nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒04‒16
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price-Quality Competition in a Mixed Duopoly By Klumpp, Tilman; Su, Xuejuan
  2. Input price discrimination with differentiated final products By Jong-Hee Hahn; Chan KIm
  3. Mergers and Demand-Enhancing Innovation By Bourreau, Marc; Jullien, Bruno; Lefouili, Yassine
  4. Optimal Law Enforcement with Ordered Leniency By Landeo, Claudia; Spier, Kathryn
  5. The Differentiated Effect of Advertising on Readership: Evidence from a Two-Sided Market Approach By Ivaldi, Marc; Muller-Vibes, Catherine
  6. The Effects of Mandatory Disclosure of Supermarket Prices By Itai Ater; Oren Rigbi
  7. Competition For Versus In the Market of Long-Distance Passenger Rail Services By Cherbonnier, Frédéric; Ivaldi, Marc; Muller-Vibes, Catherine; Van Der Straeten, Karine

  1. By: Klumpp, Tilman (University of Alberta, Department of Economics); Su, Xuejuan (University of Alberta, Department of Economics)
    Abstract: We examine competition between a private and a public provider in markets for "merit goods" such as education, healthcare, housing, recreation, or culture. The private firm provides a high-price/high-quality variety of the good and serves richer individuals, while the public firm provides a low-price/low-quality variety and serves poorer individuals. We first characterize the private competitor's best response to changes in the public firm's price and quality. This enables us to examine the distributional effects of government policies aimed at enhancing access to publicly provided goods, and of changes to the government's budget constraint that make publicly provided goods more expensive or decrease their quality. We then derive the government's optimal provision policy, taking the private response into consideration. Our results have implications for the financing of publicly provided goods, and for whether additional resources, if available, should be spent on reducing the price or enhancing the quality of these goods.
    Keywords: Mixed duopoly; quality differentiation; public provision of private goods; crowding-out/in; funding of public services; distribution
    JEL: D21 D43 H11 H42 H44 I00 L38
    Date: 2018–04–03
  2. By: Jong-Hee Hahn (School of Economics, Yonsei University); Chan KIm (School of Economics, Yonsei University)
    Abstract: This paper examines the welfare effects of third-degree price discrimination by an input monopolist when downstream producers compete with differentiated goods and consumers have heterogeneous preferences for the products. The input monopolist's optimal pricing follows the standard inverse-elasticity rule, but its implication for welfare differs from the traditional analysis with homogeneous goods. Price discrimination can improve welfare even without an increase in total output or opening of new market. Also, the effect of price discrimination on consumer surplus differs from the one obtained for the case of price discrimination in final-goods markets. Our results shed new light on public policy regarding input price discrimination. We can no longer claim that price discrimination is harmful to society because it does not increase or reduces total output. Moreover, different policy responses are required depending on welfare standard. Simple policy guidelines are proposed that can be used in actual antitrust cases.
    Keywords: third-degree price discrimination, intermediate goods market, product differentiation, competition policy, antitrust JEL Classification: L11
    Date: 2018–04
  3. By: Bourreau, Marc; Jullien, Bruno; Lefouili, Yassine
    Abstract: This paper investigates the impact of horizontal mergers on firms' incentives to invest in demand-enhancing innovation. In our baseline model, we identify three key effects of a merger on the merging firms' incentives to innovate: the margin expansion effect, the demand expansion effect, and the innovation diversion effect. The first effect is negative, while the second is positive and the third can be either positive or negative depending on the nature of the innovation. We show that the overall impact of a merger on innovation can be either positive or negative and provide sufficient conditions and specific models under which each of these two scenarios arises. Finally, we extend our model to incorporate spillovers and synergies in R&D.
