nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒06‒14
thirteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Rent Seeking and Organizational Structure By Wärneryd, Karl
  2. Market Outcomes and Dynamic Patent Buyouts By Alberto Galasso; Matthew Mitchell; Gabor Virag
  3. Equilibrium Downstream Mark-up and Upstream Free Entry By Ioannis Pinopoulos
  4. The Signaling Effect of Critics - Evidence from a Market for Experience Goods By Joe Cox; Daniel Kaimann
  5. The Return to R&D and Seller-buyer Interactions: A Quantile Regression Approach By Westerberg, Hans Seerar
  6. Buyer power in large buyer groups? By Lisa Bruttel
  7. Cross-border mergers and acquisitions in services : the role of policy and industrial structure By Barattieri, Alessandro; Borchert, Ingo; Mattoo, Aaditya
  8. On the antitrust economics of the electronic books industry By Gaudin, Germain; White, Alexander
  9. Mergers, managerial incentives, and efficiencies By Jovanovic, Dragan
  10. The Interaction of Signals: A Fuzzy set Analysis of the Video Game Industry By Daniel Kaimann; Joe Cox
  11. The impact of retail mergers on food prices: evidence from France By Marie-Laure Allain; Claire Chambolle; Stéphane Turolla; Sofia Villas-Boas
  12. Consumer benefits from the EU Digital Single Market: evidence from household appliances markets By Nestor Duch-Brown; Bertin Martens
  13. Deregulation and growth in Italy By Cristina Mocci; Stefania Pozzuoli; Francesca Romagnoli; Cristina Tinti

  1. By: Wärneryd, Karl (Dept. of Economics, Stockholm School of Economics)
    Abstract: A hierarchically structured rent-seeking contest may be associated with lower equilibrium expenditure than a corresponding flat contest. In this chapter we discuss how this fact may be used to explain the structure of organizations such as firms, including why firms commonly have outside owners.
    Keywords: rent seeking; contests; hierarchy; ownership of firms
    JEL: D23 D74 G32 G34 L22
    Date: 2014–06–02
  2. By: Alberto Galasso; Matthew Mitchell; Gabor Virag
    Abstract: Patents are a useful but imperfect reward for innovation. In sectors like pharmaceuticals, where monopoly distortions seem particularly severe, there is growing international political pressure to identify alternatives to patents that could lower prices. Innovation prizes and other non-patent rewards are becoming more prevalent in government’s innovation policy, and are also widely implemented by private philanthropists. In this paper we develop a model in which a patent buyout is effective, using information from market outcomes as a guide to the payment amount. We allow for the fact that sales may be manipulable by the innovator in search of the buyout payment, and show that in a wide variety of cases the optimal policy in our model still involves some form of patent buyout. The buyout uses two key pieces of information: market outcomes observed during the patent’s life, and the competitive outcome after the patent is bought out. We show that such dynamic market information can be effective at determining both marginal and total willingness to pay of consumers in many important cases, and therefore can generate the right innovation incentives in our model.
    JEL: O30 O34
    Date: 2014–06
  3. By: Ioannis Pinopoulos (Department of Economics, University of Macedonia)
    Abstract: In a successive Cournot oligopoly with upstream free entry, we show that the equilibrium downstream mark-up may increase with the number of downstream firms.
    Keywords: Vertical relations, Cournot competition, Free entry, Mark-up.
    JEL: D43 L11 L13
    Date: 2014–06
  4. By: Joe Cox (Portsmouth Business School); Daniel Kaimann (University of Paderborn)
    Abstract: Experience goods are characterized by information asymmetry and a lack of ex ante knowledge of product quality, such that credible and reliable external signals of product quality are likely to be highly valued. Due to their independence and expert reputations, professional critics therefore have the potential to significantly influence buyer behavior and hence product demand. In order to empirically verify the influence of critic reviews on market success, we analyze a sample of 1,480 video games and their sales figures between 2004 and 2010. We find strong evidence to suggest that reviews from professional critics have a significant effect upon sales and serve as a signal that helps consumer to overcome uncertainty and support the decision making process. The influence of professional critics on sales is also found to substantially outweigh that of word-of-mouth reviews from other consumers.
