nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒10‒15
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Diverging Trends in National and Local Concentration By Rossi-Hansberg, Esteban; Sarte, Pierre-Daniel G.; Trachter, Nicholas
  2. Competition, collusion and spatial sales patterns: Theory and evidence By Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes
  3. Modeling Horizontal Shareholding with Ownership Dispersion By Duarte Brito; Einer Elhauge; Ricardo Ribeiro; Helder Vasconcelos
  4. Competing with Superstars in the Mobile App Market By Daniel Ershov
  5. Protecting Vulnerable Consumers in "Switching Markets" By Walter Beckert; Paolo Siciliani

  1. By: Rossi-Hansberg, Esteban (Princeton University); Sarte, Pierre-Daniel G. (Federal Reserve Bank of Richmond); Trachter, Nicholas (Federal Reserve Bank of Richmond)
    Abstract: Using U.S. NETS data, we present evidence that the positive trend observed in national product-market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least seven years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration and a likely more competitive local environment.
    Keywords: national product-market concentration; local concentration
    JEL: E23 L11 R12
    Date: 2018–09–24
  2. By: Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes
    Abstract: This article studies competition in markets with transport costs and capacity constraints. We compare the outcomes of price competition and coordination in a theoretical model and find that when firms compete, they more often serve more distant customers who are closer to the competitor's plant. If firms compete, the transport distance also varies in the degree of overcapacity, but not if they coordinate their sales. Using a rich micro-level data set of the cement industry in Germany, we study a cartel breakdown to identify the effect of competition on transport distances. Our econometric analyses support the theoretical predictions.
    Keywords: capacity constraints,cartel,cement,spatial competition,transport costs
    JEL: K21 L11 L41 L61
    Date: 2018
  3. By: Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia | Center for Advanced Studies in Management and Economics); Einer Elhauge (Harvard Law School); Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School); Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and Center for Economics and Finance)
    Abstract: The dominant formulation for modeling the objective function of managers of competing firms with horizontal shareholding has been critiqued for producing the result that, if non-horizontal shareholders are highly dispersed, managers would mimic the interests of horizontal shareholders even if they own a share of the firm that does not induce full control. We show that this issue can be avoided (while maintaining the remaining features of the dominant approach)with an alternative formulation that is derived from a probabilistic voting model that assumes shareholders with higher financial stakes will take greater interest in the managerial actions, which yields the result that managers maximize a control-weighted sum of the shareholders' relative returns.
    Keywords: Horizontal Shareholding, Ownership Dispersion, Manager Objective Function,Proportional Control, Banzhaf Control
    JEL: L13 L41
    Date: 2018–10
  4. By: Daniel Ershov (Toulouse School of Economics, 21 Allee de Brienne, 31000 Toulouse, France)
    Abstract: Firms considering to enter into online markets face significant demand uncertainty and consumer search costs, with consumers most likely finding previously successful products in the market. This leads to a trade-off for potential entrants. Consider the appearance of a new very popular product (“superstar") in a particular niche. The popular product resolves demand uncertainty but also increases search costs for new entrants relative to the superstar. The interaction between these two forces could result in too much entry by low quality products, or not enough entry. I empirically examine these effects using 2012- 2013 data on mobile games in the Android mobile app store. I show that there are large increases in entry in niches where the superstar appears, unless they were already popular niches (“discovered"). I also show that the superstar reduces the quality of the new entrants and intensifies price competition.
    Keywords: mobile apps; entry; superstars; demand discovery; search
    JEL: L86 D22 L11
    Date: 2018–09
  5. By: Walter Beckert (Birkbeck, University of London); Paolo Siciliani (Bank of England)
    Abstract: This paper studies regulatory policy interventions aimed at protecting vulnerable consumers who are disengaged and thus exposed to exploitation. We model heterogeneous consumer switching costs alongside asymmetric market shares. This setting encompasses many markets in which established firms are challenged by new entrants. We identify circumstances under which such interventions can be counterproductive, both with regard to the stated consumer protection objective and the complementary aim to promote competition.
    Keywords: switching costs, price discrimination, uniform pricing, most-favoured customer clauses, price regulation, competition.
    JEL: L11 L13 D4
    Date: 2018–08

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