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on Industrial Organization |
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Issue of 2016‒02‒17
ten papers chosen by |
| By: | Schmidt-Dengler, Philipp; Hünermund, Paul; Takahashi, Yuya |
| Abstract: | In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm effi- ciency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model gener- ates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium. |
| JEL: | L11 O10 L13 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112865&r=ind |
| By: | Maican, Florin (University of Gothenburg); Orth, Matilda (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We use a dynamic oligopoly model of entry and exit with store-type differentiation to evaluate how entry regulations affect profitability, market structure and welfare. Based on unique data for all retail food stores in Sweden, we estimate demand, recover variable profits, and estimate entry costs and fixed costs by store type. Counterfactual policy experiments show that welfare increases when competition is enhanced by lower entry costs. Protecting small stores by imposing licensing fees on large stores is not welfare enhancing. This study sheds light on the long-run implications of entry regulations for the welfare of differentiated product industries with endogenous entry and exit. |
| Keywords: | Imperfect competition; product differentiation; retail markets; entry; exit; sunk costs; welfare |
| JEL: | L11 L13 L81 |
| Date: | 2015–12–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1102&r=ind |
| By: | Talavera, Oleksandr; Gorodnichenko, Yuriy |
| Abstract: | We document basic facts about prices in online markets in the U.S. and Canada, a rapidly growing segment of the retail sector. Relative to prices in regular stores, prices in online markets are more flexible as well as exhibit stronger pass-through (60-75 percent) and faster convergence (half-life less than 2 months) in response to movements of the nominal exchange rate. Multiple margins of adjustment (frequency of price changes, direction of price changes, size of price changes, exit of sellers) are active in the process of responding to nominal exchange rate shocks. Furthermore, we use the richness of our dataset to show that degree of competition, stickiness of prices, synchronization of price changes, reputation of sellers, and returns to search effort are important determinants of pass-through and speed of price adjustment for international price differentials. |
| JEL: | E31 F41 F40 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112885&r=ind |
| By: | Vuong, Van Anh; Peters, Bettina; Roberts, Mark |
| Abstract: | In this paper, we estimate a dynamic structural model of a rm s decision to invest in R&D and use it to measure the expected long-run bene t from R&D investment. We apply the model to German rms in ve high-tech manufacturing industries and distinguish rms by whether they sell in just the domestic market or also export some of their production. We nd that R&D investment leads to a higher rate of product and process innovation among exporting rms and these innovations have a larger impact on productivity improvement in export market sales. As a result, exporting rms have a higher payo from R&D investment, invest in R&D more frequently than rms that only sell in the domestic market, and, subsequently, have higher rates of productivity growth. The endogenous investment in R&D is an important mechanism that leads to a divergence in the long-run performance of rms that di er in their export market exposure. |
| JEL: | L60 O31 O33 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112938&r=ind |
| By: | Huesmann, Katharina; Mimra, Wanda |
| Abstract: | We model competition for a multi-attribute service, like health care services, where consumers observe attribute quality imprecisely before deciding on a provider. High quality in one attribute is more important in terms of ex post utility. Attribute quality is stochastic, providers can shift resources in order to increase expected quality in some attributes. Consumers rationally focus on attributes depending on signal precision and beliefs about the providers' resource allocations. When signal precision is such that consumers focus weakly on the less important attribute, any Perfect Bayesian Nash Equilibrium is inefficient. Increasing signal precision can reduce welfare, as the positive effect of better provider selection is overcompensated by the negative effect that a shift in consumer focusing has on provider quality choice. We discuss the providers' incentives for information disclosure. |
| JEL: | L15 D83 I11 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112849&r=ind |
| By: | Boom, Anette |
| Abstract: | Inspired by recent regulations in the New York ICAP market, this paper examines the effect of price regulations on a multi-unit uniform price auction. General bid caps reduce the maximum price below the bid cap, but also the minimum potential market price below the cap. A bid cap only for the larger firms does not guarantee a market price below the cap. A sufficiently high bid floor only for relatively small firms destroys some or all pure strategy equilibria with equilibrium prices above the marginal costs. With a general bid floor this happens only with considerably larger bid floors. |
| JEL: | D44 D43 L13 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112998&r=ind |
| By: | Teichmann, Isabel; von Schlippenbach, Vanessa |
| Abstract: | A manufacturer contracting secretly with several downstream competitors faces an opportunism problem, preventing it from exerting its market power. In an infinitely repeated game, the opportunism problem can be relaxed. We show that the upstream firm's market power can be restored even further if the upstream firm chooses a mixed distribution system in which it makes use of an intermediary to distribute the good to a subset of the retailers and delivers directly only to the remaining downstream firms. |
| JEL: | L12 L14 L42 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112948&r=ind |
| By: | Riedel, Nadine; Böhm, Tobias; Karkinsky, Tom; Knoll, Bodo |
| Abstract: | This paper complements a small but growing literature on the effect of corporate taxes on R&D investment and patent holdings. We provide evidence that patent strategies are exploited as a device to shift income to low-tax countries. Using data on the population of corporate patent applications to the European Patent Office, we show that the location of R&D investment and patent ownership is geographically separated in a non-negligble number of cases. We find that countries which levy low patent income taxes attract ownership of foreign-invented patents, especially those patents that have a high earnings potential. Moreover, our results suggest that the probability for a patent to be owned by a party in a tax haven country significantly decreases if the inventor country has implemented controlled foreign company laws. |
| JEL: | H26 H25 H30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112978&r=ind |
| By: | Demary, Vera |
| Abstract: | Online platforms play an increasingly important role in the European business landscape. Guided by questions from the European Commission's consultation on this topic, the paper aims to provide insight into the characteristics of online platforms and the resulting regulatory challenges. Issues such as the transparency of platforms or the organization of the Sharing Economy are currently under debate. Generally speaking, one main concern is that online platforms do not account for their users' interests sufficiently, resulting in hardly desirable market outcomes. The paper provides economic reasoning as to why this concern is not always justified and suggests possible policy measures in cases where regulatory action is necessary. The most important aspect being currently discussed in this context is the access to and the use of data. Data are at the center of most online platforms' business models. While regulation to ensure data protection is naturally important, this aspect is the main reason to refrain from overbearing regulation and to emphasize a rule-of-reason approach. European policy-makers need to find the balance between consumer protection and fostering new innovative business models. |
| JEL: | L14 L41 O33 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:392015&r=ind |
| By: | Cullmann, Astrid; Nieswand, Maria |
| Abstract: | In this paper we analyze the investment behavior of electricity distribution companies. First, we test the hypothesis if the implementation of an incentive-based regulatory scheme with revenue caps impacts the firms' investment decisions in general. Second, we test if the specific regulatory design to determine the revenue caps impacts the firms' investment behavior. The analysis is based on a unique and detailed firm level data for German electricity distribution companies over the 2006-2012 period. Controlling for a large amount of firm specific heterogeneity and ownership, we show that the investment rate is higher after the implementation of incentive regulation in 2009. Furthermore, we find that the design with its specific institutional constraints for determining the revenue-caps, influence the investment decisions of the firms. Especially in the base year, when the rate base is determined for the following regulatory period, investments increase. The analysis demonstrates that the whole design of incentive regulation must be taken into account for a sound assessment of investment behavior in electricity distribution. |
| JEL: | L94 L51 D22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113090&r=ind |