nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒10‒25
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Equity Prices and Cartel Activity By Dan Richards; Heng Yuan; Marcelo Bianconi
  2. Oligopolistic Equilibrium and Financial Constraints By Beviá, Carmen; Corchón, Luis C.; Yasuda, Yosuke
  3. Price Discrimination by a Two-sided Platform: with Applications to Advertising and Privacy Design By Doh-Shin Jeon; Byung-Cheol Kim; Domenico Menicucci
  4. A Model of Non-Stationary Dynamic Price Competition with an Application to Platform Design By Andrew Sweeting
  5. Ripple effects from industry defaults By Bams, Dennis; Pisa, Magdalena; Wolff, Christian C
  6. Regulation and Investment Incentives in Electricity Distribution: An Empirical Assessment By Astrid Cullmann; Maria Nieswand
  7. A Snapshot of the Current State of Residential Broadband Networks By Jacob Malone; Aviv Nevo; Jonathan Williams

  1. By: Dan Richards; Heng Yuan; Marcelo Bianconi
    Abstract: We use an event study method to determine the impact of announced cartel activity on equity prices. Unlike prior research, we employ the Fama-French (1993) three-factor model to estimate normal event-window returns. The announcement that a firm is under investigation for price-fixing has a long-lasting negative impact on stock prices of nearly two percent in magnitude. This effect however seems to vanish for those firms receiving leniency for early confession. We further find that the extra profit lost from ending the cartel may plausibly explain the equity fall.
    Keywords: Event Study, Equity Prices, Cartels
    JEL: G14 L4
  2. By: Beviá, Carmen (Universidad de Alicante, Universitat Autònoma de Barcelona and Barcelona GSE); Corchón, Luis C. (Universidad Carlos III de Madrid); Yasuda, Yosuke (Osaka University)
    Abstract: We provide a model of dynamic duopoly in which firms face financial constraints and disappear when they are unable to fulfill them. We show that, in some cases, Cournot outputs are no longer supported in equilibrium, because if these outputs were set, a firm may have incentives to ruin the other. In these cases, standard grim-trigger strategies in which collusion is sustained by infinite reversion to Cournot outputs cannot be used. We show that there is a stationary Markov equilibrium in mixed strategies where predation occurs with a positive probability. We also obtain a modified "folk theorem". We show that any bankruptcy-free outputs (outputs in which no firm can drive another firm to bankruptcy without becoming bankrupt itself) that attain individually rational profits (reflecting bankruptcy consideration) can be supported by a subgame perfect Nash equilibrium when firms are sufficiently long-sighted.
    Keywords: Financial Constraints, Bankruptcy, Firm Behavior, Dynamic Games
    JEL: D2 D4 L1 L2
    Date: 2015–10
  3. By: Doh-Shin Jeon (Toulouse School of Economics and CEPR. Manufacture de Tabacs, 21 allees de Brienne - 31000 Toulouse, France.); Byung-Cheol Kim (School of Economics, Georgia Institute of Technology. 221 Bobby Dodd Way, Atlanta, GA 30332, USA.); Domenico Menicucci (Dipartimento di Scienze per l’Economia e l’impresa, Universit`a degli Studi di Firenze. Via delle Pandette 9, I-50127 Firenze (FI), Italy)
    Abstract: We study price discrimination by a monopoly two-sided platform who mediates interactions between two different groups of agents. We adapt a canonical model of second-degree price discrimination `a la Mussa and Rosen (1978) to a two-sided platform by focusing on non-responsiveness, a clash between the allocation the platform wants to achieve and the incentive compatible allocations. In this framework we address the key question of when a price discrimination on one side complements or substitutes a price discrimination on the other side. We offer two applications on advertising platforms and also highlight the role of commitment in eliciting personal information for targeted advertising.
