nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒03‒26
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Market Definition of Platform Markets By Dewenter, Ralf; Heimeshoff, Ulrich; Löw, Franziska
  2. Bertrand Competition under Network Externalities By Masaki Aoyagi;
  3. Zone Pricing in Retail Oligopoly By Brian Adams; Kevin R. Williams
  4. Competitive foreclosure By Jozsef Sakovics; Roberto Burguet
  5. Solving a hold-up problem may harm all firms: downstream R&D and transport-price contracts By Kazuhiro Takauchi; Tomomichi Mizuno
  6. Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters By Christopher Hansman; Jonas Hjort; Gianmarco León; Matthieu Teachout
  7. Applying Competition Policy to Optimize International Trade Rules By Lee , Hyo-young
  8. E-Commerce in the lighting fixtures sector By Aurelio Volpe
  9. Multi-category competition and market power: a model of supermarket pricing By Øyvind Thomassen; Howard Smith; Stephan Seiler; Pasquale Schiraldi
  10. Strengthening the Management of Ubiquitous Internet by Refining ISO/IEC 27001 Implementation Using a Generic Responsibility Model By Feltus, Christophe; Khadraoui, Djamel

  1. By: Dewenter, Ralf (Helmut Schmidt University, Hamburg); Heimeshoff, Ulrich (Düsseldorf Institute for Competition Economics); Löw, Franziska (Helmut Schmidt University, Hamburg)
    Abstract: Platform markets are characterized by the existence of indirect network effects that connect two or more market sides through a platform that internalizes these feedback effects. Conventional instruments of market definitions which consider price levels cannot easily applied in case of two-sided platform competition, as price structure of those markets are non-neutral. Instead of using prices, we use time series of quantities and simple correlation analysis to evaluate the substitutional relationship within two-sided media markets. As a benchmark model, we simulate a Cournot duopoly on order to calculate correlation coefficients for varying degrees of product differentiation and indirect network effects.
    Keywords: two-sided markets; market definition; printed media; network effects
    JEL: D43 L40 L82
    Date: 2017–03–14
  2. By: Masaki Aoyagi;
    Abstract: Two firms engage in price competition to attract buyers located on a network. The value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good. When the size of externalities increases linearly with the number of adoptions, we identify the set of price strategies that are consistent with an equilibrium in which one of the firms monopolizes the market. The set includes marginal cost pricing as well as bipartition pricing, which offers discounts to some buyers and charges markups to others. We show that marginal cost pricing fails to be an equilibrium under non-linear externalities but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity. The idea of bipartition pricing is then applied to the analysis of platform competition in a two-sided market under local and approximately linear externalities.
    Date: 2017–03
  3. By: Brian Adams (Bureau of Labor Statistics); Kevin R. Williams (Cowles Foundation, Yale University)
    Abstract: We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. The use of zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in markets where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer pricing discrimination does.
    Keywords: Zone pricing, Market segmentation, Price discrimination in oligopoly, Micromarketing, Retailing
    JEL: C13 L61 L20 L67 L81
    Date: 2017–02
  4. By: Jozsef Sakovics; Roberto Burguet
    Abstract: We present a model where oligopolistic firms producing substitutes compete for inputs in a decentralized market. Input suppliers are capacity constrained (or produce under exclusivity). Compared to a price-taking input market, the incentive to foreclose downstream competitors not only leads to higher input prices, but it also results in a higher aggregate amount of input acquired. This novel feature mitigates the output reducing effect of downstream market power and may even restore e¢ ciency in the unique (input) market clearing equilibrium. Other equilibria where Örms endogenously coordinate on which suppliers to target result in excess input supply (involuntary unemployment, if input is labor) and even higher input prices. Our insights generalize to alternative vertical structures.
    Keywords: simultaneous auctions, targeted offers, vertical linkages, involuntary unemployment
    JEL: D43 L11 L13
    Date: 2017–02–15
  5. By: Kazuhiro Takauchi (Faculty of Business and Commerce, Kansai University); Tomomichi Mizuno (Graduate School of Economics, Kobe University)
    Abstract: In vertical relations, by raising input price after downstream research and development (R&D) investment, upstream rms can extract the R&D bene t and have an incentive to set higher input price. As downstream rms underinvest for fear of this hold-up by upstream rms, outputs and input-demand shrink, and all rms become worse off. Previous literature emphasizes that a xed-price contract in which upstream rms rst commit themselves to input prices and downstream rms subsequently invest can resolve the hold-up problem and make all rms better off. By contrast, we show that in a vertical relation between rm-speci c carriers and exporters, the xed-price contract of transport price can make all rms worse off because an efficiency improvement in exporters intensi es inter-regional competition. We also discuss the robustness of the result.
