nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒01‒03
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Oligopolistic Competition with Choice-Overloaded Consumers By Gerasimou, Georgios; Papi, Mauro
  2. Transport efficiency, downstream R&D, and spillovers By Takauchi, Kazuhiro
  3. Cross-Border Mergers and Acquisitions in Services: The Role of Policy and Industrial Structure By Alessandro Barattieri; Ingo Borchert; Aaditya Mattoo
  4. OPEC’s market power: An Empirical Dominant Firm Model for the Oil Market By Golombek, Rolf; Irarrazabal, Alfonso A.; Ma, Lin
  5. Electricity markets: Designing auctions where suppliers have uncertain costs By Pär Holmberg and Frank Wolak
  6. High-growth firms: Not so vital after all? By Daunfeldt, Sven-Olov; Halvarsson, Daniel; Mihaescu, Oana

  1. By: Gerasimou, Georgios; Papi, Mauro
    Abstract: A large body of experimental work has suggested the existence of a "choice overload" effect in consumer decision making: Faced with large menus of choice options, decision makers often defer or avoid choice. A suggested reason for the occurrence of this effect is that the agents attempt to avoid the cognitive effort that is associated with choosing from larger menus. Building on this explanation, we propose and analyse a model of duopolistic competition where firms compete in menu design in the presence of a consumer population with heterogeneous preferences and overload menu-size thresholds. The firms' strategic trade-off is between offering a large menu in order to match the preferences of as many consumers as possible, and offering a small menu in order to avoid losing choice-overloaded consumers to their rival. Assuming uniformly distributed preferences, we focus on symmetric pure-strategy equilibria under various assumptions on the overload distribution and product markups. We also propose and analyse a measure of consumer welfare that applies to this environment. Among other things, we provide conditions for "maximum-" and "minimum-variety equilibria" to be possible, whereby both firms either offer the entire set of available products or the same one product, respectively.
    Keywords: Choice overload; choice deferral; choice complexity; cognitive costs; oligopolistic competition
    JEL: D01 D03 D11 D18 D21 D60
    Date: 2015–12–18
  2. By: Takauchi, Kazuhiro
    Abstract: This study examines the effects of higher transport efficiency on cost-reducing R&D investment and welfare in a two-way duopoly trade model with an imperfectly competitive transport sector. We show that, corresponding to the degree of the R&D spillover, higher transport efficiency can affect investment in a U-shaped fashion. We also show that higher transport efficiency can reduce total output and consumer surplus. By comparing the two cases of firm-specific carriers and duopoly carriers, we demonstrate that total output in the case of duopoly carriers is lower than that in the case of firm-specific carriers if the spillover is sufficiently large. Higher transport efficiency and competition in the transport sector may harm consumers.
    Keywords: Transport efficiency; Imperfectly competitive transport sector; Cost-reducing R&D; R&D spillover
    JEL: F12 L13
    Date: 2015–12–21
  3. By: Alessandro Barattieri; Ingo Borchert; Aaditya Mattoo
    Abstract: This paper explores the role of policy and economic structure in determining interna- tional mergers and acquisitions (M&A) in services sectors. The analysis is based on bilateral sectoral M&A ow data and detailed information on policy barriers from a new database. Restrictive investment policies are found to reduce the probability of M&A inows, controlling for bilateral frictions such as geography. This negative effect, however, is mitigated in countries with relatively large shares of manufacturing and (to a lesser extent) services in GDP. The same result holds for the number of M&A deals concluded. Findings are robust to accounting for the potential endogeneity of policy restrictiveness. The evidence suggests that the impact of policy is state-dependent and related to the composition of GDP in the target economy.
    Keywords: Cross-border M&A, services trade policy, trade frictions
    JEL: F13 F21 L80
    Date: 2015
  4. By: Golombek, Rolf (Ragnar Frisch Centre for Economic Research.); Irarrazabal, Alfonso A. (BI Norwegian Business School); Ma, Lin (School of Economics and Business, Norwegian University of Life Sciences)
    Abstract: We estimate a dominant firm-competitive fringe model for the crude oil market using quarterly data on oil prices for the 1986-2009 period. All estimated structural parameters have the expected sign and are significant. We find that OPEC exercised market power during the sample period. Counterfactual experiments indicate that world GDP is the main driver of long-run oil prices, however, supply (depletion) factors have become more important in recent years.
    Keywords: Oil; dominant firm; market power; OPEC; Lerner index; oil demand elasticity; oil supply elasticity
    JEL: L13 L22 Q31
    Date: 2015–12–17
  5. By: Pär Holmberg and Frank Wolak
    Abstract: We analyse how the market design influences the bidding behaviour in multi-unit auctions, such as wholesale electricity markets. It is shown that competition improves for increased market transparency and we identify circumstances where the auctioneer prefers uniform to discriminatory pricing. We note that political risks could significantly worsen competition in hydro-dominated markets. It would be beneficial for such markets to have clearly defined contingency plans for extreme market situations.
    Keywords: cost uncertainty, asymmetric information, uniform-price auction, discriminatory pricing, Bertrand game, market transparency, wholesale electricity market, treasury auction, Bayesian Nash equilibria
    JEL: C72 D43 D44 L13 L94
    Date: 2015–12–21
  6. By: Daunfeldt, Sven-Olov (HUI Research and Dalarna University); Halvarsson, Daniel (The Ratio Institute); Mihaescu, Oana (HUI Research and Dalarna University)
    Abstract: High-growth firms have received considerable interest recently since they create most of the new jobs in the economy. The purpose of our paper is to investigate the characteristics of high-growth firms prior to their growth period, and whether these characteristics differ across industries. Using data on a large sample of limited liability firms in Sweden for the period 2007-2010, we find that high-growth firms do not have the characteristics that we typically associate with successful firms. On the contrary, our results indicate that high-growth firms have low profits and a weak financial position. This might explain why studies have found that high-growth firms are seldom capable of sustaining their high growth rates in subsequent periods, and thus question policies that are targeted towards these companies.
    Keywords: Entrepreneurship; Firm growth; Gazelles; High-growth firms; High-impact firms; Innovation
    JEL: L11 L25
    Date: 2015–12–23

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