nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒09‒18
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Product Differentiation with Multiple Qualities By F. Barigozzi; C. A. Ma
  2. Productivity shocks in a union-duopoly model By António Brandão; Joana Pinho
  3. Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace By Lingfang (Ivy) Li; Steven Tadelis; Xiaolan Zhou
  4. Price Competition in Product Variety Networks By Ushchev, Philip; Zenou, Yves
  5. The effect of entry on R&D networks By Emmanuel Petrakis; Nikolas Tsakas
  6. Production networks, geography and firm performance By Andrew B. Bernard; Andreas Moxnes; Yukiko U. Saito
  7. Bank Concentration, Competition, and Financial Inclusion By Owen, Ann L.; Pereira, Javier
  8. Firm size distortions and the productivity distribution: evidence from France By Luis Garicano; Claire Lelarge; John Van Reenen

  1. By: F. Barigozzi; C. A. Ma
    Abstract: We study subgame-perfect equilibria of the classical quality-price, multistage game of vertical product differentiation. Each firm can choose the levels of an arbitrary number of qualities. Consumers’ valuations are drawn from independent and general distributions. The unit cost of production is increasing and convex in qualities. We characterize equilibrium prices, and the equilibrium effects of qualities on the rival’s price in the general model. We present necessary and sufficient conditions for equilibrium differentiation in any of the qualities.
    JEL: D43 L13
    Date: 2016–09
    URL: http://d.repec.org/n?u=RePEc:bol:bodewp:wp1075&r=ind
  2. By: António Brandão (CEF.UP and Faculdade de Economia do Porto.); Joana Pinho (CEF.UP and Faculdade de Economia do Porto. Toulouse School of Economics.)
    Abstract: We consider an industry where firms are asymmetric in terms of productivity. Wages and employment are determined at the firm-level and are the result of sequential bargaining between unions and firms, with wages being negotiated first. We characterise the equilibrium and compare the outcomes in the two firms (wages, employment and surplus of all economic agents). A productivity shock affecting the most efficient firm is socially desirable, by increasing the surplus of consumers, workers and firms. The same may not be true when the productivity shock affects the least efficient firm. In this case, the consumers’ gain may not be enough to outweigh the losses in aggregate worker surplus and in the industry profit.
    Keywords: Asymmetric productivity; Decentralised bargaining; Duopoly; Productivity shocks
    JEL: J53 L13 D60
    Date: 2016–09
    URL: http://d.repec.org/n?u=RePEc:por:fepwps:576&r=ind
  3. By: Lingfang (Ivy) Li; Steven Tadelis; Xiaolan Zhou
    Abstract: Reputation is critical to foster trust in online marketplaces, yet leaving feedback is a public good that can be under-provided unless buyers are rewarded for it. Signaling theory implies that only high quality sellers would reward buyers for truthful feedback. We explore this scope for signaling using Taobao's "reward-for-feedback" mechanism and find that items with rewards generate sales that are nearly 30% higher and are sold by higher quality sellers. The market design implication is that marketplaces can benefit from allowing sellers to use rewards to build reputations and signal their high quality in the process.
    JEL: D47 D82 L15 L86
    Date: 2016–09
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:22584&r=ind
  4. By: Ushchev, Philip; Zenou, Yves
    Abstract: We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degrees of substitutability (edges). We also locate consumers into this network, so that the location of each consumer (node) corresponds to her “ideal” variety. We show that, even though prices need not to be strategic complements, there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by both firms’ sign-alternating Bonacich centralities and the average willingness to pay across consumers. They both hinge on the network structure of the firm-product space. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the firm located in the star node does not always enjoy higher monopoly power than the peripheral firms.
    Keywords: Networks, Product Variety, Monopolistic Competition, Spatial Competition, Research Methods/ Statistical Methods, D43, L11, L13,
    Date: 2016–09–07
    URL: http://d.repec.org/n?u=RePEc:ags:feemet:244535&r=ind
  5. By: Emmanuel Petrakis; Nikolas Tsakas
    Abstract: We investigate the effect of potential entry on the formation and stability of R&D networks considering farsighted firms. We show that the presence of a potential entrant often alters the incentives of incumbent firms to establish an R&D link. In particular, incumbent firms may choose to form an otherwise undesirable R&D collaboration in order to deter the entry of a new firm. Moreover, an incumbent firm may refrain from establishing an otherwise desirable R&D collaboration, expecting to form a more profitable R&D link with the entrant. Finally, potential entry may lead an inefficient incumbent to exit the market. We also perform a welfare analysisand show that market and societal incentives are often misaligned.
    Keywords: R&D Networks; Entry; Farsighted stability
    JEL: D85 L24 O33
    Date: 2016–09
    URL: http://d.repec.org/n?u=RePEc:ucy:cypeua:08-2016&r=ind
  6. By: Andrew B. Bernard; Andreas Moxnes; Yukiko U. Saito
    Abstract: This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm’s marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms’ buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.
    Keywords: production networks; trade; productivity; infrastructure
    JEL: D85 F14 L10 L14 R12
    Date: 2016–06
    URL: http://d.repec.org/n?u=RePEc:ehl:lserod:67664&r=ind
  7. By: Owen, Ann L.; Pereira, Javier
    Abstract: Expanding access to financial services holds the promise to help reduce poverty and foster economic development. However, little is still known about the determinants of the outreach of financial systems across countries. Our study is the first attempt to employ a large panel of countries, several indicators of financial inclusion and a comprehensive set of bank competition measures to study the role of banking system structure as a determinant of cross-country variability in financial outreach for households. We use panel data from 83 countries over a 10-year period to estimate models with both country and time fixed effects. We find that greater banking industry concentration is associated with more access to deposit accounts and loans, provided that the market power of banks is limited. We find evidence that countries in which regulations allow banks to engage in a broader scope of activities are also characterized by greater financial inclusion. Our results are robust to changes in sample, data, and estimation strategy and suggest that the degree of competition is an important aspect of inclusive financial sectors.
    Keywords: financial inclusion, bank concentration, market power
    JEL: G21 L11 O16
    Date: 2016–09–08
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:73598&r=ind
  8. By: Luis Garicano; Claire Lelarge; 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 date 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: J8 L11 L25 L51
    Date: 2016–06
    URL: http://d.repec.org/n?u=RePEc:ehl:lserod:67684&r=ind

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