nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒10‒17
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Advertised Prices in Decentralized Markets By Derek G. Stacey
  2. Price Competition in Product Variety Networks By Ushchev, Philip; Zenou, Yves
  3. Store Brands and the Role of Advertising By Griffith, Rachel; Krol, Michal; Smith, Kate
  4. Industrial Agglomeration and Use of the Internet By Chang, C-L.; McAleer, M.J.; Wu, Y-C.
  5. On vertical relations and the timing of technology adoption By Alipranti, Maria; Milliou, Chrysovalantou; Petrakis, Emmanuel
  6. Late-Stage Pharmaceutical R & D and Pricing Policies under Two-Stage Regulation By Sebastian Jobjornsson; Martin Forster; Paolo Pertile; Carl-Fredrik Burman
  7. The welfare effects of endogenous quality choice in cable television markets By Gregory S. Crawford; Oleksandr Shcherbakov; Matthew Shum
  8. Leniency, Asymmetric Punishment and Corruption. Evidence from China By Perrotta Berlin, Maria; Spagnolo, Giancarlo
  9. Competition policy as a lever for industrial policy: Some reflections on horizontal cartels prosecution in the post-war France By Claude Didry; Frédéric Marty

  1. By: Derek G. Stacey (Department of Economics, Ryerson University, Toronto, Canada)
    Abstract: A model of a decentralized market is developed that features search frictions, advertised prices and bargaining. Sellers can post ask prices to attract buyers through a process of directed search, but ex post there is the possibility of renegotiation. Similarly, buyers can advertise negotiable bid prices to attract sellers. Even though transaction prices often differ from quoted prices, advertised bid and ask prices play a crucial role in directing search and reducing trading frictions. The features and predictions of the model align well with aspects of the secondary market for transferable taxicab license plates in Toronto. This provides a useful and unique context for studying the relationships between advertised and actual prices in a decentralized market.
    Keywords: Bid and Ask Prices, Search Frictions, Price Commitment
    JEL: D40 G12 L10
    Date: 2015–08
  2. By: Ushchev, Philip; Zenou, Yves
    Abstract: We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degree of substituabilities (edges). In this network, we also locate consumers so that the location of each consumer (node) corresponds to her "ideal" variety. We show that there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by firms' weighted Bonacich centralities and the average willingness to pay across consumers. They both hinge on the network structure of the firm-product space. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the firm located in the star node does not always enjoy higher monopoly power than the peripheral firms.
    Keywords: monopolistic competition; networks; product variety; spatial competition
    JEL: D43 L11 L13
    Date: 2015–10
  3. By: Griffith, Rachel; Krol, Michal; Smith, Kate
    Abstract: Store brands are products over which a retailer (rather than a manufacturer) takes certain strategic decisions; we study the incentives of a retailer to advertise its store brands. We use detailed data on the British grocery market to document the considerable variation in store brand penetration across product categories and retailers. We develop a model that relates the pricing and advertising decisions of retailers and manufacturers to primitive characteristics of the category, and in particular the way that advertising affects consumer demand. We present empirical evidence that is consistent with several predictions from the model.
    Keywords: advertising; store brands
    JEL: D21 D22 M37
    Date: 2015–10
  4. By: Chang, C-L.; McAleer, M.J.; Wu, Y-C.
    Abstract: Taiwan has been hailed as a world leader in the development of global innovation and industrial clusters for the past decade. This paper investigates the effects of industrial agglomeration on the use of the internet and internet intensity for Taiwan manufacturing firms, and analyses whether the relationships between industrial agglomeration and total expenditure on internet usage for industries are substitutes or complements. The sample observations are based on 153,081 manufacturing plants, and covers 26 2-digit industry categories and 358 geographical townships in Taiwan. The Heckman selection model is used to adjust for sample selectivity for unobservable data for firms that use the internet. The empirical results from two-stage estimation show that: (1) for the industry overall, a higher degree of industrial agglomeration will not affect the probability that firms will use the internet, but will affect the total expenditure on internet usage; and (2) for 2-digit industries, industrial agglomeration generally decreases the total expenditure on internet usage, which suggests that industrial agglomeration and total expenditure on internet usage are substitutes.
    Keywords: industrial agglomeration and clusters, global innovation, internet penetration, manufacturing firms, sample selection, incidental truncation
    JEL: D2 L60
    Date: 2015–08–01
  5. By: Alipranti, Maria; Milliou, Chrysovalantou; Petrakis, Emmanuel
    Abstract: We study the timing of new technology adoption in markets with input outsourcing, and thus with vertical relations. We find that technology adoption can take place earlier when firms engage in input outsourcing than when they produce the input in-house. Hence, the presence of vertical relations can accelerate the adoption of a new technology. We also find that particular features of a vertically related market, such as the bargaining power distribution and the contract type through which trading is conducted, can crucially affect the speed of technology adoption.
    Keywords: technology adoption,vertical relations,outsourcing,two-part tariffs,wholesale price contracts,bargaining
    JEL: L13 O31 L22 L41
    Date: 2015
  6. By: Sebastian Jobjornsson; Martin Forster; Paolo Pertile; Carl-Fredrik Burman
    Abstract: We present a model combining the two regulatory stages relevant to the approval of a new health technology: the authorisation of its commercialisation and the insurer’s decision about whether to reimburse its cost. We show that the degree of uncertainty around the true value of the insurer’s maximum willingness to pay for a unit increase in effectiveness has a non-monotonic impact on the price of the innovation, the firm’s expected profit and the optimal sample size chosen for the clinical trial. A key result is that there exists a range of values of the uncertainty parameter over which a reduction in uncertainty benefits the firm, the insurer and patients. We consider how different policy parameters may be used as incentive mechanisms, and the incentives to invest in R&D for marginal projects such as those targeting rare diseases. The model is calibrated using data on a new treatment for cystic fibrosis.
