nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒10‒23
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Vertical differentiation and collusion: pruning or proliferation? By Jean Gabszewicz, Jean; Marini, Marco A.; Tarola, Ornella
  2. The Effect of a Merger on Investments By Motta, Massimo; Tarantino, Emanuele
  3. A generalized model of sales By Sandro Shelegia; Chris M. Wilson
  4. Global Firms By Andrew B. Bernard; J. Bradford Jensen; Stephen J. Redding; Peter K. Schott
  5. Taxation or subsidization policy for new technology adoption in oligopoly By Hattori, Masahiko; Tanaka, Yasuhito
  6. A Ricardian-Demand Explanation for Changing Pharmaceutical R&D Productivity By Mark Pauly; Kyle Myers
  7. The Tragedy of the Last Mile: Congestion Externalities in Broadband Networks By Jacob Malone; Aviv Nevo; Jonathan Williams
  8. Evaluation of best price clauses in hotel booking By Hunold, Matthias; Laitenberger, Ulrich; Schlütter, Frank

  1. By: Jean Gabszewicz, Jean; Marini, Marco A.; Tarola, Ornella
    Abstract: In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multi-product firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market.
    Keywords: Vertically Differentiated Markets, Cannibalization, Market Pruning, Price Collusion.
    JEL: D4 D42 D43 L1 L12 L13 L4 L41
    Date: 2016–10–15
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:74599&r=ind
  2. By: Motta, Massimo; Tarantino, Emanuele
    Abstract: It has been suggested that mergers, by increasing profitability, will also result in higher investments. To deal with this claim, we first study a general model with simultaneous cost-reducing investments and price choices. Absent scope economies, the merger is anti-competitive: it lowers both total output and investment. With sequential choices, we provide a sufficient condition in a general model for the merger to be anti-competitive. The results are confirmed in a standard Shubik-Levitan parametric model. Only if the merger entails sufficient scope economies, will it be pro-competitive. We also show that a Network Sharing Agreement (by which parties set their investment cooperatively) is preferable to a merger. Finally, we identify a class of models where the same qualitative results extend to quality-enhancing investments.
    Keywords: Horizontal mergers; innovation; Investments; Network-sharing Agreements
    Date: 2016–10
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:11550&r=ind
  3. By: Sandro Shelegia; Chris M. Wilson
    Abstract: To provide a more exible workhorse model of temporary price reductions or "sales", this paper presents a substantially generalized "clearinghouse" sales framework. Our framework permits multiple dimensions of firm heterogeneity, and views firms as competing directly in utility rather than prices. The paper i) reproduces and extends many equilibria from the existing literature, ii) offers a range of new results on how firm heterogeneity affects market outcomes, iii) provides original insights into the number and type of firms that use sales, and iv) extends a "cleaning" procedure that is commonly used in empirical studies of sales and price dispersion.
    Keywords: Sales; Price Dispersion; Advertising; Clearinghouse; Heterogeneity.
    JEL: L13 D43 M3
    Date: 2016–10
    URL: http://d.repec.org/n?u=RePEc:upf:upfgen:1541&r=ind
  4. By: Andrew B. Bernard; J. Bradford Jensen; Stephen J. Redding; Peter K. Schott
    Abstract: Research in international trade has changed dramatically over the last twenty years, as attention has shifted from countries and industries towards the firms actually engaged in international trade. The now-standard heterogeneous firm model posits measure zero firms that compete under monopolistic competition and decide whether to export to foreign markets. However, much of international trade is dominated by a few “global firms,” which participate in the international economy along multiple margins and account for substantial shares of aggregate trade. We develop a new theoretical framework that allows firms to have large market shares and to decide simultaneously on the set of production locations, export markets, input sources, products to export, and inputs to import. Using U.S. firm and trade transactions data, we provide strong evidence in support of this framework's main predictions of interdependencies and complementarities between these margins of firm international participation. Global firms participate more intensively along each margin, magnifying the impact of underlying differences in firm characteristics, and increasing their shares of aggregate trade.
    JEL: F12 F14 L11 L21
    Date: 2016–10
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:22727&r=ind
  5. By: Hattori, Masahiko; Tanaka, Yasuhito
    Abstract: Adoption of new technology by firms is very important for economic growth of a country. However, it may be insufficient or excessive in less competitive industries from the point of view of social welfare. Then, subsidization or taxation by the government is necessary. We present an analysis about subsidy or tax policy for adoption of new technology in an oligopoly with a homogeneous good. The unit cost with the new technology is lower than that with the present technology, but each firm must expend a fixed set-up cost to adopt and use the new technology. We will show that if the number of firms is small, and the set-up cost is large, subsidization to promote adoption of new technology may be the optimum policy. However, if the number of firms is not so small, or the set-up cost is not so large, taxation to prevent adoption of new technology is likely to be the optimum policy.
    Keywords: subsidy or tax policy, new technology adoption, oligopoly
    JEL: D43 L13
    Date: 2016–10–13
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:74550&r=ind
  6. By: Mark Pauly; Kyle Myers
    Abstract: This paper examines trends in the aggregate productivity of the pharmaceutical sector over the past three decades. We incorporate Ricardo’s insight about demand-driven productivity in settings of variable scarce resources, and estimate the industry’s responsiveness to changes in demand over this timeframe using therapeutic class-specific data. In contrast to many analyses, our empirical estimates indicate that the industry has “met demand” with remarkable consistency since the late-1980s. The growth in total R&D spending, and therefore R&D costs per new drug, appear to have been profitable and productive investments. While we identify a significant increase in the industry’s fixed costs - the intercept of the production function - we find no decline in the marginal productivity of industry investments that might suggest significant supply-side frictions. While we cannot diagnose in detail why average, but not marginal, productivity declined, the data suggests that firms have finally begun to compete down returns from the supranormal levels of decades past.
    JEL: D20 I11 L10 L65 O31
    Date: 2016–10
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:22720&r=ind
  7. By: Jacob Malone (University of Georgia, Department of Economics); Aviv Nevo (University of Pennsylvania, Department of Economics); Jonathan Williams (University of North Carolina - Chapel Hill, Department of Economics)
    Abstract: We exibly estimate demand for residential broadband accounting for congestion externalities that arise among consumers due to limited network capacity, as well as dynamics arising from nonlinear pricing. Our high frequency data permits insight into temporal patterns in usage across the day that are impacted by network congestion, and how usage responds to efforts to mitigate congestion. To estimate demand, we build a dynamic model of consumer choice and rely on variation in the timing of network upgrades and nonlinear pricing to identify the model. Using the model estimates, we calculate the welfare changes associated with different economic and technological solutions for reducing congestion, including peak-use pricing, throttling connectivity speeds, and local-cache technologies.
    Keywords: demand; broadband; congestion; peak-use pricing
    JEL: L11 L13 L96
    Date: 2016–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:1620&r=ind
  8. By: Hunold, Matthias; Laitenberger, Ulrich; Schlütter, Frank
    Abstract: We analyze the best price clauses (BPCs) of online travel agents (OTAs) using meta-search price data of more than 45,000 hotels in different countries. Although OTAs apparently have not changed their standard commission rates following the partial ban of BPCs in Europe, we find that BPCs do influence the pricing and availability of hotel rooms across online sales channels. In particular, the abolition of Booking.com's narrow BPC is associated with the hotels' direct channel being the price leader more often. Moreover, hotels make rooms more often available at Booking.com when it does not use the narrow BPC.
    Keywords: best price clauses,hotel booking,MFN,OTA,vertical restraints
    JEL: D40 L42 L81
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:zbw:zewdip:16066&r=ind

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