nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒04‒19
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Relevant Market Delineation and Horizontal Merger Simulation: A Unified Approach By Eduardo P. S. Fiuza
  2. An Empirical Examination of Patent Hold-up By Alexander Galetovic; Stephen Haber; Ross Levine
  3. Problems in measuring price dispersion in e-commerce By Tomasz Galewski
  4. Online booking and information: competition and welfare consequences of review aggregators By Amedeo Piolatto
  5. On The Optimal Design of Demand Response Policies By Brown, David P.; Sappington, David E. M.
  6. Corporate reputation and customer loyalty as the measures of competitive enterprise position – empirical analyses on the example of banking sector By Danuta Szwajca
  7. Market Leadership in the Brazilian Automotive Industry: The Case of Marcopolo By Luiz Ricardo Cavalcante; Bruno César Araújo
  8. Time Series Econometrics in a Post-acquisition Antitrust Analysis: the Brazilian Iron ore Market By Eduardo P. S. Fiuza; Fabiana F. M. Tito

  1. By: Eduardo P. S. Fiuza
    Abstract: While often times the Hypothetical Monopolist Test (HMT) utilized in relevant market delineation is implemented with uniform price increases throughout all the goods in the candidate relevant market, since 1984 the versions of the U.S. Merger Guidelines have emphasized that these small but significant and non-transitory increase in prices (SSNIP) should be profit-maximizing, what would result in uniform increases only under very particular conditions. Such increases could then be analyzed–sufficient data existing for such–in the same manner as the simulations of unilateral effects of mergers, introduced in the 1980s and further developed in the 1990s. Thus, in this article, building on structural models of demand and supply and on recent contributions to the literature, we propose a unified framework for merger simulations and for the so-called HMT in its diversity of versions implemented in various countries along the years, and we better detail their differences. To illustrate those differences, we report the results of a Monte Carlo experiment using three demand specifications: isoelastic, linear and linearized Almost Ideal Demand System (AIDS), all of them in a two-stage budget setting. We conclude that the choice of the test version and of the demand specification may affect significantly the size of the relevant market found, depending on the distribution and magnitude of cross and own price elasticities in the potential market.
    Date: 2015–01
    URL: http://d.repec.org/n?u=RePEc:ipe:ipetds:0185&r=ind
  2. By: Alexander Galetovic; Stephen Haber; Ross Levine
    Abstract: A large literature asserts that standard essential patents (SEPs) allow their owners to “hold up” innovation by charging fees that exceed their incremental contribution to a final product. We evaluate two central, interrelated predictions of this SEP hold-up hypothesis: (1) SEP-reliant industries should experience more stagnant quality-adjusted prices than similar non-SEP-reliant industries; and (2) court decisions that reduce the excessive power of SEP holders should accelerate innovation in SEP-reliant industries. We find no empirical support for either prediction. Indeed, SEP-reliant industries have the fastest quality-adjusted price declines in the U.S. economy.
    JEL: K11 O31 O34 O38
    Date: 2015–04
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:21090&r=ind
  3. By: Tomasz Galewski (Wroclaw University of Economics)
    Abstract: Until recently, Internet was considered as technology that will make the trade in goods frictionless. Online retailers’ margins were to fall to zero and prices - according to theory of economics - were to equalize as a result of buyers comparing prices more easily (e.g. using shop bots). Empirical research performed so far has not proven these expectations right. Studies in many countries show that online prices vary significantly (sometimes price dispersion in the Internet is higher than that in traditional trade). The purpose of this article is to present a critical view on the methods of measuring price dispersion in e-commerce. Researchers of this area use different measures of price differentials, include shipping costs or not, use the proposed price or try to determine transaction prices, reject part of the data considered as outliers that may indicate a hidden heterogeneity of a product. Some scientists also try to justify price dispersion with the reputation of a vendor, and also additional features of the sellers such as the amount of information presented in the offer, convenience of shopping, user-friendly interface, etc. All these factors are problematic for the research due to lack of a clear (and proper) way of measuring the mentioned attributes. Most of the previous studies also ignored the pricing strategy of vendors, which is a very important factor for price dispersion – it may involve reduction in prices of several products in order to attract customers to the store to buy other products with a much higher margin.
