New Economics Papers
on Industrial Organization
Issue of 2013‒03‒16
eight papers chosen by

  1. From Amazon to Apple: Modeling Online Retail Sales, Purchase Incidence and Visit Behavior By Anastasios Panagiotelis; Michael S. Smith; Peter J Danaher
  2. "Mixed oligopoly in education" By Cremer, Helmuth; Maldonado, Dario
  3. Empire-building and price competition By Pietri, Antoine; Tazdaït , Tarik; Vahabi, Mehrdad
  4. Free Entry and Social Inefficiency under Co-opetition By Hattori, Keisuke; Yoshikawa, Takeshi
  5. Mergers When Prices are Negotiated: Evidence from the Hospital Industry By Gautam Gowrisankaran; Aviv Nevo; Robert Town
  6. Do Patents Shield Disclosure or Assure Exclusivity When Transacting Technology? By Gaétan de Rassenfosse; Alfons Palangkaraya; Elizabeth Webster
  7. Unobserved heterogeneous effects in the cost efficiency analysis of electricity distribution systems By Per J. Agrell; Mehdi Farsi; Massimo Filippini; Martin Koller
  8. A Market Screening Model for Price Inconstancies: Empirical Evidence from German Electricity Markets By Korbinian von Blanckenburg; Marc Hanfeld; Konstantin A. Kholodilin

