nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒01‒15
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. When do firms leave cartels? Determinants and the impact on cartel survival By Hellwig, Michael; Hüschelrath, Kai
  2. Firm pricing with consumer search By Anderson, Simon P; Renault, Régis
  3. Intermediaries and Consumer Search By Chen, Yongmin; Zhang, Tianle
  4. Are all online hotel prices created dynamic? An empirical assessment By Melis, Giuseppe; Piga, Claudio A

  1. By: Hellwig, Michael; Hüschelrath, Kai
    Abstract: We use a dataset of 615 firms which participated in 114 illegal cartels - convicted by the European Commission between 1999 and 2016 - to investigate the determinants of the duration of a firm's participation in a cartel. Applying a Weibull proportional hazard model with a particular focus on the impact of internal and external time-varying determinants, we find that firms show an increased probability to leave a cartel if prior exits occurred as well as in periods of high demand growth. However, we find a reduced exit probability in situations of prior entries to the cartel or in periods of high interest rates. Additional estimations on the cartel level further suggest that firm exits increase the probability of a cartel breakdown substantially.
    Keywords: Survival Analysis,Cartels,Duration,European Union
    JEL: C41 K21 L41
    Date: 2017
  2. By: Anderson, Simon P; Renault, Régis
    Abstract: Economists could not properly capture the impact of internet on markets without a proper theory of consumer search. As a result, this theory has been rediscovered and developed further since the early 2000s. It can address such critical questions as the impact of reduced search cost on prices, variety, and product choice as well as advertising practices (such as search advertising). This theoretical development has also fed into a rich empirical literature exploiting the wealth of data that is now available regarding both consumers' and firms' online activity. The goal of this chapter is to present the basic concepts underpinning the theory of imperfectly competitive markets with consumer search. We stress that appropriate theoretical frameworks should involve sufficient heterogeneity among agents on both sides of the market. We also explain why the analysis of ordered search constitutes an essential ingredient for modeling recent search environments.
    Keywords: Diamond paradox; internet; price dispersion; product differentiation; random/ordered search; Reservation rule; sequential/simultaneous search; two-sided market.
    JEL: D42 D82 D83 L11 L15 M37
    Date: 2016–12
  3. By: Chen, Yongmin; Zhang, Tianle
    Abstract: This paper discusses how intermediaries, such as a search engine and an online marketplace, may affect consumer search. We propose an analytical framework that encompasses several models of search for differentiated products, with a high-quality firm being more likely to offer a product that meets each consumer's need. An intermediary improves consumer search efficiency by providing a search platform on which positions are sold to high-quality firms through competitive bidding. While the intermediary may admit too many or too few firms to its platform, compared to what would maximize consumer surplus or total welfare, its presence can nevertheless benefit consumers and improve welfare. However, the intermediary may reduce search efficiency when firms are differentiated only horizontally, when they sell experience or credence goods, or when the intermediary is biased (possibly due to vertical integration).
    Keywords: consumer search, intermediary, search engine, search platform, online marketplace, vertical differentiation
    JEL: D8 L1
    Date: 2016–12
  4. By: Melis, Giuseppe; Piga, Claudio A
    Abstract: Understanding how tourist firms set their online prices is important due to their growing reliance on Online Travel Agencies (OTA). Little is known, however, about whether differences exist in the online pricing approaches adopted by hotels using an OTA. The article tests, using a big data approach, whether the diffuse narrative of a pervasive presence of dynamic pricing provides a realistic description of hotels’ pricing behavior and thus challenges the view that dynamic pricing should be considered the prevailing norm for the industry. The evidence suggests a heterogenous attitude across hotels, with uniform pricing being more widespread in most hotels of our sample, namely, the 3-star or less, while dynamic pricing is more likely applied in higher quality hotels.
    Keywords: Revenue Management; Online travel agents; Heterogeneous strategic management behaviour; dynamic pricing
    JEL: L81 L83
    Date: 2016–12–01

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