    Keywords: Signaling Theory, Information Asymmetry, Critics, Video Games
    JEL: C31 D82 L14 L82
    Date: 2013–09
  5. By: Westerberg, Hans Seerar (Ratio institute)
    Abstract: In this paper we analyze whether a firm’s return to its R&D stock is affected by seller-buyer interactions. We suggest that firms that are in close contact with their customers will be relatively more sensitive to their customers’ needs, and therefore adjust their R&D activities accordingly. This, in turn, will boost sales and increase the return to R&D. To the extent that seller-buyer interactions are costly, large and productive firms will have an advantage in overcoming such costs. We test these hypotheses using a fixed effects quantile regression framework. Results suggest that large firms active in industries characterized by frequent seller-buyer interactions have a higher return to R&D than other firms.
    Keywords: firm behavior; firm performance; production and organizations; firm size; diversification and scope
    JEL: D22 D29 L25 O32
    Date: 2014–06–09
  6. By: Lisa Bruttel
    Abstract: This paper studies the exertion of market power in large buyer groups confronting an incumbent monopolist and a potential market entrant in a repeated trade situation. In the experiment, buyer power can either occur as demand withholding when only the incumbent is present in the market, or it can take the form of buying at higher prices from the entrant in order to foster future re-entry. Comparing markets with groups of two and eight buyers, we find that both forms are prevalent irrespective of the number of buyers. However, a control treatment shows that seemingly strategic behavior is better explained by inequality aversion of the buyers towards the two different sellers.
    Keywords: buyer power, market entry, experiment
    Date: 2014
  7. By: Barattieri, Alessandro; Borchert, Ingo; Mattoo, Aaditya
    Abstract: This paper presents evidence on the determinants of cross-border mergers and acquisitions in services sectors. It develops a stylized model of mergers and acquisitions that predicts that the incidence of merger and acquisition deals depends, inter alia, on the target economy's size, industrial structure and investment policies, as well as on bilateral transactions costs. These predictions are examined with bilateral merger and acquisition flow data and detailed information on policy barriers from a new database of restrictions on services investment. The analysis finds that: (1) geographical factors affect mergers and acquisitions in services and manufacturing similarly but cultural factors affect mergers and acquisitions in services more than in manufacturing. (2) Controlling for these bilateral factors, restrictive investment policies reduce the probability of merger and acquisition inflows but this negative effect is mitigated in countries with relatively large shares of manufacturing and (to a lesser extent) services in gross domestic product. The same results hold for the number of merger and acquisition deals received. These findings suggest that the impact of policy is state-dependent and related to the composition of gross domestic product in the target economy.
    Keywords: Public Sector Corruption&Anticorruption Measures,E-Business,Economic Theory&Research,Emerging Markets,Debt Markets
    Date: 2014–06–01
  8. By: Gaudin, Germain; White, Alexander
    Abstract: We show that the rise in ebook prices following Apple's entry into the market can be explained by Amazon's Kindle device losing its essential position. When consumers began accessing Amazon's ebooks using third-party devices, such as the iPad, Amazon's incentive to keep ebook prices low diminished. This explanation contrasts with a recent U.S. court decision claiming that price increases stem from a switch in the form of contracts used by ebook publishers and retailers. We show that, if contracts revert to their prior form, as stipulated by the court decision, this will likely push ebook prices up even further. --
    Keywords: Electronic Books,Antitrust in High-Tech Industries,Vertical Contracting,Wholesale vs. Agency Agreements,Media Economics
    JEL: D21 D40 L23 L4 L42 L51 L82 L86
    Date: 2014
  9. By: Jovanovic, Dragan
    Abstract: We analyze the effects of synergies from horizontal mergers in a Cournot oligopoly where principals provide their agents with incentives to cut marginal costs prior to choosing output. We stress that synergies come at a cost which possibly leads to a countervailing incentive effect: The merged firm's principal may be induced to stifle managerial incentives in order to reduce her agency costs. Whenever this incentive effect dominates the well-known direct synergy effect, synergies actually reduce consumer surplus which opposes the use of an efficiency defense in merger control. --
    Keywords: Managerial Incentives,Horizontal Mergers,Merger Control,Productive Efficiency Gains,Synergies,Efficiency Defense
    JEL: D21 D86 L22 L41
    Date: 2014
  10. By: Daniel Kaimann (University of Paderborn); Joe Cox (Portsmouth Business School)
    Abstract: Customers continuously evaluate the credibility and reliability of a range of signals both separately and jointly. However, existing econometric studies pay insufficient attention to the interactions and complex combinations of these signals, and are typically limited as a result of difficulties controlling for multicollinearity and endogeneity in their data. We develop a novel theoretical approach to address these issues and study different signaling effects (i.e., word-of-mouth, brand reputation, and distribution strategy) on customer perceptions. Using data on the US video games market, we apply a fuzzy set qualitative comparative analysis (fsQCA) to account for cause-effect relationships. The results of our study address a number of key issues in the economics and management literature. First, our results support the contention that reviews from professional critics act as a signal of product quality and therefore positively influence unit sales, as do the discriminatory effects of prices and restricted age ratings. Second, we find evidence to support the use of brand extension strategies as marketing tools that create spillover effects and support the launch of new products.