  1. By: Anastasios Panagiotelis; Michael S. Smith; Peter J Danaher
    Abstract: In this study we construct a multivariate stochastic model for website visit duration, page views, purchase incidence and the sale amount for online retailers. The model is constructed by composition from parametric distributions that account for consumer heterogeneity, and involves copula components. Our model is readily estimated using full maximum likelihood, allows for the strong nonlinear relationships between the sales and visit variables to be explored in detail, and can be used to construct sales predictions. We examine a number of top-ranked U.S. online retailers, and find that the visit duration and the number of pages viewed are both related to sales, but in very different ways for different products. Using Bayesian methodology we show how the model can be extended to account for latent household segments, further accounting for consumer heterogeneity. The model can also be adjusted to accommodate a more accurate analysis of online retailers like that sell products at a very limited number of price points. In a validation study across a range of different websites, we find that the purchase incidence and sales amount are both forecast more accurately using our stochastic model, when compared to regression, probit regression and a popular data-mining method.
    Keywords: Online purchasing, panel data, copulas, marketing models
    Date: 2013
  2. By: Cremer, Helmuth (TSE, IDEI); Maldonado, Dario (University Bogota)
    Abstract: This paper studies oligopolistic competition in education markets when schools can be private and public and when the quality of education depends on "peer group"effects. In the first stage of our game schools set their quality and in the second stage they fix their tuition fees. We examine how the (subgame perfect Nash) equilibrium allocation (qualities, tuition fees and welfare) is affected by the presence of public schools and by their relative position in the quality range. When there are no peer group effects, efficiency is achieved when (at least) all but one school are public. In particular in the two school case, the impact of a public school is spectacular as we go from a setting of extreme differentiation to an efficient allocation. However, in the three school case, a single public school will lower welfare compared to the private equilibrium. We then introduce a peer group effect which, for any given school is determined by its student with the highest ability. These PGE do have a significant impact on the results. The mixed equilibrium is now never efficient. However, welfare continues to be improved if all but one school are public. Overall, the presence of PGE reduces the effectiveness of public schools as regulatory tool in an otherwise private education sector.
    Keywords: Education, peer-group effects, mixed duopoly
    Date: 2013–02
  3. By: Pietri, Antoine; Tazdaït , Tarik; Vahabi, Mehrdad
    Abstract: While economic historians have stressed the importance of price competition in the protection market, theorists of conflictual activity have argued against the extrapolation of this form of competition in the protection market and favored competition through the quantity of conflictual effort. We purport to show the relevance of price competition in the protection market by focusing on the competition between empires. By distinguishing absolute and differential protection rents, we first define coercive rivalry and price competition among empires and then establish three types of empires, namely early empires of domination, territorial empires and merchant empires. Empires are structured on the basis of two types of hierarchies: “top-down” and “bottom-up” that determine their protection costs. We systematically study the impact of asymmetrical protection costs on price competition in the light of Bertrand equilibria. We provide an economic rationale for the use of violence throughout history in conformity with the findings of economic historians.
    Keywords: Absolute and differential protection rents; Bertrand equilibrium; Empires of domination; Merchant empires; Territorial Empires
    JEL: D74 H11 H56 L13 P16
    Date: 2013–02–14
  4. By: Hattori, Keisuke; Yoshikawa, Takeshi
    Abstract: We investigate the social desirability of free entry in the co-opetition model in which firms compete in a homogeneous product market while sharing common property resources that affect market size or consumers' willingness to pay for products. We show that free entry leads to socially excessive or insufficient entry into the market in the case of non-commitment co-opetition, depending on the magnitude of "business stealing" and "common property" effects of entry. On the other hand, in the case of pre-commitment co-opetition, free entry leads to excess entry and a decline in the common property resources. Interestingly, in the latter case, the excess entry result of Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) holds even when there are no entry (set-up) costs for entrants. These results have important policy implications for entry regulations.
    Keywords: Excess entry; Free entry; Co-opetition; Entry regulations; Common property resource
    JEL: D43 L13 L51
    Date: 2013–03–06
  5. By: Gautam Gowrisankaran; Aviv Nevo; Robert Town
    Abstract: In healthcare and other bilateral oligopoly markets, prices are often negotiated by the contracting parties. Many hospitals have merged in recent years in part to gain bargaining leverage with managed care organizations (MCOs), leading to several antitrust trials. We specify and estimate a bargaining model of competition between hospitals and MCOs using claims and discharge data from Northern Virginia. We find that MCO bargaining restrains hospital prices significantly relative to standard insurance. Increasing patient coinsurance tenfold would reduce prices by 16%. A proposed hospital acquisition that was challenged by the Federal Trade Commission would have significantly raised hospital prices.
    JEL: I11 I18 L11 L13 L31 L38
    Date: 2013–03
  6. By: Gaétan de Rassenfosse (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Intellectual Property Research Institute of Australia, The University of Melbourne); Alfons Palangkaraya (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Intellectual Property Research Institute of Australia, The University of Melbourne); Elizabeth Webster (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Intellectual Property Research Institute of Australia, The University of Melbourne)
    Abstract: Patents may assist trade in technology either by protecting buyers against the expropriation of the idea by third parties (the appropriation effect) or by enabling sellers to more frankly disclose the idea during the negotiation phase (the disclosure effect). We test for the presence of both these effects using quasi-experimental matching analysis on a novel dataset of 860 technology transaction negotiations. We identify the appropriation effect by comparing the probability of successful negotiations involving a granted patent with those involving a pending patent. Similarly, we identify the disclosure effect by comparing the probability of successful negotiations involving a pending patent with those involving no patent. We find evidence for the appropriation but not the disclosure effect: technology transaction negotiations involving a granted patent instead of a pending patent are 10 per cent more likely to be successfully completed (compared with an average completion rate of approximately 80 per cent).
    Keywords: Markets for technology, R&D, invention, patent, intellectual property, appropriability
    JEL: O31 O34
    Date: 2013–02
  7. By: Per J. Agrell; Mehdi Farsi; Massimo Filippini; Martin Koller
    Abstract: The purpose of this study is to analyze the cost efficiency of electricity distribution systems in order to enable regulatory authorities to establish price- or revenue cap regulation regimes. The increasing use of efficiency analysis in the last decades has raised serious concerns among regulators and companies regarding the reliability of efficiency estimates. One important dimension affecting the reliability is the presence of unobserved factors. Since these factors are treated differently in various models, the resulting estimates can vary across methods. Therefore, we decompose the benchmarking process into two steps. In the first step, we identify classes of similar companies with comparable network and structural characteristics using a latent class cost model. We obtain cost best practice within each class in the second step, based on deterministic and stochastic cost frontier models. The results of this analysis show that the decomposition of the benchmarking process into two steps has reduced unobserved heterogeneity within classes and, hence, reduced the unexplained variance previously claimed as inefficiency.
    Keywords: Efficiency analysis, cost function, electricity sector, incentive regulation
    JEL: L92 L50 L25
    Date: 2013–01
  8. By: Korbinian von Blanckenburg; Marc Hanfeld; Konstantin A. Kholodilin
    Abstract: In this paper, we develop a market screening model to detect inconstancies in price changes. Although there is a long history of industrial organization research of collusion, price setting behavior, and conduct - a robust model to detect structural changes in market structure was missing so far. Our non-parametric approach closes this gap and can be used as a tentative warning system for emerging collusions. Based on the theoretical and empirical results from previous research, we describe requirements of screenings, develop a model, and illustrate our approach with a short market simulation. Finally, we apply the model to the German electricity market. According to our results, between 2001 and 2011 energy suppliers appear to be successful in controlling the market price for several phases.
    Keywords: Market screening, collusion, competition policy, energy markets
    JEL: L10 L60
    Date: 2013

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