nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒07‒09
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A New model of mergers and innovation By Piuli Roy Chowdhury
  2. International Trade and Retail Market Performance and Structure: Theory and Empirical Evidence By Philipp Meinen; Horst Raff
  3. The Dynamic Provision of Product Diversity: under Duopoly By Ramon Caminal
  4. Reclassification Risk in the Small Group Health Insurance Market By Sebastián Fleitas; Gautam Gowrisankaran; Anthony Lo Sasso

  1. By: Piuli Roy Chowdhury (Indira Gandhi Institute of Development Research; Institute of Economic Growth)
    Abstract: This paper reexamines the impact of merger on innovation. Unlike as in Federico et al (2017), it considers the scenario where merged firms combine their research labs. It shows that, in equilibrium, each firm chooses a higher R&D effort after the merger, while industry effort may rise or fall due to the merger. Furthermore, it shows that given a sufficient condition, profits of the merged firm falls and consumer surplus rises in the post merger scenario. These results are in sharp contrast to the findings of Federico et al (2017).
    Keywords: Innovation, R&D, Mergers
    JEL: D43 G34 L40 O30
    Date: 2018–03
    URL: http://d.repec.org/n?u=RePEc:ind:igiwpp:2018-009&r=ind
  2. By: Philipp Meinen; Horst Raff
    Abstract: Based on a theoretical model featuring heterogeneous retailers that may source globally and operate as chains, we derive a number of hypotheses that link trade integration to retail firm performance and to the structure of retail markets. We empirically test these predictions using Danish microdata for the period 1999 to 2008. We find that importing retailers are larger, more profitable, and have a higher propensity to have multiple shops than domestically sourcing firms. While this is partly due to self-selection, we also present evidence for improved perfor-mance caused by firms’ importing activities. Moreover, we find that retail imports are associated with a higher exit probability of small retailers and greater local retail market concentration. Overall, we obtain support for the model’s predictions and argue that the observed adjustments may imply additional gains from trade absent from models lacking a distribution sector.
    Keywords: international trade, consumer goods, retailing, retail chains, market concentration
    JEL: F12 L11
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7099&r=ind
  3. By: Ramon Caminal
    Abstract: This paper builds a dynamic duopoly model to examine the provision of new varieties over time. Consumers experience temporary satiation, and hence higher consumption of the current variety lowers demand for future varieties. The equilibrium can be characterized by a combination of monopolistic pricing and nearly zero profits (competitive timing). In particular, if the cost of producing a new variety is not too low then firms tend to avoid head-to-head competition and set the short-run profit-maximizing price. However, firms tend to introduce new varieties as soon as demand has grown sufficiently to cover costs. From a second best perspective, the equilibrium may exhibit excessive product diversity. However, if firms coordinate their frequency of new product introductions, then consumers are likely to be harmed. It is also shown that equilibrium prices are moderated by two factors. First, consumers' option value of waiting reduces their willingness to pay. Second, competition reduces firms' incentives to engage in intertemporal price discrimination.
    Keywords: temporary satiation, product diversity, dynamic duopoly, repeat purchases, endogenous timing
    JEL: L13
    Date: 2018–06
    URL: http://d.repec.org/n?u=RePEc:bge:wpaper:1045&r=ind
  4. By: Sebastián Fleitas; Gautam Gowrisankaran; Anthony Lo Sasso
    Abstract: We evaluate reclassification risk and adverse selection in the small group insurance market from a period before ACA community rating regulations. Using detailed individual-level data from a large insurer, we find a pass through of 5-43% from expected health risk to premiums. This limited reclassification risk cannot be explained by market power or search frictions but may be due to implicit long-term contracts. We find no evidence of adverse selection generated by reclassification risk. The observed pricing policy adds $2,346 annually in consumer welfare over 10 years relative to experience rating. Community rating would not increase consumer welfare substantially.
    JEL: I13 L13
    Date: 2018–05
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:24663&r=ind

This nep-ind issue is ©2018 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.