nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒11‒05
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. An Entry Game with Learning and Market Competition By Chia-Hui Chen; Junichiro Ishida; Arijit Mukherjee
  2. Differentiated durable goods monopoly: a robust Coase conjecture By Nava, Francesco; Schiraldi, Pasquale
  3. Advertising and Brand Attitudes: Evidence from 575 Brands over Five Years By Rex Yuxing Du; Mingyu Joo; Kenneth C. Wilbur
  4. Estimating retail gasoline price dynamics: The effects of sample characteristics and research design By Deltas, George; Polemis, Michael

  1. By: Chia-Hui Chen; Junichiro Ishida; Arijit Mukherjee
    Abstract: This paper provides a dynamic game of market entry to illustrate entry dynamics in an uncertain market environment. Our model features both private learning about the market condition and market competition, which give rise to the first-mover and second-mover advantages in a unified framework. We characterize symmetric Markov perfect equilibria and identify a necessary and sufficient condition for the first-mover advantage to dominate, which elucidates when and under what conditions a firm becomes a pioneer, an early follower or a late entrant. We also derive equilibrium payoff bounds to show that pioneering entry is generally payoff-enhancing, even though it is driven by preemption motives, and discuss efficiency properties of entry dynamics.
    Date: 2018–10
  2. By: Nava, Francesco; Schiraldi, Pasquale
    Abstract: The paper analyzes a durable goods monopoly problem in which multiple varieties can be sold. A robust Coase conjecture establishes that the market eventually clears, with profits exceeding static optimal market-clearing profits and converging to this lower bound in all stationary equilibria with instantaneous price revisions. Pricing need not be efficient, nor is it minimal (equal to the maximum of marginal cost and minimal value), and can lead to cross-subsidization. Conclusions nest both classical Coasian insights and modern Coasian failures. The option to scrap products does not affect results qualitatively, but delivers a novel motive for selling high cost products.
    Keywords: Coase conjecture; monopoly; product design; dynamic pricing
    JEL: J1
    Date: 2018–10–17
  3. By: Rex Yuxing Du; Mingyu Joo; Kenneth C. Wilbur
    Abstract: Little is known about how different types of advertising affect brand attitudes. We investigate the relationships between three brand attitude variables (perceived quality, perceived value and recent satisfaction) and three types of advertising (national traditional, local traditional and digital). The data represent ten million brand attitude surveys and $264 billion spent on ads by 575 regular advertisers over a five-year period, approximately 37% of all ad spend measured between 2008 and 2012. Inclusion of brand/quarter fixed effects and industry/week fixed effects brings parameter estimates closer to expectations without major reductions in estimation precision. The findings indicate that (i) national traditional ads increase perceived quality, perceived value, and recent satisfaction; (ii) local traditional ads increase perceived quality and perceived value; (iii) digital ads increase perceived value; and (iv) competitor ad effects are generally negative.
    Date: 2018–09
  4. By: Deltas, George; Polemis, Michael
    Abstract: The study shows that much of the variation in the findings of the literature on retail gasoline price dynamics is systematic rather than sample variation from using different data. Estimates of pass-through rates depend systematically on research design and features of the data, such as the sampling frequency, the choice of upstream price, whether taxes are included or not, the sample length, and the postulated lag structure. In addition, there are systematic differences between time periods and countries. Using a 20 year-long dataset of 28 European Union countries we quantify the extent of estimate variation that arises from the choice of data structure from that arising from temporal and country heterogeneity and sampling variation. We also show that country heterogeneity itself has systematic components, with wealthier countries experiencing slower adjustments. Our results inform the interpretation of results on pass-through rates derived from Error Correction Models. They are also of relevance for the broader literature estimating the transmission of price shocks in the economy.
    Keywords: Rockets and Feathers, Cost Pass-through, Price Adjustment and Inflation, Error Correction Model.
    JEL: L11 L16
    Date: 2018–08–12

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