    Keywords: Horizontal Mergers; Innovation; Competition
    JEL: D43 L13 L40
    Date: 2018–03
  4. By: Landeo, Claudia (University of Alberta, Department of Economics); Spier, Kathryn (Harvard Law School)
    Abstract: This paper studies the design of enforcement policies to detect and deter harmful short-term activities committed by groups of injurers. With an ordered-leniency policy, the degree of leniency granted to an injurer who self reports depends on his or her position in the self-reporting queue. By creating a "race to the courthouse," ordered-leniency policies lead to faster detection and stronger deterrence of illegal activities. The socially optimal level of deterrence can be obtained at zero cost when the externalities associated with the harmful activities are not too high. Without leniency for self reporting, the enforcement cost is strictly positive and there is underdeterrence of harmful activities relative to the first-best level. Hence, ordered-leniency policies are welfare improving. Our findings for environments with groups of injurers complement Kaplow and Shavell's (1994) results for single-injurer environments. Experimental evidence provides support for our theory.
    Keywords: Law Enforcement; Leniency; Self-Reporting; Ordered Leniency; Harmful Externalities; White-Collar Crime; Securities Fraud; Insider Trading; Market Manipulation; Whistle-blowers; Non-Cooperative Games; Prisoners Dilemma; Coordination Games; Risk Dominance; Pareto Dominance; Experiments
    JEL: C72 C90 D86 K10 L23
    Date: 2018–04–11
  5. By: Ivaldi, Marc; Muller-Vibes, Catherine
    Abstract: In this paper, we empirically analyze the French print media market by modeling the existence of a reciprocal effect between the size of the readership and the amount of advertising. For this two-sided platform, we measure the cross-effects of advertising on the readership and periodical popularity on advertising. By estimating a structural model of simultaneous demand equations, we quantify some crucial elements in designing pricing and product-differentiating strategies. We measure the impact of advertising on reader demand and find in the data that it has opposite effects depending on whether the publication presents informational or entertaining content. By taking into account the market interactions, we compute price and advertising elasticities. Our results show that advertisers targeting a specific category of the audience would choose its corresponding periodicals and would trade off the size of the readership for these periodicals and the advertising insert price changes. Also, advertising campaigns aimed at reaching a broader spectrum of the population should focus on popular titles and on titles for which demand is inelastic to ensure a more consistent impact of the campaign. Finally, for magazines with low price demand elasticity on the readers’ side, editors’ revenues could be improved by increasing prices. These combined effects should allow a publisher to generate positive margins from both sides of the market, for certain content categories.
    Keywords: Media; Advertising; Discrete Choice Model; Two-Sided Markets
    JEL: C33 L11 L52 L82
    Date: 2018–03
  6. By: Itai Ater; Oren Rigbi
    Abstract: We study how mandatory online disclosure of supermarket prices affects prices and price dispersion in brick-and-mortar stores. Using data collected before and after a transparency regulation went into effect in the Israeli food retail market, multiple complementary control groups and relying on a differences-in-differences research design, we document a sharp decline in price dispersion and a 4% to 5% drop in prices following the transparency regulation. The price drop varied across stores and products; it was smaller among private-label products than among branded products, and it was smaller among stores and products that were likely to have been associated with more intense search patterns even before prices became transparent (e.g., products in heavy-discount chains; popular products; products that meet stringent kosher requirements). Finally, we show that prices declined as more consumers used price-comparison websites, and we highlight the role of media coverage in encouraging retailers to set lower prices.
    Keywords: price transparency, information, mandatory disclosure, retail food, supermarkets
    JEL: D83 L81 L66
    Date: 2018
  7. By: Cherbonnier, Frédéric; Ivaldi, Marc; Muller-Vibes, Catherine; Van Der Straeten, Karine
    Abstract: This paper is aimed at evaluating the net gains and trade-offs at stake in implementing the competition of the rail mode in the long distance passenger market either by means of franchise or by an open access mechanism. We simulate the outcomes of competition in and for the market using a differentiated-products oligopoly model allowing for inter- and intra-modal competition in a long distance passenger market. Specifically we first calibrate the model using data describing high speed lines in France and show that the incumbent railway operator’s strategy does not simply boil down to a short-term profit maximization (e.g., because of existing regulation or limit-pricing strategy). This yields two important results when simulating competition. First, whether it is for or in the market, the opening to competition does not guarantee a decrease in prices in favor of passengers. Second, the effects of opening up to competition for the market are relatively predictable and potentially positive, while those of opening up to competition in the market remain very uncertain.
    Keywords: Intermodal competition; Oligopoly model; Open access
    JEL: L13 L90 R40
    Date: 2018–03–19

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