nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒08‒27
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Oligopoly in International Trade: Rise, Fall and Resurgence By Keith Head; Barbara J. Spencer
  2. Measuring Market Power in Professional Baseball, Basketball, Football and Hockey By Healy, Gerald T., III; Tan, Jing Ru; Orazem, Peter
  3. Local Protectionism, Market Structure, and Social Welfare: China's Automobile Market By Panle Jia Barwick; Shengmao Cao; Shanjun Li
  4. Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain By Macchiavello, Rocco; Miquel-Florensa, Josepa

  1. By: Keith Head; Barbara J. Spencer
    Abstract: Large firms played a central role in the “new trade” models that became a major focus of trade economists in the early 1980s. Subsequent literature for the most part kept imperfect competition but jettisoned oligopoly. Instead, as the heterogeneous firms literature burgeoned in the 2000s, monopolistic competition quickly became established as the workhorse model. The use of oligopoly in trade models has been criticized for reasons that we argue are unpersuasive. Renewed incorporation of oligopolistic firms in international trade is warranted. Quantitative investigations of welfare effects of trade policy should again address the impact of such policies on the allocation of profits across countries.
    JEL: F12 F13 F14 L13
    Date: 2017–08
  2. By: Healy, Gerald T., III; Tan, Jing Ru; Orazem, Peter
    Abstract: Forbes Magazine estimates of annual revenues, costs and team values for professional sports teams are used to derive market power measures for teams in four major professional sports leagues: the MLB, NBA, NHL, and the NFL. Two variants of the Lerner Index, one that reflects short-term operations for the past year and another reflecting the long-run net present value of the franchise are derived over the 2006-2016 period. Only the long-run measure provides estimates that are always consistent with theoretical requirements. Analysis of variance of long-run market power shows that local market factors and past team performance have less impact on market power than common league-wide effects. Team market power depends least on local team effects in leagues that have stronger revenue sharing policies. Price-cost margins are higher for professional teams in North American than for the most valuable European soccer teams, consistent with the stronger exemption from anti-trust law in the U.S.
    Date: 2017–08–10
  3. By: Panle Jia Barwick; Shengmao Cao; Shanjun Li
    Abstract: While China has made great strides in transforming its centrally-planned economy to a market-oriented economy, there still exist widespread interregional trade barriers, such as policies and practices that protect local firms against competition from non-local firms. This study documents the presence of local protectionism and quantifies its impacts on market competition and social welfare in the context of China’s automobile market. This market exhibits a salient feature that vehicle models by joint ventures (JVs) and especially state-owned enterprises (SOEs) command much higher market shares in their headquarter province than at the national level. Through spatial discontinuity analysis at provincial borders, falsification tests, and consumer surveys, we first confirm protective policies such as subsidies to local brands as the primary contributing factor. We then set up and estimate a market equilibrium model to quantify the impact of local protection, controlling for other demand and supply factors. Counterfactual simulations show that local protection leads to significant choice distortions, resulting in 18.7 billion yuan of consumer welfare loss, amounting to 40% of total subsidy. Provincial governments face a prisoner’s dilemma: according to our estimates, local protection reduces aggregate social welfare, but the provincial governments have no incentive to unilaterally remove local protection.
    JEL: D04 D6 F15 H2 L1 L5 L62
    Date: 2017–08
  4. By: Macchiavello, Rocco (London School of Economics); Miquel-Florensa, Josepa (Toulouse School of Economics)
    Abstract: This paper compares integrated firms, long-term relationships and markets, and how they adapt to shocks in the Costa Rican coffee chain. The industry is characterised by significant uncertainty. Supply failures responses to unanticipated increases in reference prices reveal that integration and relationships reduce opportunism. Trade volumes responses to weather-induced increases in supply reveal that relationships provide demand assurance, although less than integration does. This benefit of integration is offset by costs when trading outside of the integrated chain. The evidence supports models in which firms boundaries alter temptations to renege on relational contracts and, consequently, the allocation of resources.
    Keywords: Vertical Integration, Relational Contracts, Adaptation, Demand Uncertainty, Supply Chain. JEL Classification: D23, L14, L22, O12, Q13
    Date: 2017

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