nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒03‒05
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. What Drives Paid Search Success: A Systematic Literature Review By Darius Schlangenotto; Martin Poniatowski; Dennis Kundisch
  2. How Artificial Intelligence and Machine Learning Can Impact Market Design By Paul R. Milgrom; Steven Tadelis
  3. Consumer Resistance0F By Bertini, Marco; Buehler, Stefan; Halbheer, Daniel
  4. Threatening to Buy: Private Equity Buyouts and Antitrust Policy By Norbäck, Pehr-Johan; Persson, Lars; Tåg, Joacim
  5. Incentive regulation: Evidence from German electricity networks By Hellwig, Michael; Schober, Dominik; Cabral, Luís M. B.
  6. Competition Makes Inspectors More Lenient: Evidence from the Motor Vehicle Inspection Market By Habte, Osmis; Holm, Håkan J.
  7. Opening Hours Decision and Competition in the Motor Vehicle Inspection Market By Habte, Osmis

  1. By: Darius Schlangenotto (Paderborn University); Martin Poniatowski (Paderborn University); Dennis Kundisch (Paderborn University)
    Abstract: Whilst paid search has received much scholarly attention across various research fields, the findings have not yet been synthesized. As consumer behavior in paid search is influenced by such a wide range of factors, synthesizing the findings would, however, avoid ‘omitted variable biases’. In our systematic literature review we analyzed over 1,000 sources and identified 34 relevant research papers. These are organized around the three main decisions every advertiser faces when approaching paid search: which keywords to use, which ad positions to target, and how to craft ad copies. We then draw out empirical generalizations and outline a research agenda. In particular, we propose a research framework which researchers and practitioners alike can employ to avoid the risk of omitting variables when analyzing the success factors of paid search.
    Keywords: Paid search, search engine advertising, search engine marketing, systematic literature review
    JEL: M37 L81 L86
    Date: 2018–02
  2. By: Paul R. Milgrom; Steven Tadelis
    Abstract: In complex environments, it is challenging to learn enough about the underlying characteristics of transactions so as to design the best institutions to efficiently generate gains from trade. In recent years, Artificial Intelligence has emerged as an important tool that allows market designers to uncover important market fundamentals, and to better predict fluctuations that can cause friction in markets. This paper offers some recent examples of how Artificial Intelligence helps market designers improve the operations of markets, and outlines directions in which it will continue to shape and influence market design.
    JEL: D44 D82 L15
    Date: 2018–02
  3. By: Bertini, Marco; Buehler, Stefan; Halbheer, Daniel
    Abstract: This paper studies the impact of consumer resistance, which is triggered by deviations from a psychological reference point, on optimal pricing and cost communication. Assuming that consumers evaluate purchases not only in the material domain, we show that consumer resistance reduces the pricing power and profit. We also show that consumer resistance provides an incentive to engage in cost communication when consumers underestimate cost. While cheap communication does not affect behavior, persuasive communication may increase sales and profit. Finally, we show that a firm can benefit from engaging in operational transparency by revealing information about features of the production process.
    Keywords: Price Fairness, Cost Communication, Operational Transparency
    JEL: D9 L11 L21 M31
    Date: 2018–04
  4. By: Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)); Tåg, Joacim (Research Institute of Industrial Economics (IFN))
    Abstract: Private equity firms (PE firms) have become common owners of established firms in concentrated markets. We show that the threat of a PE acquisition can trigger incumbent mergers in an otherwise mergerstable industry. This can help antitrust authorities maximize consumer surplus because previously privately unprofitable – but consumer surplus-enhancing – mergers now take place. We thus predict that merger waves among incumbents should follow the development of a local PE industry.
    Keywords: Antitrust policy; Mergers and acquisitions; Private equity; Temporary ownership
    JEL: G32 G34 L13 L22 L40
    Date: 2018–02–06
  5. By: Hellwig, Michael; Schober, Dominik; Cabral, Luís M. B.
    Abstract: We propose a difference-in-differences (DiD) approach to estimate the impact of incentives on cost reduction. We show theoretically, and estimate empirically, that German electricity distribution system operators (DSOs) incur higher costs when subject to a lower-powered regulation mechanism. The difference is particularly significant (about 7%) for firms in the upper quartile of the efficiency distribution, a pattern which is consistent with the pooling of types under the threat of ratcheting.
    Keywords: regulation,ratchet effect,electricity utilities,difference-in-differences,efficiency analysis
    JEL: K23 L51 L94 L98 D24 D82
    Date: 2018
  6. By: Habte, Osmis (Department of Economics, Lund University); Holm, Håkan J. (Department of Economics, Lund University)
    Abstract: We examine the impact of competition on firms' leniency towards their customers in a heavily regulated market, which is consciously designed to mitigate incentives to deviate from the regulation. Using a panel data set representing 22.5 million periodic vehicle roadworthiness tests during the period 2010-2015, we show that inspection stations operating in more competitive markets are more lenient to their customers than stations operating in less competitive markets. We present both fixed effects and instrumental variable estimates of the effect of competition on firms' incentive to be lenient to their customers.
    Keywords: leniency; pass rate; inspection behavior; competition; deregulation; inspection market
    JEL: D22 L11 L84
    Date: 2017–12–22
  7. By: Habte, Osmis (Department of Economics, Lund University)
    Abstract: This paper examines the effect of competition on a firm's choice of opening hours in the motor vehicle inspection market. Competition affects the incentive inspection firms face when choosing opening hours, which influences the probability that consumers find service time that best matches their preferred time. We use 2SLS analyses to resolve the potential endogeneity of market entry decisions. Using a detailed monthly firm-level panel data for all inspection firms in Sweden, we find that increased competition, measured using both the number of firms in a geographic market and average distance to nearby competitors, leads to expanded opening hours. The probability that inspection firms offer services on weekends also increases with local competition.
    Keywords: opening hours; competition; non-price competition; entry; motor vehicle inspection market
    JEL: D22 L11 L84
    Date: 2017–12–22

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