nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒10‒29
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On the Dilution of Market Power By Kokovin, Sergey; Parenti, Mathieu; Thisse, Jacques-François; Ushchev, Philip
  2. Multiple-Quality Cournot Oligopoly and the Role of Market Size By Miao, Zhuang; Long, Ngo Van
  3. Advertising Spending and Media Bias: Evidence from News Coverage of Car Safety Recalls By Graham Beattie; Ruben Durante; Brian Knight; Ananya Sen
  4. Follow The Money: Piracy and Online Advertising By Batikas, Michail; Claussen, Jörg; Peukert, Christian
  5. OTT-Messaging and Mobile Telecommunication: A Joint Market? An Empirical Approach By Wellmann, Nicolas
  6. Supply and demand sides of mobile payment: A comparative analysis of successful mobile payment adoption in developed and developing countries By Kongaut, Chatchai; Lis, Piotr
  7. Impact of competition and regulation on prices of mobile services: Evidence from France By Grzybowski, Lukasz; Nicolle, Ambre; Zulehner, Christine
  8. Interconnection and Prioritization By Baake, Pio; Sudaric, Slobodan
  9. How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree By Martin Watzinger; Thomas A. Fackler; Markus Nagler; Monika Schnitzer
  10. Assessing the impact of mobile consolidation on innovation and quality: An evaluation of the Hutchison/Orange merger in Austria By Pedrós, Xavier; Bahia, Kalvin; Castells, Pau; Abate, Serafino

  1. By: Kokovin, Sergey; Parenti, Mathieu; Thisse, Jacques-François; Ushchev, Philip
    Abstract: We show that a market involving a handful of large-scale firms and a myriad of small-scale businesses may give rise to different types of market structure, ranging from monopoly or oligopoly to monopolistic competition through new types of market structure. In particular, we find conditions under which the free entry and exit of small firms incentivizes the big firms to sell their varieties at the monopolistically competitive prices, as if they were to behave like in monopolistic competition. We call this result dilution of market power. The structure of preferences is the main driver for a specific market structure to emerge as an equilibrium outcome.
    Keywords: Dominant firms; monopolistically competitive fringe; monopolistic competition; oligopoly; contestable markets
    JEL: D43 F12 L13
    Date: 2017–10
  2. By: Miao, Zhuang; Long, Ngo Van
    Abstract: We model an oligopoly where firms can choose the quality level of their products by incurring set-up costs that generally depend on quality level. If the set-up cost is independent of product quality, firms may choose to supply both types of quality.We focus on the long run equilibrium where free entry and exit ensure that the profit for each type of firm is zero. Using this framework, we study the implications of an increase in the market size. We show that for the existence of an equilibrium where some firms specialize in the low quality product it is necessary that the set-up cost for the lower quality product, adjusted for quality level, is lower than that for the higher quality product. In the case where the unit variable costs are zero, or they are proportional to quality level (so that unit variable costs, adjusted for quality, are the same), we show that an increase in the market size leads to (i) an increase in the fraction of firms that specialize in the high quality products, (ii) the market shares (both in value terms and in terms of volume of output) of high quality producers increases, and (iii) the prices of both types of product decrease. In the case where higher quality requires higher set-up cost (per unit of quality) but lower unit variable cost (per unit of quality), subject to certain bounds on the difference in unit variable costs, we obtain the result that an increase in the market size decreases the number of low quality firms, increases the number of high quality firms, and decreases the prices of both products. In the special case where the set up cost is independent of quality level, we find that all firms will produce both type of quality levels. In this case, an increase in the market size will reduce the value shares of low quality products, but will leave their volume share unchanged; and the market expansion induces a fall in the relative price of the low quality product, and in the prices of both products in terms of the numeraire good. We carry out an empirical test of a version of the model, where set-up costs now refer to set-up costs to establish an export market, and they vary according to the quality of product that the firm exports to that market. We show that the data supported the hypothesis that the average qualities of the product are higher for bigger export markets.
    Keywords: Multiproduct firms; Cournot competition; Vertical product differentiation; Cost structure; Market size.
    JEL: L10 L13 L19
    Date: 2017–07–01
  3. By: Graham Beattie; Ruben Durante; Brian Knight; Ananya Sen
    Abstract: Do news media bias content in favor of advertisers? We examine the relationship between advertising by auto manufacturers in U.S. newspapers and news coverage of car safety recalls. This context allows us to separate the influence of advertisers, who prefer less coverage, from that of readers, who demand more. Consistent with theoretical predictions, we find that newspapers provide less coverage of recalls by their advertisers, especially the more severe ones. Competition for readers from other newspapers mitigates bias, while competition for advertising by online platforms exacerbates it. Finally, we present suggestive evidence that lower coverage increases auto fatalities.
    JEL: L10 L82 M21 M37
    Date: 2017–10
  4. By: Batikas, Michail; Claussen, Jörg; Peukert, Christian
    Abstract: Online copyright enforcement, in the form of either direct action against the supply- side (via website shutdowns) or the demand-side (via individual lawsuits against users), has not been very effective in reducing piracy. Regulators have therefore put forward the so called “follow the money" approach. Because the main source of revenue for infringing websites often comes from online advertising, the idea is that cutting access to advertisers could lower the financial incentives for website owners. In this paper, we aim to provide systematic evidence on the effectiveness of such a policy. We collect data on the advertising services associated with a large number of piracy websites and corresponding set of legitimate \placebo" websites before and after the _rst steps of a self-regulatory effort in the European Union went in place. Preliminary results suggest that advertising services indeed reduce their activities on piracy websites, however only those that are most likely to be directly affected by the regulation. We further provide evidence that some advertising services that did not cater to the piracy market before, start to do so { perhaps as a strategic response.
