nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒09‒10
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Oligopoly, Macroeconomic Performance, and Competition Policy By José Azar; Xavier Vives
  2. Prioritization vs Zero-Rating: Discrimination on the Internet By Axel Gautier; Robert Somogyi
  3. Upstream Bundling and Leverage of Market Power By de Cornière, Alexandre; Taylor, Greg
  4. Mergers and Marginal Costs: New Evidence on Hospital Buyer Power By Stuart Craig; Matthew Grennan; Ashley Swanson
  5. Can Government Intervention Make Firms More Investment-Ready? A Randomized Experiment in the Western Balkans By Cusolito, Ana Paula; Dautovic, Ernest; McKenzie, David J.

  1. By: José Azar; Xavier Vives
    Abstract: We develop a macroeconomic framework in which firms are large and have market power with respect to both products and labor. Each firm maximizes a share-weighted average of shareholder utilities, which makes the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing, then an increase in “effective” market concentration (which accounts for overlapping ownership) leads to declines in employment, real wages, and the labor share. Moreover, if the goal is to foster employment then (i) controlling common ownership and reducing concentration are complements and (ii) government jobs are a substitute for either policy. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership can stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We find that neither the monopolistically competitive limit of Dixit and Stiglitz nor the oligopolistic one of Neary (when firms become small relative to the economy) are attained unless there is incomplete portfolio diversification with no intra-industry common ownership.
    Keywords: ownership, portfolio diversification, labor share, market power, oligopsony, antitrust policy
    JEL: L13 L21 L41 G11 E60 D63
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7189&r=ind
  2. By: Axel Gautier; Robert Somogyi
    Abstract: This paper analyzes two business practices on the mobile internet market, paid prioritization and zero-rating. Both violate the principle of net neutrality by allowing the internet service provider to discriminate different content types. In recent years these practices have attracted considerable media attention and regulatory interest. The EU, and until recently the US have banned paid prioritization but tolerated zero-rating under conditions. With prioritization, the ISP delivers content at different speeds and it is equivalent to a discrimination in terms of quality. With zero-rating, the ISP charges different prices for content and it is equivalent to a discrimination in terms of prices. We first show that neither of these practices lead to the exclusion of a content provider, a serious concern of net neutrality advocates. The ISP chooses prioritization when traffic is highly valuable for content providers and congestion is severe, and zero-rating in all other cases. Furthermore, investment in network capacity is suboptimal in the case of prioritization and socially optimal under zero-rating.
    Keywords: net neutrality, paid prioritization, zero-rating, sponsored data, data cap, congestion
    JEL: D21 L12 L51 L96
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7185&r=ind
  3. By: de Cornière, Alexandre; Taylor, Greg
    Abstract: Motivated by the recent Google-Android antitrust case, we present a novel rationale for bundling by a multiproduct upstream firm. Consider a market where downstream firms procure components from upstream suppliers. U1 is the only supplier of component A, but faces competition for component B. Suppose that component A increases demand for the downstream product and that contractual frictions induce positive wholesale markups. By bundling A and B, U1 reduces its B-rivals' willingness to offer slotting fees to the downstream firm, thereby allowing U1 to capture more of the industry profit. Bundling harms the downstream firm and the B rivals, and can be anticompetitive.
    Keywords: Bundling; Exclusion; Vertical Relations
    JEL: L1 L4
    Date: 2018–07
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:13083&r=ind
  4. By: Stuart Craig; Matthew Grennan; Ashley Swanson
    Abstract: We estimate the effects of horizontal mergers on marginal cost efficiencies – an ubiquitous merger justification – using data containing supply purchase orders from a large sample of US hospitals 2009-2015. The data provide a level of detail that has been difficult to observe previously, and a variety of product categories that allows us to examine economic mechanisms underlying “buyer power.” We find that merger target hospitals save on average $176 thousand (or 1.5 percent) annually, driven by geographically local efficiencies in price negotiations for high-tech “physician preference items.” We find only mixed evidence on savings by acquirers.
    JEL: I11 L40
    Date: 2018–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:24926&r=ind
  5. By: Cusolito, Ana Paula; Dautovic, Ernest; McKenzie, David J.
    Abstract: Many innovative start-ups and SMEs have good ideas, but do not have these ideas fine-tuned to the stage where they can attract outside funding. Investment readiness programs attempt to help firms to become ready to attract and accept outside equity funding through a combination of training, mentoring, master classes, and networking. We conduct a five-country randomized experiment in the Western Balkans that works with 346 firms and delivers an investment readiness program to half of these firms, with the control group receiving an inexpensive online program instead. A pitch event was then held for these firms to pitch their ideas to independent judges. The investment readiness program resulted in a 0.3 standard deviation increase in the investment readiness score, with this increase occurring throughout the distribution. Two follow-up surveys show that these judges' scores predict investment readiness and investment outcomes over the subsequent two years. Treated firms attain significantly more media attention, and are 5 percentage points (p.p.) more likely to have made a deal with an outside investor, although this increase is not statistically significant (95 confidence interval of -4.7 p.p., +14.7p.p.).
    Keywords: entrepreneurship; equity investment; Innovation; Investment readiness; randomized controlled trial.; start-ups
    JEL: L26 M13 M2 O12
    Date: 2018–08
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:13098&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.