    Keywords: Rare Diseases; Pharmaceutical Pricing and Reimbursement; Optimal Sample Size
    JEL: L5 H51 I11 I18
    Date: 2015–10
  7. By: Gregory S. Crawford; Oleksandr Shcherbakov; Matthew Shum
    Abstract: We measure the welfare consequences of endogenous quality choice in imperfectly competitive markets. We introduce the concept of a "quality markup" and measure the relative importance for welfare of market power over price versus market power over quality. For U.S. cable-television markets between 1997-2006, we find that prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. This "quality inflation" contradicts classic results in the literature and reflects our flexible specification of consumer preferences. Furthermore, we find market power over quality is responsible for 54% of the total welfare change from endogenous prices and qualities.
    Keywords: Industrial organization, endogenous quality, imperfect competition, monopoly, cable television, quality distortions, welfare, quality markup
    JEL: L15 L13 L82 L96 C51
    Date: 2015–08
  8. By: Perrotta Berlin, Maria (Stockholm Institute of Transition Economics); Spagnolo, Giancarlo (Stockholm Institute of Transition Economics)
    Abstract: One-sided leniency policies and asymmetric punishment are regarded as potentially powerful anti-corruption tools, also in the light of their success in busting price-fixing cartels. It has been argued, however, that the introduction of these policies in China in 1997 has not helped fighting corruption. Following up on this view, the Central Committee of the Chinese Communist Party passed on 23 October 2014 a Decision concerning Several Major Issues in Comprehensively Advancing Governance According to Law which stressed the current government’s strong commitment to fight corruption introducing heavier penalties but also severe restrictions of leniency offered to bribe-givers. Claims on the effects of the 1997 reform are not backed by data, to our knowledge, while evaluating the effects of a policy on crimes like corruption is difficult. These crimes are typically only observed if detected and convicted by the police, and an increase in observed convictions may as well be due to an increase in the total number of crimes rather than to a positive effect of the policy. We collect data on the investigations of bribery and public official corruption, available for most Chinese provinces for the period 1986-2010, and extend to corruption a method to identify deterrence effects from changes in detected cases, originally developed for cartels. The available evidence so far points to a substantial and stable reduction in the number of major corruption cases around the 1997 reform, a result per se ambiguous but clearly consistent with a positive deterrence effect of the 1997 reform. A case study analysis is under way to corroborate and help the interpretation of these preliminary findings.
    Keywords: Corruption; Leniency; China
    JEL: K14 N45 P37
    Date: 2015–10–01
  9. By: Claude Didry (IDHE - Institutions et Dynamiques Historiques de l'Economie - CNRS - Université Paris VIII - Vincennes Saint-Denis - UP10 - Université Paris 10, Paris Ouest Nanterre La Défense - ENS Cachan - École normale supérieure - Cachan - UP1 - Université Panthéon-Sorbonne); Frédéric Marty (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - UNS - Université Nice Sophia Antipolis)
    Abstract: The Establishment of the cartels technical committee in 1953, which prefigured the contemporary French competition authority, seems to participate in the same movement than the German competition law and the Treaty of Rome four years later. However some differences have to be put into relief. First, it didn’t deal with individual abuses of dominance. Second, the collusive practices targeted mainly concerned bid-rigging in public procurement in the reconstruction and modernisation plan. Thus, if this competition policy experience contrasts with war experiences and the interwar period arguments for a regulated competition, it cannot be assimilated with West German one, inspired by the Ordoliberal School. Sanctioning horizontal collusion makes sense within an industrial policy model based on a close co-operation between Government and some national champions. In that sense, the French competition law beginnings may be analysed as a tool for ensuring the implementation of a vertically conceived industrial policy.
    Abstract: La création en 1953 du Comité Technique des Ententes, lointain prédécesseur de notre actuelle Autorité de la Concurrence, inscrit la politique de concurrence française dans un rapport de contemporanéité avec la loi sur la concurrence allemande et le Traité de Rome. Cependant, comme la dénomination même du Comité l’indique, le premier domaine d’intervention résidait en la répression des comportements collusifs horizontaux, il n’était pas alors question des abus de position dominante individuelle. Qui plus est, les pratiques collusives qui étaient particulièrement visées se nouaient autour de marchés publics liés aux plans de reconstruction, équipement et modernisation. Ainsi, si cette activation des règles de concurrence contrastait avec les traditions dirigistes héritées des expériences des économies de guerre ou l’influence des approches planistes qui étaient favorables aux ententes entre firmes au nom de l’efficience productive, elle ne saurait pour autant participer d’une logique comparable à celle alors à l’œuvre en Allemagne de l’Ouest sous l’influence des ordolibéraux. Cette lutte contre les cartels peut s’expliquer en regard d’une conception d’une politique industrielle fondée sur une étroite coopération entre les administrations et les grandes entreprises françaises considérées comme des champions nationaux. L’activation du levier concurrentiel a pu participer d’une politique industrielle de nature verticale passant par l’élimination des pratiques collusives entre firmes.
    Keywords: competition policy, cartel agreements, neoliberalism, utilities.,politiques de concurrence,cartels,néo-libéralisme,services publics
    Date: 2015–10–01

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