    Keywords: Piracy,Copyright Enforcement,Online Advertising
    JEL: L82 M37 D83
    Date: 2017
  5. By: Wellmann, Nicolas
    Abstract: OTT-messenger such as facebook, WhatsApp have gained wide popularity among mobile users while traffic of text messaging has been in strong decline in several countries. This work is the first to provide an empirical analysis how consumption of OTT-messengers affects demand for text messaging and mobile telephony services. Our findings suggest that social and messaging apps may complement demand for text messaging and mobile voice services. More generally we identify the different nature of mobile telecommunication services as key element to explain why reductions of text messaging traffic have been so drastic in some countries and why an analogue development for mobile voice is rather unlikely.
    Keywords: OTT-messenger,mobile telecommunication,market definition,regulation,mature markets,communication behavior
    JEL: L96 L43 L51 C33 C36
    Date: 2017
  6. By: Kongaut, Chatchai; Lis, Piotr
    Abstract: Mobile payment services are experiencing the fastest growth compared to other payment methods, mainly due to the ever-increasing popularity of smartphones in recent years. Even though the technology has been available for more than a decade, mobile payment has been adopted into widespread usage only in some countries, including Japan, South Korea, Kenya and the Philippines. Nonetheless, other parts of the world appear to be catching up fast and it is important for both public and private sectors to understand the determinants of mobile payment adoption. This study investigates the drivers of mobile payment adoption in the past decade through comparative studies of both developed and developing countries. Conceptual frameworks, including the network effects and broadband ecosystem, are also applied to support the analysis offered in this paper. Moreover, this study explores the similarities and differences between the above mentioned countries and why they have been more successful in adopting the mobile payment technology compared to other states, such as the US and European countries. The key finding is that a successful and widespread adoption of mobile payment requires strongly growing demand and ready availability of infrastructure and technology on the supply side. The rapidly growing popularity of smartphones fueled the demand side by making the new payment technology reachable by large groups of consumers. Nevertheless, the use of mobile payment could not be significantly increased without an introduction of killer applications in each country or region. This is where the regulators in both financial and telecommunication sectors play a crucial role. A good combination of regulation and/or policy on the supply and demand sides is a way forward.
    Keywords: mobile payment,broadband ecosystem,adoption
    Date: 2017
  7. By: Grzybowski, Lukasz; Nicolle, Ambre; Zulehner, Christine
    Abstract: In this paper, we assess the impact of competition and regulation on prices of mobile services in France. We estimate hedonic price regressions using data on tariff plans offered by the main mobile telecommunications operator in France between May 2011 and December 2014. In this time period, the obtained quality-adjusted price index decreased by about 51% as compared to a decline in average prices without quality adjustment of 8.9%. In a second step, we relate the quality-adjusted prices to a set of competition and regulation variables and find that the launch of 4G networks by mobile operators was the main driver of price reductions for classic tariffs with commitment. Low cost tariffs without commitment which were introduced to pre-empt the entry of low cost competitor declined at the time of entry. Moreover, we find that regulation, which is approximated by the level of mobile termination charges and international roaming price caps for voice and data, has jointly a significant impact on quality-adjusted prices. In percentage terms, competition is responsible for about 68% of total price decline. We conclude that the reduction in quality-adjusted prices in the last years was largely caused by competition between established operators and by entry of fourth low cost operator.
    Keywords: Mobile telecommunications,hedonic price regression,regulation,entry
    JEL: L13 L50 L96
    Date: 2017
  8. By: Baake, Pio; Sudaric, Slobodan
    Abstract: We analyze pricing and competition under paid prioritization within a model of interconnected internet service providers (ISPs), heterogeneous content providers (CPs) and heterogeneous consumers. We show that prioritization is welfare superior to a regime without prioritization (network neutrality) but yields lower incentives for investment in network capacities. As ISPs price discriminate between on-net and off-net CPs, their bottleneck property is propagated and competition for consumers increases resulting in a potential prisoner's dilemma when deciding whether to offer prioritization. We show that peering for prioritized traffic emerges as a collusive outcome and present off-net prices as a further collusive instrument.
    Keywords: interconnection,investment,network neutrality,prioritization
    JEL: L13 L51 L96
    Date: 2017
  9. By: Martin Watzinger; Thomas A. Fackler; Markus Nagler; Monika Schnitzer
    Abstract: We study the 1956 consent decree against the Bell System to investigate whether patents held by a dominant firm are harmful for innovation and if so, whether compulsory licensing can provide an effective remedy. The consent decree settled an antitrust lawsuit that charged Bell with having foreclosed the market for telecommunications equipment. The decree forced Bell to license all its existing patents royalty-free. The compulsory licensing increased follow-on innovation building on Bell patents by 17%. This effect is driven mainly by young and small companies. Yet, innovation increased only outside the telecommunications equipment industry, suggesting that compulsory licensing without structural remedies is ineffective in ending market foreclosure.
    Keywords: innovation, antitrust, intellectual property, compulsory licensing
    JEL: O30 O33 O34 K21 L40
    Date: 2017
  10. By: Pedrós, Xavier; Bahia, Kalvin; Castells, Pau; Abate, Serafino
    Abstract: Assessing the impact of a merger – or predicting the impact of a merger – follows competition law and relies on economic practice. Competition authorities strive for consistency of approach, with assessments generally based on an analysis of the impact on prices, quality and innovation for consumers. Experience has shown, however, that the main measurement relied on by competition authorities is pricing; could the proposed merger increase prices in the short-term? How harmful would this be for the consumer? In the case of mergers in general, and mobile mergers in particular, we argue that whilst price is an important factor, there has been an over reliance on this single aspect of consumers outcomes and less consideration of quality and innovation.
    Date: 2017

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