    Keywords: price dispersion, e-commerce, shopbots
    JEL: D40 D82 D83
    Date: 2015–04
    URL: http://d.repec.org/n?u=RePEc:pes:wpaper:2015:no50&r=ind
  4. By: Amedeo Piolatto (Universitat de Barcelona & IEB)
    Abstract: Online review aggregators (e.g., booking.com or ClubKviar) provide detailed information about experience goods, such as restaurants and hotels. This study fosters the understanding of how such aggregators modify competition, profits and welfare. Using a spokes model of horizontal competition, I show that review aggregators enhance total welfare mainly by making valuable information available to consumers. The effect on welfare goes through different channels: 1) realised transactions are more valuable for the match between producers and consumers is more accurate; 2) the costumer base enlarges, for more agents find a suitable product; 3) the equilibrium price weakly decreases for competition amongst firms is more intense. However, firms face a prisoner dilemma: firms best response to the status quo is to appear on the aggregator's web so as to enlarge their market share, however, this leads to lower profits than if they all agreed not to use the aggregator.
    Keywords: Horizontal competition, spokes model, welfare, review aggregators, online booking, ClubKviar, experience goods, mismatch costs
    JEL: D43 D61 D83 L11 L13 L15
    Date: 2015
    URL: http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2015-11&r=ind
  5. By: Brown, David P. (University of Alberta, Department of Economics); Sappington, David E. M. (University of Florida)
    Abstract: We characterize the optimal regulatory policy to promote demand response in the electricity sector. Demand response arises when consumers reduce their purchases of electricity in times of peak demand, when the utility's marginal cost of supplying electricity is relatively high. The optimal policy differs systematically from the policy in the U.S. Federal Energy Regulatory Commission's (FERC's) Order 745. Under plausible conditions, implementation of the FERC's policy can reduce welfare substantially below the level secured by the optimal demand response policy.
    Keywords: electricity pricing; demand response
    JEL: L11 L50 L94 Q40
    Date: 2015–03–01
    URL: http://d.repec.org/n?u=RePEc:ris:albaec:2015_003&r=ind
  6. By: Danuta Szwajca (Silesian University of Technology, Poland)
    Abstract: In order to determine the competitive position of a company not only the traditional measures of market position (market share) and financial position (financial ratios) are used but also the qualitative measures concerning intangible resources. Customer satisfaction and customer loyalty are the two most commonly applied qualitative measures. Due to the growing importance of intangible resources, and of reputation in particular, the need arises to use the reputation indicator as a measure of competitive position in achieving a long-term competitive advantage and building the enterprise value. The purpose of this article is to identify the competitive position indicated by the level of corporate reputation in comparison with the customer loyalty indicator and the most popular traditional measures based on the example of banking sector. For calculation of qualitative measures the method of survey was used, conducted among the retail banking customers. The study showed a weak relationship between reputation and loyalty: the banks that received the highest ratings of reputation, obtained the poorest results in terms of loyalty. Due to the limited subjective and methodological scope of research, the results cannot constitute a sufficient basis to prove this thesis, however, they may constitute a good starting point for conducting broader research in this area.
