nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒05‒28
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How Hard Is It to Maximise Profit? Evidence from a 19-th Century Italian State Monopoly By Ciccarelli, Carlo; De Fraja, Gianni; Tiezzi, Silvia
  2. Price regulations and price adjustment dynamics: Evidence from the Austrian retail fuel market By Fasoula, Evanthia; Schweikert, Karsten
  3. The impact of market deregulation on milk price: A dynamic panel data approach By Fotis, Panagiotis; Polemis, Michael

  1. By: Ciccarelli, Carlo; De Fraja, Gianni; Tiezzi, Silvia
    Abstract: In this paper we study the ability of the 19-th century Italian government to choose profit maximising prices for a multiproduct monopolist. We use very detailed historical data on the tobacco consumption in 62 Italian provinces from 1871 to 1888 to estimate a differentiated product demand system. The demand conditions and the legal environment of the period made this market as close to a textbook monopoly as is practically possible. The government's stated aim for this industry was profit maximisation: since at the time tobacco revenues constituted between 10 and 15 percent of the revenues for the cash-strapped government, the stated aim was very likely the true one. Cost data for the nine products suggest that the government was not wide off the mark: the tobacco prices were ``not far'' from those dictated by the standard monopoly formulae for profit maximisation with interdependent demand functions.
    Keywords: 19-th century Italy; Demand for Tobacco; Habit formation.; Multiproduct monopoly profit maximisation; QAI demand system
    JEL: I18 L12 L66 N33
    Date: 2018–05
  2. By: Fasoula, Evanthia; Schweikert, Karsten
    Abstract: After controversial public debates, fuel price regulations were implemented in Austria prohibiting fuel retailers from raising their prices more than once per day. This paper investigates whether these policy measures affected the price transmission dynamics from crude oil prices to retail fuel prices. We estimate different specifications of nonlinear error correction models to quantify a potentially asymmetric adjustment behaviour and compare the results over three subsamples. Particularly, we estimate our models for a pre-regulation period, a between-regulations and a post-regulation period. At first glance, we obtain conflicting results on the efficacy of this policy measure. While the adjustment to the long-run equilibrium seems to be faster if crude oil prices are relatively low, transitory crude oil price decreases are passed through faster than price increases. Only if we consider the combined effect of a crude oil price shock, we can reveal that crude oil price changes are generally passed through faster in the postregulation period. Further, we find that crude oil price decreases are now passed through slightly faster than crude oil price increases. Hence, we conclude that the Austrian fuel price regulation seems to have fostered competition between fuel retailers.
    Keywords: asymmetric price transmission,price regulation,nonlinear error correction model,retail fuel prices,crude oil prices
    JEL: C22 D40 Q41
    Date: 2018
  3. By: Fotis, Panagiotis; Polemis, Michael
    Abstract: The scope of this paper is to investigate the impact of market deregulation on the competitiveness of raw milk producers in Greece along the suggested lines of OECD (OECD, 2014). The study uses a dynamic panel data approach, to assess changes in the relative competitiveness of milk producers as a result of certain deregulation policies imposed by the Greek government in two phases (May 2014 and September 2015). In order to account for the presence of cross-sectional dependence and non-stationarity, the empirical analysis implements novel panel econometric methodology namely Common Correlated Effects (CCE) and Augmented Mean Group estimators (AMG). Our sample uses micro level data drawn from the 45 Greek regions spanning the period from January 2010 to October 2017. By comparing the wholesale prices of milk affected by regulation before and after the policy changes, we infer that abolishing regulation led to an increase in the prices of the wholesalers and thus in their profitability levels. Moreover, we argue that the openness of the relevant milk market segment had significant implications to the level of competition in the sector. Lastly, our empirical findings which confirm the OECD competition guidelines in the milk sector remain rather robust under different empirical methodologies and sample splitting, providing a focal point to policy makers and government officials for the ex-post evaluation of the deregulation strategies.
    Keywords: Deregulation, Competition; Milk price, Dynamic panel models, OECD
    JEL: C23 L1 L51 L52
    Date: 2018–05–06

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