nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒12‒03
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Buyer Power and Non-Binding Retail Price Recommendations By In Kyung Kim; Vladyslav Nora
  2. Uniform Pricing in US Retail Chains By Stefano DellaVigna; Matthew Gentzkow
  3. Product Diversification in Indian Manufacturing By Johannes Boehm; Swati Dhingra; John Morrow

  1. By: In Kyung Kim (Nazarbayev University); Vladyslav Nora (Nazarbayev University)
    Abstract: We study how the use of non-binding retail price recommendations (RPRs) is affected by buyer power in grocery retail market. Adopting the idea that RPRs serve as information sharing device between manufacturers and retailers, we show that increasing buyer power discourages the use of RPRs. Using the hand collected data set on the presence of RPRs for grocery products in Korea, we find that the more the sales of a product rely on powerful retailers, the less likely the manufacturer is to recommend a price, and hence share the information.
    Keywords: buyer power, manufacturer suggested retail prices, and grocery retailing
    JEL: L11 L13 L81
    Date: 2017–07
  2. By: Stefano DellaVigna; Matthew Gentzkow
    Abstract: We show that most US food, drugstore, and mass merchandise chains charge nearly-uniform prices across stores, despite wide variation in consumer demographics and the level of competition. Estimating a model of consumer demand reveals substantial within-chain variation in price elasticities and suggests that the average chain sacrifices seven percent of profits relative to a benchmark of flexible prices. In contrast, differences in average prices between chains broadly conform to the predictions of the model. As possible explanations for nearly-uniform pricing, we discuss advertising, tacit collusion, fairness concerns, and managerial fixed costs, and find the most support for the last explanation. We show that the uniform pricing we document significantly increases the prices paid by poorer households relative to the rich, likely dampens the overall response of prices to local economic shocks, and may also shift the incidence of intra-national trade costs.
    JEL: D9 L1 L2 M31
    Date: 2017–11
  3. By: Johannes Boehm; Swati Dhingra; John Morrow
    Abstract: The presence of global value chains challenges the neoclassical idea of the firm since it implies firms are not monolithic but are rather interdependent on the larger economic environment. Examining establishments, the smallest units of production within firms, sheds light on the microeconomic incentives determining the location of production and whether a firm produces a good or sources it. Most work on multiproduct firms looks at developed countries, but constraints on firm growth are greater in developing economies. We examine multiproduct establishments in India during a high growth period. Multiproduct establishments made up the bulk of manufacturing production, and their product turnover contributed 28 per cent to net sales growth. Unlike the nineties which witnessed drastic liberalization, establishments in the two-thousands dropped products at rates similar to those for the US. Sales dispersion across products also predicts product addition.
    Keywords: multiproduct firms, product adoption, product diversity
    JEL: L1 L2 M2 O3
    Date: 2017–11

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