nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒06‒09
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Search Frictions, Competing Mechanisms and Optimal Market Segmentation By Cai, Xiaoming; Gautier, Pieter A.; Wolthoff, Ronald P.
  2. Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing* By Sharat Ganapati; Joseph S. Shapiro; Reed Walker
  3. Tariffs and Markups in Retailing By Matthew T. Cole; Carsten Eckel
  4. Do tax incentives for research increase firm innovation? An RD design for R&D By Antoine Dechezlepretre; Elias Einiö; Ralf Martin; Kieu-Trang Nguyen; John Van Reenen

  1. By: Cai, Xiaoming (Tongji University); Gautier, Pieter A. (Vrije Universiteit Amsterdam); Wolthoff, Ronald P. (University of Toronto)
    Abstract: In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call "joint concavity." Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare joint concavity to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.
    Keywords: search frictions, matching function, meeting technology, heterogeneity, competing mechanisms
    JEL: C78 D44 D83
    Date: 2016–05
  2. By: Sharat Ganapati; Joseph S. Shapiro; Reed Walker
    Abstract: This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are sufficient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We find that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both zero pass-through and complete pass-through. We find heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest.
    JEL: L11 H22 H23 Q40 Q54
    Date: 2016–01
  3. By: Matthew T. Cole (Department of Economics, California Polytechnic State University); Carsten Eckel (University of Munich)
    Abstract: Conventional wisdom suggests that domestic manufacturers benefit from cost advantages vis-a-vis their foreign rivals. Tariffs on imported products or exchange rate depreciations are typically expected to raise relative prices of foreign goods and shift residual demands of domestic substitutes outwards. Here we show that these changes in wholesale/manufacturing prices can be offset and even dominated by adjustments in retail mark-ups. Retailers have an incentive to charge the highest mark-ups for low-cost products, and to adjust the mark-ups on these products most actively. Thus, if the procurement costs of some foreign products rises, retailers will shift these cost increases towards the most efficient domestic products thereby mitigating the benefits of a protectionist tariff. We show that this effect can dominate the traditional substitution effect.
    Keywords: Variable Markups, Retailing, Trade Policy
    JEL: F1 L1
    Date: 2016
  4. By: Antoine Dechezlepretre; Elias Einiö; Ralf Martin; Kieu-Trang Nguyen; John Van Reenen
    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: J24 M0
    Date: 2016–03

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