nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒10‒22
five papers chosen by

  1. Collusion in Two-Sided Markets By Yassine Lefouili; Joana Pinho
  2. Heterogeneous Merger Impacts on Competitive Outcomes By Ralph Siebert
  3. Competitive Pressure from Neighboring Markets and Optimal Privatization Policy By Haraguchi, Junichi; Matsumura, Toshihiro; Yoshida, Shohei
  4. Salience in Retailing: Vertical Restraints on Internet Sales By Magdalena Helfrich; Fabian Herweg
  5. Advertising Competition in the Free-to-Air TV Broadcasting Industry By Marc Ivaldi; Jiekai Zhang

  1. By: Yassine Lefouili (Toulouse School of Economics, university of Toulouse Capitole, Toulouse, France.); Joana Pinho (Catolica Porto Business School and CEF.UP, Universidade do Porto, Porto, Portugal.)
    Abstract: This paper explores the incentives for, and the effects of, collusion in prices between two-sided platforms. We characterize the most profitable sustainable agreement when platforms collude on both sides of the market and when they collude on a single side of the market. Under two-sided collusion, prices on both sides are higher than competitive prices, implying that agents on both sides become worse off as compared to the competitive outcome. An increase in cross-group externalities makes two-sided collusion at a given profit level harder to sustain, and reduces the harm from collusion suffered by the agents on a given side as long as the collusive price on that side is lower than the monopoly price. When platforms collude on a single side of the market, the price on the collusive side is lower (higher) than the competitive price if the magnitude of the cross-group externalities exerted on that side is sufficiently large (small). As a result, one-sided collusion may benefit the agents on the collusive side and harm the agents on the competitive side.
    Keywords: collusion; two-sided markets; cross-group externalities.
    JEL: L41 D43
    Date: 2017–09
  2. By: Ralph Siebert
    Abstract: Mergers realize heterogeneous competitive effects on profits, production, and prices. To date, it is unclear whether differential merger outcomes are caused mostly by firms’ technology or product market attributes. Furthermore, empirical merger studies conventionally assume that, conditional on regressors, the impact of mergers on outcomes is the same for every firm. We allow the merger responses to vary across firms, even after controlling for regressors, and apply a random-coefficient or heterogeneous treatment effect model (in the context of Angrist and Krueger (1999), Heckman, Urzua, and Vytlacil (2006), and Cerulli (2012)). Based on a comprehensive dataset on the static random access memory industry, we find that firms’ postmerger output further increases (and postmerger price further declines) if merging firms are more efficient, operate in more elastic product markets, are more innovative, and acquire knowledge in technological areas that are relatively unexplored to themselves. A further interesting insight is that product market characteristics cause stronger postmerger outcome heterogeneities than do technology market characteristics. We also find that the postmerger effects accounting for heterogeneities differ greatly from those that consider homogeneous postmerger outcome effects. Our estimation results provide evidence that ignoring heterogeneous outcome effects can result in heterogeneity bias, just as ignoring premerger heterogeneities can lead to selectivity bias.
    Keywords: heterogeneous treatment effects, horizontal mergers, market power effects, merger evaluation, premerger heterogeneity, postmerger heterogeneity
    JEL: L11 L13 L52 O31 O32 O38
    Date: 2017
  3. By: Haraguchi, Junichi; Matsumura, Toshihiro; Yoshida, Shohei
    Abstract: We formulate a mixed oligopoly model in which one state-owned public enterprise competes with n private firms in the same market and m private firms in the neighboring market. We investigate how n and m affect the optimal degree of privatization. We find a nonmonotone (monotone) relationship between the optimal degree of privatization and the number of private competitors in the neighboring (same) market. The optimal degree of privatization is increasing in the number of private firms in the same market, and the relationship between the optimal degree of privatization and the number of private competitors in the neighboring market is an inverted U-shape. An increase in m more likely increases the optimal degree of privatization when the degree of product differentiation is low. Our results suggest that more competitive pressure from competitors supplying differentiated products can reduce the optimal degree of privatization.
    Keywords: market competitiveness, partial privatization, number of private firms
    JEL: H44 L33 L44
    Date: 2017–10–16
  4. By: Magdalena Helfrich; Fabian Herweg
    Abstract: We provide an explanation for a frequently observed vertical restraint in ecommerce, namely that brand manufacturers partially or completely prohibit that retailers distribute their high-quality products over the internet. Our analysis is based on the assumption that a consumer’s purchasing decision is distorted by salient thinking, i.e. by the fact that he overvalues a product attribute - quality or price - that stands out in a particular choice situation. In a highly competitive low-price environment like on an online platform, consumers focus more on price rather than quality. Especially if the market power of local (physical) retailers is low, price tends to be salient also in the local store, which is unfavorable for the high-quality product and limits the wholesale price a brand manufacturer can charge. If, however, the branded product is not available online, a retailer can charge a significant markup on the high-quality good. As the markup is higher if quality rather than price is salient in the store, this aligns the retailer’s incentives with the brand manufacturer’s interest to make quality the salient attribute and allows the manufacturer to charge a higher wholesale price. We also show that, the weaker are consumers’ preferences for purchasing in the physical store and the stronger their salience bias, the more likely it is that a brand manufacturer wants to restrict online sales. Moreover, we find that a ban on distribution systems that prohibit internet sales increases consumer welfare and total welfare, because it leads to lower prices for final consumers and prevents inefficient online sales.
    Keywords: internet competition, relative thinking, retailing, salience, selective distribution
    JEL: D43 K21 L42
    Date: 2017
  5. By: Marc Ivaldi; Jiekai Zhang
    Abstract: This paper empirically investigates the advertising competition in the French broadcast television industry within a two-sided market framework. We use a unique dataset on the French broadcast television market including audience, prices, and quantities of advertising of twenty-one TV channels from March 2008 to December 2013. We specify a structural model of oligopoly competition and identify the shape and magnitude of the feedback loop between TV viewers and advertisers. We also implement a simple procedure to identify the conduct of firms on the market. We find that the nature of competition in the French TV advertising market is of the Cournot type. Further, we provide empirical evidence that the price-cost margin is not a good indicator of the market power of firms operating on two-sided markets. Finally, we provide a competition analysis. The counterfactual simulation suggests that the merger of advertising sales houses would not have significantly affected the equilibrium outcomes in this industry because of the strong network externalities between TV viewers and advertisers. These results provide a critical evaluation of the 2010 decision of the French competition authority to authorize the acquisition of two broadcast TV channels by a large media group under behavioral remedies.
    Keywords: advertising, competition, media, TV, two-sided market, market conduct
    JEL: D22 K21 L13 L22 L41 M37
    Date: 2017

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