nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒08‒07
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A regression model of product differentiation By Mogens, Fosgerau
  2. Monopoly Power with a Short Selling Constraint By Robert Baumann; Bryan Engelhardt; David L. Fuller
  3. Product Mix and Firm Productivity Responses to Trade Competition By Thierry Mayer; Marc J. Melitz; Gianmarco I. P. Ottaviano
  4. Collusion, Customization and Transparency By Francisco Martínez Sánchez
  5. The Impact of Merger Legislation on Bank Mergers By Elena Carletti; Steven Ongena; Jan-Peter Siedlarek; Giancarlo Spagnolo
  6. Newspapers in Times of Low Advertising Revenues By Angelucci, Charles; Cagé, Julia
  7. Firm size distortions and the productivity distribution: evidence from France By Luis Garicano; Claire Lelargez; John Van Reenen

  1. By: Mogens, Fosgerau
    Abstract: This note develops a model of product differentiation that can be estimated using standard regression techniques and applies it to a panel data set of new car sales. The model allows for complex substitution patterns according to an overlapping nest structure that makes cars closer substitutes if the share brand, body type, and/or quality level. A nest comprising all the car alternatives ensure that they are closer substitutes with each other than with the outside good. In addition, the model comprises fixed effects by car model, controlling for unobserved car quality.
    Keywords: Market shares; complex substitution; endogeneity; discrete choice; new cars
    JEL: C23 C25 C26 D12 L62
    Date: 2016–07–01
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:72786&r=ind
  2. By: Robert Baumann (Department of Economics, College of the Holy Cross); Bryan Engelhardt (Department of Economics, College of the Holy Cross); David L. Fuller (College of Business, University of Wisconsin - Oshkosh)
    Abstract: We show if a speculator can benefit from reducing a monopoly’s rents through short selling, then a speculator may take a short position in a monopoly, overcome the barriers to entry, and compete with the monopoly. The competition drives down the monopoly’s rents, and as a result, the short position becomes profitable and covers the cost of entry. If entry is impossible, then the speculator may coordinate and pay the firm’s counter-parties to stop trading with the monopoly rather than entering. Either way, increasing a speculator’s ability to short a firm’s rents results in a constraint on the monopoly and forces it to act more like a price taker. The mechanism is a market based approach to antitrust.
    Keywords: antitrust, monopoly, short selling
    JEL: L12 K21
    Date: 2016–04
    URL: http://d.repec.org/n?u=RePEc:hcx:wpaper:1603&r=ind
  3. By: Thierry Mayer; Marc J. Melitz; Gianmarco I. P. Ottaviano
    Abstract: We document how demand shocks in export markets lead French multi-product exporters to re-allocate the mix of products sold in those destinations. In response to positive demand shocks, those French firms skew their export sales towards their best performing products; and also extend the range of products sold to that market. We develop a theoretical model of multi-product firms and derive the specific demand and cost conditions needed to generate these product-mix reallocations. Our theoretical model highlights how the increased competition from demand shocks in export markets .and the induced product mix reallocations - induce productivity changes within the firm. We then empirically test for this connection between the demand shocks and the productivity of multi-product firms exporting to those destinations. We find that the effect of those demand shocks on productivity are substantial .and explain an important share of aggregate productivity fluctuations for French manufacturing.
    Keywords: productivity, trade, competition
    Date: 2016–07
    URL: http://d.repec.org/n?u=RePEc:cep:cepdps:dp1442&r=ind
  4. By: Francisco Martínez Sánchez (Universidad de Alicante)
    Abstract: We analyze the e¿ect of customizing a product on the ability of firms to tacitly collude on prices when some consumers are not informed about price. Following Bar-Isaac et al. (2014), we allow firms to be located inside the circle in the Salop model (1979). Our analysis shows that the e¿ect of product customization on the stability of collusion depends on the sensitivity of consumers’ utility to the degree of customization. We also obtain that collusion becomes harder to sustain when more consumers are informed about prices. From our welfare analysis, we conclude that the e¿ects of customizing depend on the sensitivity of consumers’ utility to the degree of customization. Finally, we find that transparency has no e¿ect on the equilibrium outcome under collusion. However, at the punishment stage, the e¿ect of transparency is positive on the consumer surplus and negative on the producer surplus. Since these two e¿ects cancel each other out, we obtain that having more informed consumers on prices does not a¿ect welfare.
    Keywords: Collusion; Customization; The Salop model; Transparency
    JEL: D40 L10 L40
    Date: 2016–08
    URL: http://d.repec.org/n?u=RePEc:ivi:wpasad:2016-03&r=ind
  5. By: Elena Carletti (Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute); Jan-Peter Siedlarek (Federal Reserve Banks - Federal Reserve Bank of Cleveland); Giancarlo Spagnolo (Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF)
    Abstract: We find that stricter merger control legislation increases abnormal announcement returns of targets in bank mergers by 7 percentage points. Analyzing potential explanations for this result, we document an increase in the pre-merger profitability of targets, a decrease in the size of acquirers and a decreasing share of transactions in which banks are acquired by other banks. Other merger properties, including the size and risk profile of targets, the geographic overlap of merging banks and the stock market response of rivals appear unaffected. The evidence suggests that the strengthening of merger control leads to more efficient and more competitive transactions.
    Keywords: banks; mergers and acquisitions; merger control; antitrust
    JEL: G21 G34 K21 L40
    URL: http://d.repec.org/n?u=RePEc:chf:rpseri:rp1633&r=ind
  6. By: Angelucci, Charles; Cagé, Julia
    Abstract: Newspapers' advertising revenues have declined sharply in recent decades. We build a model to investigate the consequences on newspapers' pricing and quality choices of a reduction in advertisers' willingness to pay for readers' attention. In our model, selling subscriptions in addition to newsstand issues allows to price discriminate between readers. We show that lower advertising revenues decrease newspapers' incentives to provide quality, which increases newspapers' incentive to price discriminate whenever readers' sensitivity to quality is sufficiently high. We build a unique dataset on French newspapers between 1960 and 1974 and perform a difference-in-differences analysis using a "quasi-natural experiment": the introduction of advertising on television in 1968, which affects national newspapers more severely than local ones. We find robust evidence of increased price discrimination and decreased quality as a result of the drop in advertising revenues, which may help rationalize current industry trends.
    Keywords: advertising; Newspaper industry; Newspaper quality; price discrimination; Two-sided markets
    JEL: L11 L15 M37
    Date: 2016–07
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:11414&r=ind
  7. By: Luis Garicano; Claire Lelargez; John Van Reenen
    Abstract: We show how size-contingent laws can be used to identify the equilibrium and welfare effects of labor regulation. Our framework incorporates such regulations into the Lucas (1978) model and applies it to France where many labor laws start to bind on firms with 50 or more employees. Using population data on firms between 1995 and 2007, we structurally estimate the key parameters of our model to construct counterfactual size, productivity and welfare distributions. We find that the cost of these regulations is equivalent to that of a 2.3% variable tax on labor. In our baseline case with French levels of partial real wage inflexibility welfare costs of the regulations are 3.4% of GDP (falling to 1.3% if real wages were perfectly flexible downwards). The main losers from the regulation are workers - and to a lesser extent, large firms - and the main winners are small firms.
    Keywords: Firm size; productivity; labor regulation; power law
    JEL: J1 N0
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:ehl:lserod:66765&r=ind

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