    Keywords: price discrimination, two-sided markets, non-responsiveness, privacy, advertising, positive/negative sorting
    JEL: D4 D62 D82 M3
    Date: 2015–10
  4. By: Andrew Sweeting (Department of Economics, University of Maryland, College Park, MD 20742, USA)
    Abstract: I develop a tractable framework for conducting platform design counterfactuals in settings where many sellers compete and set prices dynamically, using approaches developed in the recent literature on Oblivious Equilibria. As an initial application, I use the model to study a simple platform design counterfactual using data from the secondary event ticket market on where the perishability of the product being sold results in sellers facing a dynamic and non-stationary pricing problem. Currently, most transactions happen at low prices close to the event. Motivated by some simple theoretical examples, I investigate how the dynamics of prices, the timing of transactions, platform revenues and participant surplus would be a affected if a commission structure that encouraged earlier transactions was introduced.
    Keywords: dynamic pricing, platform, non-stationary equilibrium, perishable goods
    JEL: C7 C63 L13 L11
    Date: 2015–09
  5. By: Bams, Dennis; Pisa, Magdalena; Wolff, Christian C
    Abstract: This paper studies early default risk spillovers to small businesses. This study shows that default rates among small businesses are significantly higher following default on S&P rated debt in their or their customers' industries. Using a new data set on S&P rated debt default, small business default, production process linkages and industry characteristics, we find evidence of negative wealth effects transmitted to small businesses along the production process. Also, such ripple effects are mitigated in loan portfolios that are concentrated into large and highly interconnected industries. We observe that a large number of firms in an industry serves to cushion default risk transmission. This is much like how the broad economic connections other the benefits of diversification.
    Keywords: default clustering; default risk transmission; market structure; supply chain
    JEL: G17 L14 L25
    Date: 2015–10
  6. By: Astrid Cullmann; Maria Nieswand
    Abstract: We analyze the effects of an incentive based regulatory scheme with revenue caps on the investment behaviors and decisions of 109 electricity distribution companies operating in Germany in 2006-2012. We hypothesize that Germany's implementation of incentive regulation in 2009 has a negative impact on total investment, and that firms increase their investments in the base year. We build a model that controls for both firm-specific heterogeneity and ownership structure and test it with the German data. The results show that investments increase after incentive regulation, and that the institutional constraints used to determine the revenue caps influence the distribution companies' investment decisions. We also note that the investments increase in the base year when the rate base is determined for the following regulatory period. We conclude that a comprehensive assessment of Germany's electricity distribution companies' investment decisions and behaviors should account for firm specific heterogeneity. It should further include all institutional aspects of incentive regulation to design incentives that will foster investments in the region's energy networks.
    Keywords: Incentive Regulation, Electricity Distribution, Investments, Germany
    JEL: L94 L51 L98
    Date: 2015
  7. By: Jacob Malone (University of Georgia, Department of Economics, 310 Herty Drive, 535 Brooks Hall, Athens GA 30602); Aviv Nevo (Northwestern University, Department of Economics, 2001 Sheridan Road, Evanston, IL 60208); Jonathan Williams (University of North Carolina - Chapel Hill, Department of Economics, 141 South Road, Gardner Hall 107, CB# 3305, Chapel Hill, NC 27599)
    Abstract: The way in which consumers use the Internet is changing rapidly, and over-the-top video services (OTTV) are a major contributor to this trend. The dramatic rise of OTTV services has led to major changes in the telecommunications sector and greater attention to several important and ongoing public policy debates. We provide an essential component to inform these policy debates: an in-depth descriptive analysis of the rapidly changing way in which consumers use the Internet from a representative sample of consumers. At the core of our contribution are unique data from the spring and summer of 2015 that we acquired from a North American ISP that provides detailed disaggregated high-frequency information on individuals’ Internet usage. We provide insight into temporal patterns in usage within the day, measure persistence in the level and composition of usage across days, and contrast usage patterns for consumers that subscribe to traditional pay TV services (i.e., purchase a bundle of services from the operator) to those that do not. We also present results on how the level and composition of usage for a consumer changes immediately after “cutting the cord” and dropping traditional linear TV service.
    Keywords: Residential Broadband, Demand, Net Neutrality, Usage-based Pricing, Municipal Broadband, Cord Cutting
    JEL: L11 L13 L96
    Date: 2015–09

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