nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒11‒12
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price Salience and Product Choice By Thomas Blake; Sarah Moshary; Kane Sweeney; Steven Tadelis
  2. Information and Market Power By Bergemann, Dirk; Heumann, Tibor; Morris, Stephen
  3. Business Model Innovation and Selection of Entry Barriers By Adam Dewitte
  4. Micro-responses to shocks: Pricing, promotion, and entry By Antoniades, Alexis; Clerides, Sofronis
  5. Stackelberg type dynamic zero-sum game with leader and follower By Tanaka, Yasuhito
  6. Moving Beyond the Valley of Death: Regulation and Venture Capital Investments in Early-Stage Biopharmaceutical Firms By Yujin Kim; Chirantan Chatterjee; Matthew J. Higgins

  1. By: Thomas Blake; Sarah Moshary; Kane Sweeney; Steven Tadelis
    Abstract: We study the effect of price salience on whether a product is purchased and, conditional on purchase, the quality purchased. Consistent with our theoretical predictions, we find that making the full purchase price salient to consumers reduces both the quality and quantity of goods purchased. The effect of salience on quality accounts for at least 28% of the overall revenue decline. Evidence shows that the effects persist beyond the first purchase and impact even experienced users. Detailed click-stream data shows that price-obfuscation makes price comparisons difficult and results in consumers spending more than they otherwise would. We also find that sellers respond to the increased price obfuscation by listing higher quality tickets.
    JEL: C93 D12 D83 L11
    Date: 2018–10
  2. By: Bergemann, Dirk; Heumann, Tibor; Morris, Stephen
    Abstract: We consider demand function competition with a finite number of agents and private information. We analyze how the structure of the private information shapes the market power of each agent and the price volatility. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. In particular, regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (so we obtain the competitive outcome) or arbitrarily large (so there is no trade in equilibrium). By contrast, price volatility is always less than the variance of the aggregate shock across agents across all information structures, hence we can provide sharp and robust bounds on some but not all equilibrium statistics. We then compare demand function competition with a different uniform price trading mechanism, namely Cournot competition. Interestingly, in Cournot competition, the market power is uniquely determined while the price volatility cannot be bounded by the variance of the aggregate shock.
    JEL: C72 C73 D43 D83 G12
    Date: 2018–11
  3. By: Adam Dewitte (IAE Lille - Institut d'Administration des Entreprises - Lille - Université de Lille, Sciences et Technologies)
    Abstract: The concept of business model innovation has lead to numerous research in strategy. However, little attention has been given on topics related to entry strategies. Consequently, this theoretical paper aims to link two research streams, i.e. the literature on business model and that of entry strategy, to provide insightful knowledge for both fields. In particular we try to better understand the role of business model innovation on entry barrier' effectiveness. Using previous theoretical works and empirical examples, we first discuss the ability of an innovative business model (1) to lower entry barriers and (2) to provide first mover advantages for a new entrant. These advantages may lead to new entry or mobility barriers development. We finally identify four research propositions to guide future empirical research.
    Keywords: Mots-clés : Business Model,Business Model Innovation,Entry Strategy,Entry Barriers,Strategic Management
    Date: 2017–06–01
  4. By: Antoniades, Alexis; Clerides, Sofronis
    Abstract: We study the response of markets to a firm-specific shock in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese firms. In Saudi Arabia their market share collapsed from 16.5% in January to
    Keywords: boycotts; demand shock; multi-product firms; Saudi Arabia
    JEL: L10
    Date: 2018–10
  5. By: Tanaka, Yasuhito
    Abstract: We consider a Stackelberg type dynamic two-players zero-sum game. One of two players is the leader and the other player is the follower. The game is a two-stages game. In the first stage the leader determines the value of its strategic variable. In the second stage the follower determines the value of its strategic variable given the value of the leader's strategic variable. On the other hand, in the static game two players simultaneously determine the values of their strategic variable. We will show that Sion's minimax theorem (Sion(1958)) implies that at the sub-game perfect equilibrium of the Stackelberg type dynamic zero-sum game with a leader and a follower the roles of leader and follower are irrelevant to the payoffs of players, and that the Stackelberg equilbria of the dynamic game are equivalent to the equilibrium of the static game.
    Keywords: zero-sum game, Stackelberg, dynamic zero-sum game
    JEL: C72
    Date: 2018–10–20
  6. By: Yujin Kim; Chirantan Chatterjee; Matthew J. Higgins
    Abstract: Venture capitalists (VCs) traditionally invest in risky, early-stage innovations. Recent research suggests, however, that VCs may be herding into less risky, later-stage projects. Such a shift can create funding gaps for early-stage firms. Can regulation reverse this trend by providing information that may reduce the risk of early-stage investments? Using the regulatory setting of the European Union and the passage of the Orphan Drug Act (EU-ODA), we examine this question in the biopharmaceutical industry. We provide causal evidence that VCs are more likely to invest in early-stage biopharmaceutical firms operating in sub-fields disproportionately affected by EU-ODA. We also find that the level of syndication declined for early-stage investments and exit performance improved. Importantly, the shift towards early-stage investment did not lead to any higher proportion of bankruptcies. Collectively, our results suggest that the information provided by EU-ODA helped alleviate information asymmetries faced by VCs investing in early-stage biopharmaceutical firms. We conclude by discussing implications for entrepreneurial finance and innovation policy.
    JEL: G24 L51 L65
    Date: 2018–10

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