nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒11‒19
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Measured Productivity with Endogenous Markups and Economic Profits By Anthony Savagar
  2. Consumer Misinformation and the Brand Premium: A Private Label Blind Taste Test By Bronnenberg, Bart; Dube, Jean-Pierre; Sanders, Robert
  3. The Effectiveness of Leniency Programs when Firms choose the Degree of Collusion By Emons, Winand
  4. Steering Incentives and Bundling Practices in the Telecommunications Industry By Brian McManus; Aviv Nevo; Zachary Nolan; Jonathan W. Williams
  5. How Important Is Price Variation Between Health Insurers? By Stuart V. Craig; Keith Marzilli Ericson; Amanda Starc

  1. By: Anthony Savagar
    Abstract: I develop a model of dynamic firm entry, oligopolistic competition and returns to scale in order to decompose TFP fluctuations into technical change, economic profit and markup fluctuations. I show that economic profits cause short-run upward bias in measured TFP, but this subsides to upward bias from endogenous markups as firm entry adjusts. I analyze dynamics analytically through a nonparametric DGE model that allows for a perfect competition equilibrium such that there are no biases in measured TFP. Given market power, simulations show that measured TFP is 40% higher than technology in the short-run, due solely to profits, and 20% higher in the long-run due solely to markups. During transition both effects contribute upward bias: initially the profit effect dominates, but by 5 quarters the two effects contribute equally, and by 10 quarters only the markup effect persists. The speed of firm adjustment ('business dynamism') will determine these timings and therefore the importance of each bias.
    Keywords: Endogenous Markups, Dynamic Firm Entry, Endogenous Productivity, Endogenous Entry Costs
    JEL: E32 D21 D43 L13 C62
    Date: 2018–10
  2. By: Bronnenberg, Bart; Dube, Jean-Pierre; Sanders, Robert
    Abstract: We run in-store blind taste tests with a retailer's private label food brands and the leading national brand counterparts in three large CPG categories. In a survey administered during the taste test, subjects self-report very high expectations about the quality of the private labels relative to national brands. However, they predict a relatively low probability of choosing them in a blind taste test. Surprisingly however, an overwhelming majority systematically chooses the private label in the blinded test. During the week after the intervention, the tested private label product market shares increase by 15 share points, on top of a base share of 8 share points. However, the effect diminishes to 8 share points during the second to fourth week after the test and to 2 share points during the second to fifth month after the test. Using a structural model of demand, we show these effects survive controls for point-of-purchase prices, purchase incidence, and the feedback effects of brand loyalty. We also find that the intervention increases the preference for the private label brands, and that it decreases the preference for the national brands, relative to the outside good. The findings are consistent with a treatment effect of information on demand where the memory for this information decays slowly over time. Alternative explanations to the information treatment are ruled out.
    Keywords: brands and branding; consumer information; market structure; private label
    JEL: L11 L15 M31 M37
    Date: 2018–10
  3. By: Emons, Winand
    Abstract: An antitrust authority deters collusion using fines and a leniency program. It chooses the probability of an investigation. Firms pick the degree of collusion: The more they collude, the higher are profits, but so is the probability of detection. Firms thus trade-off higher profits against higher expected fines. If firms are sufficiently patient, leniency is ineffective; it may even increase collusion. Increasing the probability of an investigation at low levels does not increase deterrence. Increasing the probability of an investigation at high levels reduces collusion, yet never completely.
    Keywords: Antitrust; cartels; deterrence; Leniency
    JEL: D43 K21 K42 L40
    Date: 2018–10
  4. By: Brian McManus (University of North Carolina at Chapel Hill); Aviv Nevo (University of Pennsylvania); Zachary Nolan (Duke University); Jonathan W. Williams (University of North Carolina at Chapel Hill)
    Abstract: We model mixed-bundle pricing by internet service providers (ISPs) to study their incentive to steer consumers across different subscription options and influence usage decisions. Using unique panel data from an ISP, we test predictions from the model. We find that the ISP's introduction of internet usage allowances and overage charges steered internet-only consumers into bundled TV and internet subscriptions; this effect was greatest for heavy users of streaming services most similar to conventional TV. Internet usage growth –- especially in streaming video services –- was curtailed for consumers who added TV subscriptions, and it also fell for consumers who did not upgrade their internet usage allowances. We discuss the implications of these findings for antitrust and regulatory issues in the telecommunications industry.
    Keywords: Steering; Bundling; Nonlinear pricing; Telecommunications industry; cord-cutting; broadband
    JEL: L11 L13 L96
    Date: 2018–10
  5. By: Stuart V. Craig; Keith Marzilli Ericson; Amanda Starc
    Abstract: Prices negotiated between payers and providers affect a health insurance contract's value via enrollees' cost-sharing and self-insured employers' costs. However, price variation across payers is hard to observe. We measure negotiated prices for hospital-payer pairs in Massachusetts and characterize price variation. Between-payer price variation is similar in magnitude to between-hospital price variation. Administrative-services-only contracts, in which insurers do not bear risk, have higher prices. We model negotiation incentives and show that contractual form and demand responsiveness to negotiated prices are important determinants of negotiated prices.
    JEL: D4 I11 I13 L11 L4
    Date: 2018–10

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