    Keywords: Transport-price contracts; Downstream R&D; Firm-specific carrier; Hold-up problem
    JEL: L13 F12 O31 R40
    Date: 2017–03
  6. By: Christopher Hansman; Jonas Hjort; Gianmarco León; Matthieu Teachout
    Abstract: This paper studies the relationship between a firm’s organizational structure and output quality. The setting is a large manufacturing sector in Peru where plants produce a vertically differentiated but otherwise homogeneous product for export: fishmeal. We link customs data to plant level data on each shipment’s quality grade, transaction level data on supplies, and GPS measures of supplier (fishing boat) be- havior. We start by documenting a robust association between the quality grade of a firm’s exports and the share of its inputs that comes from vertically integrated suppliers at the time of production. To understand the source of this relationship, we first show that classical theories of the firm predict that, in incomplete contracts settings, owning productive assets upstream may help a subset of downstream manufacturers attempting to produce high quality output to incentivize quality-effort from the assets’ operators. This explanation finds empirical support: in a given supplier-plant pair, the supplier delivers higher quality inputs (fresher fish) when integrated, and does so comparatively more during periods when (i) the plant aims to produce high quality output, and/or (ii) exogenous variation in upstream production (plankton) conditions makes quality-effort more costly. Finally, we show that firms source more of their inputs from integrated suppliers when faced with firm-specific shocks to demand for high quality exports. These results document an overlooked motivation for vertical integration and that strategic changes in organizational structure help manufacturers in developing countries achieve export success.
    Keywords: vertical integration, quality upgrading, trade, Peru
    JEL: D2 O1
    Date: 2017–03
  7. By: Lee , Hyo-young (Center for International Commerce and Finance, Seoul National University)
    Abstract: This paper delves into the relationship between trade and competition, which has long been a subject largely untouched since the issue had been dropped from the multilateral trade agenda in 2003. The need to incorporate elements of competition policy into international trade rules has long been discussed in the context of making the international trade regime more effective. The issue has gained more attention as state-owned enterprises (SOEs) began to emerge as new influential players in the international market, competing with private enterprises on an unequal footing. A growing number of bilateral trade agreements have included chapters on competition policy, albeit with rules that do not have sufficient binding force for disciplining the business practices of state-owned enterprises. The recently concluded Trans-Pacific Partnership (TPP), however, has introduced innovative rules for disciplining the competitive practices of SOEs by integrating the existing WTO disciplines on subsidies with competition rules. In this article, "competitive neutrality", the fundamental principle underlying the SOE disciplines, is used as a framework of analysis for understanding the new disciplines and obligations in the SOE rules. Several legal issues and challenges are identified that are relevant for applying the new rules in the real world, and implications are derived for future rule-making involving other new trade issues.
    Keywords: Competition Policy; State-owned Enterprises; Subsidies; WTO; TPP
    JEL: K33 L32 L41
    Date: 2017–02–27
  8. By: Aurelio Volpe (CSIL Centre for Industrial Studies; CSIL Centre for Industrial Studies)
    Abstract: The report analyses the development of E-commerce sales in the lighting fixtures industry to nowadays and future prospects providing market size of lighting fixtures industry and E-commerce sales, by country/area (Europe, America, Asia) and by segment (Residential, Commercial, Industrial and Outdoor lighting). The Report highlights also a strategy for the E-commerce of lighting fixtures for the middle run, focusing on logistic platforms, price promise, investments from incubators, increasing use of smartphones, lack of infrastructure. E-commerce players. Short profiles of leading E-commerce players, sales data and market shares are included. Successful and unsuccessful stories. Around 200 useful contacts. Countries and geographical area considered: Europe (mainly Western Europe), America (mainly the United States), Asia (mainly China, India and Japan). The Report “E-commerce for the lighting fixtures industry†has been carried out using the following tools: field research including direct interviews with important manufacturers and distributors operating in the E-commerce business; desk analysis and comparison for a sample of over 200 companies using E-commerce (mainly US, Europe and China based); analysis of CSIL databases concerning lighting fixtures sector worldwide; processing of official statistics and various E-commerce related sources worldwide.
    JEL: L68 L81
    Date: 2017–03
  9. By: Øyvind Thomassen; Howard Smith; Stephan Seiler; Pasquale Schiraldi
    Abstract: In many competitive settings consumers buy multiple product categories, and some prefer to use a single firm, generating complementary cross-category price effects. To study pricing in supermarkets, an organizational form where these effects are internalized, we develop a multi-category multi-seller demand model and estimate it using UK consumer data. This class of model is used widely in theoretical analysis of retail pricing. We quantify crosscategory pricing effects and find that internalizing them substantially reduces market power. We find that consumers inclined to one-stop (rather than multi-stop) shopping have a greater pro-competitive impact because they generate relatively large cross-category effects
    JEL: L11 L13 L81
    Date: 2017
  10. By: Feltus, Christophe; Khadraoui, Djamel
    Abstract: The recent emergence of decentralized networks and ubiquitous Internet has highlighted the need for a better management of the companies’ IT architecture and for an improvement of the users of the network’s responsibility. Many standards have recently emerged to face these requirements. By analyzing them, we observe that they all include reference to the user responsibility but also that no common understanding of it exists. These statements have oriented our research toward the elaboration of an innovative, simple and pragmatic responsibility model that includes a user commitment dimension. ISO/IEC 27001:2005 is one of that new standard that aims at providing a framework for improving the information system management and the security of IT architecture. Although this standard is recognized over the globe, many surveys and cases studies provide interesting feedback about its implementation problems. In this paper, we introduce our responsibility model, we depict the responsibility aspects encompassed in ISO 27001 and we propose some improvement perspectives to face these problems and strengthen its implementation.
    Keywords: Responsibility, Capability, Accountability, Commitment, ISO 27001, Access rights.
    JEL: L2 L21 L29 L6 Y20 Y9 Z00
    Date: 2017

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