nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒08‒20
ten papers chosen by

  1. Optimal Dynamic Hotel Pricing By John Rust; Sungjin Cho
  2. How Do Firms Build Market Share? By Doireann Fitzgerald; Anthony Priolo
  3. Empirical Properties of Diversion Ratios By Christopher T. Conlon; Julie Holland Mortimer
  4. Centers of Gravity: The Effect of Stable Shared Leadership in Top Management Teams on Firm Growth and Industry Evolution By Rajshree Agarwal; Serguey Braguinsky; Atsushi Ohyama
  5. On taxes and subsidies with private eco-labeling By Ibrahima Barry; Olivier Bonroy; Paolo Garella
  6. Spatial competition for students: what does (not) matter? By Diogo Lourenço; Carla Sá
  7. Intellectual Monopoly in Global Value Chains By Cédric Durand; William Milberg
  8. An Empirical Analysis of Competition in Print Adversiting among Paid and Free Newspapers By Geoffrey Brooke; Lydia Cheung
  9. Technology spillovers and outside options in a bilateral duopoly By Noriaki Matsushima; Laixun Zhao
  10. Market expansion may harm the supplier in a bilateral monopoly By Noriaki Matsushima; Laixun Zhao

  1. By: John Rust (Georgetown University); Sungjin Cho (Seoul National University)
    Abstract: We analyze a confidential reservation database provided by a luxury hotel, ”hotel 0”, based in a major US city that enables us to observe individual reservations and cancellations at a daily frequency over a 37 month period. We show how the hotel sets prices for various classes of customers and how its prices vary over time. Hotel pricing is a challenging high-dimensional problem since hotels must not only set prices for each current date, but they must also quote prices for a range of future dates, room types and customer types. Our data reveal the full path of room rates quoted for different types of rooms and customers in advance of the date of occupancy. We find large within and between week variability in room prices, as well as huge seasonal variations in average daily rates and occupancy rates, not only for the hotel we study but also for its direct competitors. We formulate and estimate a structural model of optimal dynamic hotel pricing using the Method of Simulated Moments (MSM). The estimated model provides accurate predictions of the actual prices set by this firm and resulting paths of bookings and cancellations. Prices quoted for bookings in advance of occupancy generally decline as the date of occupancy arrives for non-busy days, but can increase dramatically in the final days before occupancy on busy days when management forecasts a high probability of sell-out. Hotel 0’s prices co-move strongly with it competitors’ prices and we show that a simple price-following strategy where hotel 0 undercuts its competitors’ average price by a fixed percentage provides a good first approximation to its pricing behavior. However we show that simple price-following is suboptimal: when hotel 0 expects to sell out, it is optimal to depart from price-following and increase its price significantly above its competitors. On non-busy days, it is not optimal for hotel 0 to cut its prices in the final days before arrival to try to increase occupancy unless its competitors cut their prices. Though price- following has the superficial appearance of collusive behavior mediated by the use of a commercial revenue management system (RMS), our results suggest that hotel 0’s pricing is competitive and is best described as a rational best response to its beliefs about demand and the prices set by its competitors. In fact hotel 0 regularly disregards the recommended prices of its RMS, which it regards as too low compared to the prices it actually sets.
    Date: 2018
  2. By: Doireann Fitzgerald; Anthony Priolo
    Abstract: The question of how firms build market share matters for firm dynamics, business cycles, international trade, and industrial organization. Using Nielsen Retail Scanner data for the United States, we document that in the consumer food industry, brands experience substantial growth in market share in the first four years after successful entry into a regional market. However, markups are flat with respect to brand tenure. This finding is at odds with a large literature on customer markets which argues that firms acquire customers by temporarily offering low markups, and later raise markups once customers are locked in. However, it is consistent with a literature which emphasizes the importance of marketing and advertising activities for building market share.
    JEL: E3 L11 M3
    Date: 2018–07
  3. By: Christopher T. Conlon; Julie Holland Mortimer
    Abstract: A diversion ratio, which measures the fraction of consumers that switch from one product to an alternative after a price increase, is a central calculation of interest to antitrust authorities for analyzing horizontal mergers. Two ways to measure diversion are: the ratio of estimated cross-price to own-price demand derivatives, and second-choice data. Policy-makers may be interested in either, depending on whether they are concerned about the potential for small but widespread price increases, or product discontinuations. We estimate diversion in two applications -- using observational price variation and experimental second-choice data respectively -- to illustrate the trade-offs between different empirical approaches. Using our estimates of diversion, we identify candidate products for divestiture in a hypothetical merger.
    JEL: L0 L1 L4
    Date: 2018–07
  4. By: Rajshree Agarwal; Serguey Braguinsky; Atsushi Ohyama
