nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒08‒21
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Consumer Demand with Unobserved Stockpiling and Intertemporal Price Discrimination By Thierry Magnac; Pierre Dubois
  2. Accounting for Firm Exit and Loss of Variety in the Welfare Cost of Regulations By Andersen, Dana C.
  3. Collusion Along the Learning Curve: Theory and Evidence from the Semiconductor Industry By Danial Asmat
  4. Collusive Upward Gasoline Price Movements in Medium-Sized German Cities By Arne Neukirch; Thomas Wein

  1. By: Thierry Magnac (Toulouse School of Economics); Pierre Dubois (Toulouse School of Economics)
    Abstract: We construct a tractable structural dynamic model of consumption, purchase and stocks by consumers for whom stockpiling is unobserved and for whom preferences are isolastic and affected by independent and identically distributed shocks. Consumers purchase in stores which they meet randomly and which are supposed to maximize short run profits. We show that a two-price mixed strategy by stores satisfies conditions for an equilibrium in which consumers and stores coordinate their expectations on this stationary solution. We derive a simple and tractable estimation method using log linearized demand equations and equilibrium conditions. We estimate parameters using scanner data registering soda purchases by French consumers during 2005-2007.
    Date: 2016
  2. By: Andersen, Dana C. (University of Alberta, Department of Economics)
    Abstract: This paper develops a multi-sector general equilibrium model with heterogeneous firms to account for both the direct cost of regulations on regulated firms as well as the indirect cost associated with firm exit and loss of variety. The model derives an analytical marginal abatement cost function, dividing the cost according to various direct and indirect effects, and explores the implications for optimal environmental policy. The model is calibrated to the U.S. manufacturing sector for criteria air pollutants, demonstrating that the direct cost of regulations significantly overstates the true cost. Moreover, because marginal abatement costs vary across industries, reallocating pollution across industries from their current levels can generate substantial cost savings.
    Keywords: general equilibrium; firm heterogeneity; welfare cost of regulations; manufacturing sector
    JEL: D51 D62 L11 L60 Q52 Q53
    Date: 2016–08–05
  3. By: Danial Asmat (Antitrust Division, U.S. Department of Justice)
    Abstract: This paper formulates a theory of collusion with learning-by-doing and multiproduct competition and tests it with data from an explicit cartel. The model shows that collusion is harder to sustain on a new product generation, where learning is high, than an old generation, where learning is low. Collusion on the old generation shifts demand toward the new generation, raising its output. Empirical analysis exploits variation between cartelization and competition in the DRAM market to identify counterfactual quantities and prices. Consistent with the model, cartel firms cut output of older generations by up to 50% and increased output of newer generations manifold.
    Date: 2016–08
  4. By: Arne Neukirch (Leuphana University Lueneburg, Germany); Thomas Wein (Leuphana University Lueneburg, Germany)
    Abstract: Do we have effective competition between the gasoline's big five oligopolists (Aral, Shell, Esso, Total and Jet) and fringe gasoline stations? Using 2014 Market Transparency price data from 66 cities with populations between 60,000 and 100,000, we analyze which brands lead price increases, the first average price mark-up in the evening, and the trend on price increases until midnight. Furthermore, we measure the response time it takes for competitors to react to these price increases, and how much prices change from the beginning to the end of a day. By watching local activities of the big brands, it is possible to measure how smaller businesses, such as Jet or independent retailers, react to Aral's and Shell's price changes. Multivariate estimations allows to control for gasoline type (regular or diesel), school holidays, weekends, weekdays, location -such as East or West Germany-, wholesale and starting prices. Descriptive results show the typical patterns. Aral (or Shell) will start a price increase round, and then Shell (or Aral) will more or less immediately follow. Total, Esso and Non-Oligopolists react within one or two hours. Jet behaves more as an "outsider" with later reaction times and lower price mark-ups. Multivariate estimation indicates that the single cause "price change by competitors" is less important and nearly irrelevant for Jet.
    Keywords: Market power, collusive behavior, gasoline market
    JEL: L13 L41 L81
    Date: 2016–06

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