nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒11‒05
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Strategic Corporate Social Responsibility By Lisa Planer-Friedrich; Marco Sahm
  2. On the Dilution of Market Power By Sergey Kokovin; Mathieu Parenti; Jacques-Francois Thisse; Philip Ushchev
  3. Competition and Product Misrepresentation By Daniel Goetz
  4. Equilibrium co-existence of public and private firms and the plausibility of price competition By Mitra, Manipushpak; Pal, Rupayan; Paul, Arindam; Sharada, P.M.
  5. Online Social Networks: Approval by Design By Matthew Ellman
  6. Centralized versus decentralized inventory control in supply chains and the bullwhip effect By Qu, Zhan; Raff, Horst

  1. By: Lisa Planer-Friedrich; Marco Sahm
    Abstract: We examine the strategic use of Corporate Social Responsibility (CSR) in imperfectly competitive markets. The level of CSR determines the weight a firm puts on consumer surplus in its objective function before it decides upon supply. First, we consider symmetric Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Third, we consider heterogeneous firms and show that asymmetric costs imply asymmetric CSR levels.
    Keywords: corporate social responsibility, market concentration, Cournot competition, entry deterrence, strategic delegation, evolutionary stability
    JEL: D42 D43 L12 L13 L21 L22
    Date: 2017
  2. By: Sergey Kokovin (National Research University Higher School of Economics); Mathieu Parenti (National Research University Higher School of Economics); Jacques-Francois Thisse (National Research University Higher School of Economics); Philip Ushchev (National Research University Higher School of Economics)
    Abstract: We show that a market involving a handful of large-scale firms and a myriad of small-scale firms 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 big firms to sell their varieties at the monopolistically competitive prices, behaving as if in monopolistic competition. We call this result the 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 rms, monopolistically competitive fringe, monopolistic competition, oligopoly, contestability.
    JEL: D43 F12 L13
    Date: 2017
  3. By: Daniel Goetz (Rotman School of Management, 105 St. George St., Toronto, ON, Canada M5S 3E6)
    Abstract: This paper examines the effect of competition on product quality when product quality is unobserved before purchase. Using a dataset that records the actual broadband internet speed consumers receive as well as the speed the provider claims is being delivered, I find that an additional broadband competitor raises the ratio of actual to claimed speeds for incumbents by between 23 and 32 percent within the first 6 months, but that this effect attenuates after 18 months. This increase is due to improvements in the actual speed, and not just reductions in the claimed speed. I recover the causal effect of competition on product misrepresentation by leveraging the launch of a broadband-capable satellite in mid-2012 and exploiting exogenous variation in the suitability for satellite internet across U.S. counties. I provide suggestive evidence that the reduction in firms’ strategic misrepresentation of their products led to reduced misallocation of consumers across internet plans.
    Keywords: broadband access; market structure; quality disclosure
    JEL: L96 L11 L15
    Date: 2017–09
  4. By: Mitra, Manipushpak; Pal, Rupayan; Paul, Arindam; Sharada, P.M.
    Abstract: We consider a differentiated product duopoly where a regulated firm competes with a private firm. The instrument of regulation is the level of privatization. First, the regulator determines the level of privatization to maximize social welfare. Then both firms endogenously choose the mode of competition (that is, whether to compete in price or quantity). Finally, the two firms compete in the market. Under a very general demand specification, we show that when the products are imperfect substitutes (complements), there is co-existence of private and public (strictly partially privatized) firms. Moreover, in the second stage, the firms compete in prices.
    Keywords: Partially private firm, price (Bertrand) competition, quantity (Cournot) competition
    JEL: D4 L1 L2
    Date: 2017–10–06
  5. By: Matthew Ellman (Institute of Economic Analysis, IAE-CSIC, and Barcelona GSE)
    Abstract: Online social networks (OSN) influence the transmission of information in society. This paper analyzes how a profit-motivated OSN designs the instant feedback options, such as “likes†or up-votes and down-votes or disapprovals, that it aggregates into user ratings, and how these design choices affect social and economic outcomes. The OSN seeks to maximize advertising revenues via maximal engagement. We compare OSN designs that allow users to only up-vote other users' content contributions or “posts†against OSN designs that allow both up and down votes. Users care about what others think of them. The feedback system mediates what users with imperfect private signals learn about each others' contributions and about each other. The OSN design affects both the expected social approval gains from engaging as a contributor and the value to users from engaging as viewers of others' content. Up and down votes improve viewers information but removing the down-vote option can raise user willingness to contribute content by reducing the threat of unambiguous disapproval. We investigate a full set of OSN designs in a range of social contexts.
    Keywords: Online social networks, feedback design, user-generated content, quality, rating systems, platform economics, media economics.
    JEL: L13 L82
    Date: 2017–10
  6. By: Qu, Zhan; Raff, Horst
    Abstract: This paper constructs a model of a supply chain to examine how demand volatility is passed upstream through the chain. In particular, we seek to determine how likely it is that the chain experiences a bullwhip effect, where the variance of the upstream firm's production exceeds the variance of the downstream firm's sales. We show that the bullwhip effect is more likely to occur and is greater in size in supply chains in which inventory control is centralized rather than decentralized, that is, exercised by the downstream firm.
    Keywords: bullwhip effect,production smoothing,inventory,supply chain,volatility,stockout avoidance
    JEL: L22 L14 D92 M11
    Date: 2017

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