    Keywords: reputation, customer loyalty, competitive position, banking sector
    JEL: G21 L14 L25 M31
    Date: 2015–04
    URL: http://d.repec.org/n?u=RePEc:pes:wpaper:2015:no113&r=ind
  7. By: Luiz Ricardo Cavalcante; Bruno César Araújo
    Abstract: The aim of this paper is to analyze the factors that explain the industrial leadership of a Brazilian bus bodywork manufacturer (Marcopolo). From a methodological point of view, the paper was a case study based on bibliographic review and on in-depth interviews. The underlying hypothesis is that, at some point in the past, some idiosyncratic factors regarding Brazilian market led the large auto manufacturers to give up contesting Brazilian incumbents in these segments. Then, Brazilian companies managed to grow hand-in-hand with the Brazilian automotive market, and dictated the customer-supplier relationship patterns. Marcopolo had to develop technological and organizational capabilities related to stock management, and lean production principles of modularity and product platforms or families, very important to its CKD exports. Recently, Marcopolo found its own way to internationalization, especially towards developing countries (Marcopolo is present in all BRIC countries), through acquisition of existing plants, joint-ventures and involvement of local suppliers. In sum, Marcopolo’s strategies and decisions – going public, exporting and FDI – have been ahead of the Brazilian public policy discourse or market trends. These strategies were clearly riskier, but once succeeded, help to understand Marcopolo’s leading position. O objetivo deste artigo é analisar os fatores que explicam a posição de liderança de mercado ocupada pela Marcopolo, que é o principal fabricante brasileiro de carrocerias de ônibus. Do ponto de vista metodológico, o trabalho é um estudo de caso baseado em uma revisão bibliográfica e em entrevistas. A hipótese subjacente é que alguns fatores idiossincráticos relativos ao mercado brasileiro levaram as multinacionais fabricantes de veículos de grande porte a renunciar à competição com os produtores brasileiros no segmento de carrocerias de ônibus. Em relação ao conjunto do setor automobilístico, a fabricação de carrocerias de ônibus é um segmento relativamente intensivo em mão de obra, com menores níveis de faturamento e menos intensivo em pesquisa e desenvolvimento (P&D), uma vez que as inovações tendem a ser incrementais. Essas características permitiram que as empresas brasileiras do setor conseguissem crescer em paralelo ao crescimento do mercado local e ditassem os padrões de relacionamento entre fornecedores e compradores. Para se tornar uma exportadora de veículos completamente desmontados (CKD), a Marcopolo precisou desenvolver capacidades tecnológicas relacionadas à produção enxuta, especialmente modularidade e plataformas de produtos ou famílias. Para desenvolver suas capacidades tecnológicas, a Marcopolo privilegiou as atividades internas de P&D e a integração vertical da cadeia de produção. Por outro lado, a cooperação da Marcopolo com universidades, centros de pesquisa e outras empresas do segmento de fabricação de carrocerias de ônibus não parece ser um elemento central para o acúmulo de capacitações tecnológicas e para a posição de liderança ocupada. Recentemente, a Marcopolo passou a enfatizar a internacionalização através da aquisição de plantas existentes, de joint-ventures e do envolvimento de fornecedores locais especialmente em países em desenvolvimento. Esses movimentos, no entanto, não se destinaram a ser uma fonte de novas tecnologias. Em suma, as estratégias e decisões adotadas pela Marcopolo estiveram à frente da retórica das políticas públicas adotadas e das tendências do mercado no Brasil. Essas estratégias foram claramente mais arriscadas, mas, uma vez bem sucedidas, ajudam a entender a posição de liderança da Marcopolo.
    Date: 2015–01
    URL: http://d.repec.org/n?u=RePEc:ipe:ipetds:0196&r=ind
  8. By: Eduardo P. S. Fiuza; Fabiana F. M. Tito
    Abstract: In Brazil, mergers and acquisitions are usually analyzed by the Antitrust Authorities ex post, following a SCP framework close to the Merger Guidelines applied in the USA. However, this framework was unable to address a set of acquisitions of four mining companies by the newly privatized national champion CVRD. The present article reports an econometric exercise undertaken by the Brazilian Ministry of Justice, which came to reinforce the definition of the relevant geographic market and to test for structural breaks in the price series. Though international prices Grangercaused domestic prices in Brazil, they explain less than a third of the variance. A price surge on the acquired miners’ series was observed above the export price increase not long after the acquisitions, such that a structural break could not be rejected. No Brasil, fusões e aquisições normalmente são analisadas ex-post pelo Sistema Brasileiro de Defesa da Concorrência, seguindo um arcabouço de Estrutura-Conduta-Desempenho próximo ao aplicado nos Estados Unidos. Entretanto, esse arcabouço não era suficiente para tratar da série de quatro aquisições de mineradoras pela recémprivatizada Companhia Vale do Rio Doce (CVRD), considerada uma “campeã nacional”. Este artigo relata um exercício econométrico desenvolvido na Secretaria de Direito Econômico (SDE) do Ministério da Justiça que veio reforçar a definição de mercado relevante geográfico e testar quebras estruturais nas séries de preços. Apesar de que os preços internacionais causaram (no sentido de Granger) preços domésticos no Brasil, eles explicam menos de 1/3 da variância. Foi observado um repique nas séries de preços das mineradoras adquiridas acima da variação do preço de exportação, pouco depois das aquisições, quando então não foi rejeitada uma quebra estrutural.
    Date: 2015–01
    URL: http://d.repec.org/n?u=RePEc:ipe:ipetds:0182&r=ind

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