nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒10‒22
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competition and Specificity in Market Design: Evidence from Geotargeted Advertising By Bo Cowgill; Cosmina Dorobantu
  2. Modern industrial organization theory of media markets and competition policy implications By Budzinski, Oliver; Kuchinke, Björn
  3. The 2008 U.S. Auto Market Collapse By Dupor, Bill; Li, Rong; Mehkari, M. Saif; Tsai, Yi-Chan
  4. License Complementarity and Package Bidding: The U.S. Spectrum Auctions By Mo Xiao; Zhe Yuan
  5. Reforming the large business groups to promote productivity and inclusion in Korea By Randall S. Jones
  6. Quality Regulation and Competition: Evidence from Pharmaceutical Markets By Atal, Juan Pablo; Cuesta, José Ignacio; Sæthre, Morten

  1. By: Bo Cowgill (Columbia University); Cosmina Dorobantu (Columbia University, Oxford University and The Alan Turing Institute)
    Abstract: How should market designers tradeoff liquidity and specificity? We study a natural experiment in the release of a new ad targeting feature by an ad exchange. The platform introduced new targeting into select geographic markets using a regression discontinuity. The experiment affects the specificity advertising assets in the markets (ie, the availability of targeting a city or a zip code). We find evidence that additional specificity reduces the total number of ad impressions delivered by the platform, as advertisers concentrate bidding into fewer, targeted markets. Despite this, we find an overall positive effects on revenue growth in the treated areas. This appears to be driven mainly by increases in clickthrough rates and not through increases in average prices (which actually decreased), and by entry of new advertisers.
    Keywords: fixed-to-mobile substitution; incumbency advantage; broadband access
    JEL: L13 L43 L96
    Date: 2018–09
  2. By: Budzinski, Oliver; Kuchinke, Björn
    Abstract: This paper outlines the modern industrial organization theory of media markets including competition policy implications. After recapturing fundamentals of industrial organization theory in a non-technical way, the state of the art of (i) modern platform economics, (ii) the economics of the so-called sharing economy, and (iii) the economics of data-based business models and data-driven markets is summarized in a detailed way and illustrated by modern media examples.
    Keywords: industrial organization,media economics,industrial economics,platform economics,sharing economy,digital economy,digitization,big data,economics of privacy,competition policy,antitrust economics
    JEL: L0 L82 L10 A2 K21
    Date: 2018
  3. By: Dupor, Bill (Federal Reserve Bank of St. Louis); Li, Rong (Renmin University of China); Mehkari, M. Saif (University of Richmond); Tsai, Yi-Chan (National Taiwan University)
    Abstract: New vehicle sales in the U.S. fell nearly 40 percent during the last recession, causing significant job losses and unprecedented government interventions in the auto industry. This paper explores two potential explanations for this decline: falling home values and falling households’ income expectations. First, we establish that declining home values explain only a small portion of the observed reduction in vehicle sales. Using a county-level panel from the episode, we find: (1) A one-dollar fall in home values reduced new vehicle spending by about 0.9 cents; and (2) Falling home values explain approximately 19 percent of the aggregate vehicle spending decline. Next, examining state-level data from 1997-2016, we find: (3) The short-run responses of vehicle consumption to home value changes are larger in the 2005-2011 period relative to other years, but at longer horizons (e.g. 5 years), the responses are similar across the two sub-periods; and (4) The service flow from vehicles, as measured from miles traveled, responds very little to house price shocks. We also detail the sources of the differences between our findings (1) and (2) from existing research. Second, we establish that declining current and expected future income expectations played an important role in the auto market’s collapse. We build a permanent income model augmented to include infrequent, repeated car buying. Our calibrated model matches the pre-recession distribution of auto vintages and exhibits a large vehicle sales decline in response to a moderate decline in expected permanent income. In response to the decline in permanent income, households delay replacing existing vehicles, allowing them smooth the effects of the income shock without significantly adjusting the service flow from their vehicles. Combining our negative results regarding housing wealth with our positive model-based findings, we interpret the auto market collapse as consistent with existing permanent income based approaches to durable goods consumption (e.g., Leahy and Zeira (2005)).
    Date: 2018–09–11
  4. By: Mo Xiao (Eller College of Management, University of Arizona.); Zhe Yuan (Alibaba Group)
    Abstract: The U.S. spectrum licenses cover geographically distinct areas and are often complementary to each other. A bidder seeking to acquire multiple licenses is then exposed to risks of winning only isolated patches. To allocate licenses more efficiently, the Federal Communications Commission allowed bidders to bid for (predefined) packages of licenses in Auction 73. We estimate the magnitude of license complementarity by modeling the bidding process as an entry game with interdependent markets and evolving bidder belief. Bidders' decisions on bidding (and not bidding) provide bounds on licenses' stand-alone values and complementarity between licenses. We estimate the total complementarity to be around two thirds of the total bidding ($19 billion) in Auction 73. Complementarity in a 1 MHz nationwide license is worth $918 million to an average large bidder but only $120 million to an average small bidder. Our counterfactual analysis shows that the effects of package bidding on bidders' exposure risks depend on package format and package size. More importantly, mixed package bidding increases FCC revenue substantially at the cost of reducing bidder surplus and increasing license allocation concentration.
    Keywords: Spectrum Auctions, Complementarity, Package Bidding, Moment Inequalities
    JEL: L5 L8
    Date: 2018–09
  5. By: Randall S. Jones
    Abstract: Large business groups, which played a key role in Korea's economic development, are still dominant today, especially in exporting. The concentration of economic power creates a number of problems and risks. Ensuring a level-playing field between the business groups, also called chaebols, and SMEs and start-ups is essential to promote innovation and inclusive growth. While the business groups have long been subject to a number of special regulations, a comprehensive strategy is needed. The top priority is to improve corporate governance by strengthening the role of outside directors and protecting minority shareholders. A greater say for institutional investors and more active use of private remedies, such as class action suits, would also be beneficial. In addition, strengthening competition by reducing barriers to trade and FDI and activating a market for corporate control would lead to better performance by the groups. The ownership structure of the groups needs to be improved, notably by phasing out circular shareholding among their affiliates. This Working Paper relates to the 2018 OECD Economic Survey of Korea ( y-korea.htm)
    Keywords: chaebols, class action suits, corporate governance, cross shareholding, diversification, inside ownership, Korea Fair Trade Commission (KFTC), large business groups, minority shareholders, outside directors, ownership structure, subcontractors
    JEL: G34 L1 L2 L4 L5
    Date: 2018–10–10
  6. By: Atal, Juan Pablo (University of Pennsylvania); Cuesta, José Ignacio (University of Chicago); Sæthre, Morten (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We study the effects of quality regulation on market outcomes by exploiting the staggered phase-in of bioequivalence requirements for generic drugs in Chile. We estimate that the number of drugs in the market decreased by 25%, average paid prices increased by 10%, and total sales decreased by 20%. These adverse effects were concentrated among small markets. Our results suggest that the intended effects of quality regulation on price competition through increased (perceived) quality of generics—and therefore reduced vertical differentiation—were overturned by adverse competitive effects arising from the costs of complying with the regulation.
    Keywords: Quality regulation; competition; bioequivalence; generic pharmaceuticals
    JEL: I11 L11 L15 L65
    Date: 2018–09–26

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