: Katja Seim; Joel Waldfogel
    Abstract: While private monopolists are generally assumed to maximize profits, the goals of public enterprises are less well known. Using the example of Pennsylvania's state liquor retailing monopoly, we use information on store location choices, prices, wholesale costs, and sales to uncover the goals implicit in its entry decisions. Does it seek to maximize profits or welfare? We estimate a spatial model of demand for liquor that allows us to calculate counterfactual configurations of stores that maximize profit and welfare. We find that welfare maximizing networks have roughly twice as many stores as would maximize profit. Moreover, the actual network is much more similar in size and configuration to the welfare maximizing configuration. An alternative to a state monopoly would be the common practice of regulated private entry. While such regimes can give rise to inefficient location decisions, little is known about the size of the resulting inefficiencies. Even for a given number of stores, a simple characterization of free entry with our model results in a store configuration that produces welfare losses of between 3 and 9% of revenue. This is a third to half of the overall loss from unregulated free entry.
    JEL: L13 L21 L3 L81
    Date: 2010–08
  8. By: Bart J. Bronnenberg; Jean-Pierre H. Dube; Matthew Gentzkow
    Abstract: We study the long-run evolution of brand preferences, using new data on consumers' life histories and purchases of consumer packaged goods. Variation in where consumers have lived in the past allows us to isolate the causal effect of past experiences on current purchases, holding constant contemporaneous supply-side factors such as availability, prices, and advertising. Heterogeneity in brand preferences explains 40 percent of geographic variation in market shares. These preferences develop endogenously as a function of consumers' life histories and are highly persistent once formed, with experiences 50 years in the past still exerting a significant effect on current consumption. Counterfactuals suggest that brand preferences create large entry barriers and durable advantages for incumbent firms, and can explain persistence of early-mover advantage over long periods. Variation across product categories shows that the persistence of brand preferences is related in an intuitive way to both advertising levels and the social visibility of consumption.
    JEL: D12 L1
    Date: 2010–08

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