    Keywords: Signaling Theory, Information Asymmetry, Interactions, Fuzzy sets, Qualitative Comparative Analysis, Video Game Industry
    JEL: C18 D82 L10 L82
    Date: 2014–06
  11. By: Marie-Laure Allain (Ecole Nationale Polytechnique); Claire Chambolle (Alimentation et Sciences Sociales); Stéphane Turolla (Structures et Marchés Agricoles, Ressources et Territoires, INRA); Sofia Villas-Boas (ARE, University of California, Berkeley)
    Abstract: Using consumer panel data, we analyze the impact of a merger in the retail sector on food prices in France. In order to capture the local dimension of retail competition, we define local markets as catchment areas around each store. We develop a difference-in-differences analysis to compare price changes in local markets where the merger did modify the ownership structure (treated group) to price changes in local markets where the merger did not affect the ownership structure (control group). We find that prices of competing firms in areas where the merger occurred (treated group) increased significantly relative to the control areas where existing firms were not affected by a merger. In fact, our findings suggest that the merger significantly raised the competitors' prices. These results are consistent with a combination of local concentration and a decrease in differentiation.
    Keywords: Ex-post merger evaluation, Retail grocery sector, Difference-in-differences, commerce de detail, prix à la consommation, marché local, enquêtealimentation, compétitivitéconsommateurfrance
    JEL: K21 L11 L66
    Date: 2013
  12. By: Nestor Duch-Brown (European Commission – JRC - IPTS); Bertin Martens (European Commission – JRC - IPTS)
    Abstract: This paper investigates price differences between online and offline retail channels in the EU Digital Single Market. Using price and sales data for ten different product categories sold both offline and online in 21 EU countries in 2009, and correcting for product characteristics, we find evidence that confirms the theory: online prices are lower than offline prices, price dispersion also tends to be lower online and online demand is more price-elastic than offline demand. In addition, from our demand estimates we compute the consumers' welfare effects of different scenarios. Our results indicate that a full price convergence across EU member states towards the lowest observed average price would significantly benefit consumers. Moreover, eliminating e-commerce would reduce consumer surplus in €34 billion while an increase in online sales between 10% and 25% would represent a change in consumer welfare in the range of €3.4 billion to €13 billion.
    Keywords: price dispersion; e-commerce; consumer welfare
    JEL: L11 L15 L68
    Date: 2014–06
  13. By: Cristina Mocci; Stefania Pozzuoli; Francesca Romagnoli; Cristina Tinti
    Abstract: The aim of this study is to assess the effects of anti-competitive service regulation on economic performance in Italy. This paper runs a cross-sector panel regression of the Italian value added growth on the OECD PMR sectoral regulation indicators (ETCR and RBSR) in the 1995-2008 period using the national Input-Output matrix. This analysis enriches the empirical understanding of the effects of regulation on national value added growth with relevant implications for policy making. The results prove that in Italy sectoral liberalization on total economy and manufacturing played a relevant role in increasing the value added. We find a negative and statistically significant relationship between the overall liberalization of services, as well as in Energy and Professions, and the performance of the whole economy and manufacturing sector in the considered period. Being Italy among the countries with a significant difference between the regulation (PMR) and the business perception (EFW-DB) indicators, this paper provides a sense of this misalignment in the years of the panel. In particular, evidence shows that economic agents reacted positively to reforms related to state participation (Post, Telecom, Railways) and simplification of paperwork for start-ups in Italy.
    Keywords: Regulation, sector analysis, growth
    JEL: O40 L51 L80
    Date: 2014–05

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