nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒05‒14
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Incentives, Efficiency and Quality in Regulated Monopolies under Customer Ownership By Richard Meade
  2. Sales and collusion in a market with storage By Francesco Nava; Pasquale Schiraldi
  3. Swimming upstream: input-output linkages and the direction of product adoption By Johannes Boehm; Luca Fornaro; Swati Dhingra
  4. Do tax incentives for research increase firm innovation? An RD Design for R&D By Elias Einiö; Dechezleprêtre; - Martin Antoine; - Nguyen Ralf; - Van Reenen Kieu-Trang; John

  1. By: Richard Meade
    Abstract: We extend the theory of monopoly regulation under imperfect information to the case of customer, rather than investor, ownership. The firm's manager can exert two types of effort - a contractible effort to reduce costs, and a non-contractible effort to increase quality. The former decreases expected costs and increases expected profits, while the latter increases expected demand, costs and consumer surplus. We show that the manager faces a conflict between pursuing cost reductions and quality when his or her net marginal disutility of cost-reducing effort is sufficiently increased by quality-enhancing effort. We further show that this conflict can arise even without an effort substitution effect. Thus stronger incentives (i.e. a higher managerial profit share) induce greater cost-reducing effort, but lower quality-enhancing effort. Since customer owners value consumer surplus as well as profits, they optimally provide the manager with weaker incentives than investor owners - who only value profits - for a given regulated price. This implies higher quality but lower efficiency under customer ownership, given price. A customer-owned firm is optimally set a tighter price cap than an investor-owned firm if its profits are less price-sensitive than is relative consumer surplus. This can result in quality differences being reduced between ownership types, but with ambiguous impacts on efficiency differences. Failure to account for ownership-related differences in objective functions gives rise to regulatory distortions.
    Keywords: Regulation, Moral Hazard, Cooperatives, Electric Utilities, Gas, Water Utilities, Profit Sharing
    JEL: D82 J33 L51 L94 L95 P13
    Date: 2015–05
  2. By: Francesco Nava; Pasquale Schiraldi
    Abstract: Sales are a widespread and well-known phenomenon documented in several product markets. This paper presents a novel rationale for sales that does not rely on consumer heterogeneity, or on any form of randomness to explain such periodic price fluctuations. The analysis is carried out in the context of a simple repeated price competition model, and establishes that firms must periodically reduce prices in order to sustain collusion when goods are storable and the market is large. The largest equilibrium profits are characterized at any market size. A trade-off between the size of the industry and its profits arises. Sales foster collusion, by magnifying the inter-temporal links in consumers' decisions.
    Keywords: storage; sales; collusion; cartel size; repeated games
    JEL: L11 L12 L13 L41
    Date: 2014–06
  3. By: Johannes Boehm; Luca Fornaro; Swati Dhingra
    Abstract: Multiproduct firms dominate production, and their product turnover contributes substantially to aggregate growth. Firms continually adapt their product mix, but what determines which products firms expand into? Theories of the firm propose that mulitproduct firms choose to make products which need the same know-how or inputs that can't be bought ‘off the shelf’. We empirically examine this rationale by testing for firm-level capabilities that are shared across products and manifested through input-output (IO) linkages. We show that a firm's idiosyncratic horizontal and vertical similarity to a product's IO structure predicts product adoption. Using product-specific policy changes for a firm's inputs and outputs, we show that input linkages are the most important, suggesting that firms' product capabilities depend more on economies of scope rather than product market complementarities.
    Keywords: Multiproduct firms; product adoption; vertical linkages; horizontal linkages
    JEL: J1 N0
    Date: 2016–02
  4. By: Elias Einiö; Dechezleprêtre; - Martin Antoine; - Nguyen Ralf; - Van Reenen Kieu-Trang; John
    Abstract: We present the first evidence showing causal impact of research and development (R&D) tax incentives on innovation outcomes. We exploit a change in the asset-based size thresholds for eligibility for R&D tax subsidies and implement a Regression Discontinuity Design using administrative tax data on the population of UK firms. There are statistically and economically significant effects of the tax change on both R&D and patenting, with no evidence of a decline in the quality of innovation. R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design, but firms do adjust assets to take advantage of the subsidy post-policy. We estimate that over 2006-11 business R&D would be around 10% lower in the absence of the tax relief scheme.
    Keywords: R&D, patents, tax, innovation, Regression Discontinuity design
    JEL: H32 O31 H23 O32 H25
    Date: 2016–04–13

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