    Abstract: We study the processes of firm growth in the evolution of the Japanese cotton spinning industry during 1883-1914 by integrating strategy and historical approaches and utilizing rich quantitative firm-level data and detailed business histories. The resultant conceptual model highlights growth outcomes of path dependencies as firms evolve across periods of single vs. shared leadership, establish stability in shared leadership, or experience repeated discord-induced TMT leader departures. While most firms do not experience smooth transitions to stable shared TMT leadership, a focus on value creation, in conjunction with talent recruitment and promotion, enabled some firms to achieve stable shared leadership in spite of discord-induced departures, engage in long term expansion, and emerge as “centers of gravity” for output and talent in the industry.
    JEL: L2 L25 L26 M12 M13 N85
    Date: 2018–06
  5. By: Ibrahima Barry (GAEL - Laboratoire d'Economie Appliquée de Grenoble - UPMF - Université Pierre Mendès France - Grenoble 2 - INRA - Institut National de la Recherche Agronomique); Olivier Bonroy (GAEL - Laboratoire d'Economie Appliquée de Grenoble - UPMF - Université Pierre Mendès France - Grenoble 2 - INRA - Institut National de la Recherche Agronomique); Paolo Garella (Università degli Studi di Milano-Bicocca [Milano])
    Abstract: Taxes and subsidies on products embodying environmental qualities often coexist with certified private labels---like Ecocert, Scientific Certification System, or OEKO-TEX. Their interaction is yet quite unexplored. We analyze a duopoly where consumers value an environmental quality, with an externality. A certifier sets the quality standard for a label. The fee for granting the label is either set by the certifier (certifier power), or in a noncooperative bidding game (firm power). Taxes and subsidies then affect the fee, depending upon how this is set, and the standard. This channel can produce distorted or even reversed effects. If firm power exists, for instance, a subsidy to the labeled good ends up decreasing the environmental quality and welfare. Conversely, absence of firm power nullifies the effects of ad valorem taxing the unlabeled "dirty" product. Only a per unit tax has similar, but always worsening, effects.
    Date: 2018–07–20
  6. By: Diogo Lourenço (Faculdade de Economia Universidade do Porto); Carla Sá (Escola de Economia e Gestão Universidade do Minho)
    Abstract: Regional cohesion and competition for students has fostered interest in the decision-making process behind the selection of institution of higher education. We use a gravity model to estimate the impact of distance, socioeconomic profile of districts, and characteristics of higher education institutions on the migratory flows of candidates to undergraduate programmes in Portugal. Elasticity to distance is found to be close to -2, in line with the gravity equation. The characteristics of the district of destination are unimportant, contrasting with the characteristics of institutions. Indeed, we find a negative impact of graduate unemployment, a more than proportional impact of the number of vacancies, and a great advantage to universities when compared with polytechnics. Regarding the district of origin, outgoing flows are lower the greater the local supply of higher education and the larger the young population.
    Keywords: Gravity Models; Student Mobility; Institutional Competition
    JEL: I23 R23 O15
    Date: 2018–07
  7. By: Cédric Durand (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); William Milberg
    Date: 2018–07–27
  8. By: Geoffrey Brooke (School of Economics, Auckland University of Technology); Lydia Cheung (School of Economics, Auckland University of Technology)
    Abstract: This paper examines the competition in the print newspaper advertising market in New Zealand, which involves paid daily and free weekly titles. This is the first study to explore how different ownership structures across two newspaper segments affect the competitive forces in local geographic markets. We do so by constructing an original dataset of advertising rates. This has particular relevance in light of the Commerce Commission's recent rejection of the proposed NZME-Fairfax merger, and Fairfax's subsequent closure of 15 newspaper titles. We find strong evidence for competition between overlapping free weekly suburban titles. It is associated with a 11% decrease in the full tabloid page display advertising rate. We also find evidence of joint profit maximization between co-owned free weeklies and paid dailies. Our results support the Commission's decision and give crucial implication on market definition: small and large display ads in free weekly titles constitute two separate markets with dif erent clients. The large display ad market also includes advertising in paid daily titles. This market is competitive and will likely suffer if the merger were granted.
    Keywords: Newspaper, Print, Advertising, Ownership structure, Competition, Merger
    Date: 2018–08
  9. By: Noriaki Matsushima; Laixun Zhao
    Abstract: This paper examines the role of outside options in a downstream duopoly with exclusive vertical relations as in the Japanese automobile industry. In our setup, the downstream firms have outside options, and two upstream firms with exclusive relations can engage in cost reducing investments. More interestingly, each upstream firm can choose whether to voluntarily generate technology spillovers to its rival. We show that better outside options of the downstream firms can induce voluntary technology spillovers in the upstream level, increasing the profits of all firms on the vertical chain.
    Date: 2018–08
  10. By: Noriaki Matsushima; Laixun Zhao
    Abstract: We consider a bilateral monopoly with a supplier and a buyer. Their trading terms are determined through negotiations, but affected by the buyer's efforts to search for outside suppliers. We find surprisingly that a market expansion may harm the supplier.
    Date: 2018–08

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