nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒02‒18
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Big Data and Firm Dynamics By Maryam Farboodi; Roxana Mihet; Thomas Philippon; Laura Veldkamp
  2. Measuring multi-product banks' market power using the Lerner index By Sherrill Shaffer; Laura Spierdijk
  3. INFORMATIVE ADVERTISING IN MONOPOLISTICALLY COMPETITIVE MARKETS By Creane, Anthony; Manduchi, Agostino
  4. Market size asymmetry and industrial policy in an international duopoly: Environmental tax vs. production subsidy By Lidia Vidal-Meliá; Eva Camacho-Cuena; Miguel Ginés-Vilar
  5. The impact of price adjustment costs on price dispersion in E-commerce By René Böheim; Franz Hackl; Michael Hölzl-Leitner
  6. New Tendencies in Tourism: The Sharing Economy By Stiubea, Elena
  7. Pro-competitive effects of globalisation on prices, productivity and markups: Evidence in the Euro Area By R. S.-H. LEE; M. PAK
  8. Price Discovery in the United States Dairy Industry By Bolotova, Yuliya V.
  9. Who (Else) Benefits from Electricity Deregulation? Coal prices, natural gas and price discrimination By Jonathon E. Hughes; Ian Lange
  10. Research funding and price negotiation for new drugs By Francesca Barigozzi; Izabela Jelovac
  11. Price-Fixing in the United States Broiler and Pork Industries By Bolotova, Yuliya V.
  12. Zombie firms in Italy: a critical assessment By Giacomo Rodano; Enrico Sette

  1. By: Maryam Farboodi; Roxana Mihet; Thomas Philippon; Laura Veldkamp
    Abstract: We study a model where firms accumulate data as a valuable intangible asset. Data accumulation affects firms’ dynamics. It increases the skewness of the firm size distribution as large firms generate more data and invest more in active experimentation. On the other hand, small data- savvy firms can overtake more traditional incumbents, provided they can finance their initial money- losing growth. Our model can be used to estimate the market and social value of data.
    JEL: D21 E01 L1
    Date: 2019–01
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:25515&r=all
  2. By: Sherrill Shaffer; Laura Spierdijk
    Abstract: The aggregate Lerner index is a popular composite measure of multi-product banks’ market power, based on the assumption that banks’ single aggregate output factor is total assets. This study identifies three limitations of the aggregate Lerner index that potentially distort its interpretation as a composite measure of market power. We investigate the empirical relevance of these limitations for a sample of U.S. banks covering the years 2011–2017. We establish an economically relevant bias in the value of the aggregate Lerner index and show that this bias may also affect regressions that use the Lerner index as a dependent or explanatory variable.
    Keywords: multi-product banks, market power, Lerner index, consistent aggregation
    JEL: D43 L13 G21
    Date: 2019–02
    URL: http://d.repec.org/n?u=RePEc:een:camaaa:2019-17&r=all
  3. By: Creane, Anthony; Manduchi, Agostino
    Abstract: In their seminal paper Grossman and Shapiro (1984) find that informative advertising is socially excessive in an oligopoly (entry is also socially excessive). However, the analysis assumed that all consumers receive at least one advertisement. Christou and Vettas (2008), among others, present counter-examples in alternative settings, showing when the assumption does not hold, the equilibrium advertising may, instead, be inefficiently low. Christou and Vettas (2008) also show there may be non-existence due to discontinuities from undercutting, that quasiconcavity may not hold, and present examples in which the equilibrium does not exist as firms would deviate to a higher price. We revisit the question by modeling firms (like consumers) as a continuum, which mitigates the discontinuity that exists in both papers and allows the general analysis to include the cases when some consumers receive no advertisements. As a result, we are able to derive explicit and intuitive conditions for an equilibrium. More importantly, we find, instead, that advertising is socially insufficient regardless of the fraction of the consumers who receive an ad, including when all consumers receive at least one ad. We also find that there is insufficient entry instead of excess entry. We provide intuition for the difference between our and previous results.
    Keywords: Informative advertising, product differentiation, monopolistic competition, welfare.
    JEL: D83 L13 L15
    Date: 2019–02–11
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:92126&r=all
  4. By: Lidia Vidal-Meliá (LEE & Department of Economics, Universitat Jaume I, Castellón, Spain); Eva Camacho-Cuena (LEE & Department of Economics, Universitat Jaume I, Castellón, Spain); Miguel Ginés-Vilar (LEE & Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: This paper analyzes how international trade affects the governments’ decision on their industrial policy in the context of bilateral international trade and imperfect competition. We model an international duopoly with market size asymmetry and product heterogeneity. Each firm produces two different products, one for the domestic market and the other one for the foreign market, where the firms’ production generates local emissions. The findings of our paper show the important role of market asymmetry in determining the optimal industrial policy in a setting where both, firms and regulators, act strategically. The government in each country decides, as industrial policy between two option: an emission tax or a production subsidy. We find that the governments in small countries have incentives to set an environmental tax to the firms competing in international markets with similar size. This is the case even if the government in the large market decided to set a production subsidy, as long as market size asymmetry is low enough. Instead, if firms in a small country compete in large markets, that is, increasing the market size asymmetry between countries, it is then optimal for the government in the small country to give up emission taxes and pay productions subsidies to keep the firms’ competitiveness in the home and foreign markets if the government in the big country subsidizes production. In this case, an increase in the firms’ profits offsets the effects of emission damages on the country social welfare.
    Keywords: Environmental tax, Production subsidy, Market size asymmetry, Product heterogeneity, Imperfect markets
    JEL: F18 H23 L13 Q56
    Date: 2019
    URL: http://d.repec.org/n?u=RePEc:jau:wpaper:2019/01&r=all
  5. By: René Böheim; Franz Hackl; Michael Hölzl-Leitner
    Abstract: We analyze price dispersion using panel data from a large price comparison site. We use past pricing behavior to instrument for potential endogeneity that might result from the selection of firms to certain product markets. We find that greater price adjustment costs result in greater price dispersion. Although the impact of price adjustment costs on price dispersion became weaker over time, the causal effect of price adjustment costs on price dispersion is still present at the end of the period. Our results are robust to many alternative empirical speciffications. We also test a range of alternative explanations of price dispersion, such as search cost, service differentiation, obfuscation, vertical restraints, and market structure.
    Keywords: price dispersion, price adjustment costs, menu costs, e-commerce
    JEL: D40 L11
    Date: 2019–02
    URL: http://d.repec.org/n?u=RePEc:jku:econwp:2019_04&r=all
  6. By: Stiubea, Elena
    Abstract: Abstract: The sharing economy is a phenomenon that has emerged in the recent years as a response to the technology development, the changing of the peoples' consumption habits, and environmental changes in terms of sustainability. This new economy model has had a rapid rise and has all the chances of becoming the economy that prevails on the market in the coming years. The new economic model has a market orientation and generates new business, new jobs, and growth in economy and income sources. The collaborative economy has also made its mark on the tourism. If the tourist services have been only traditionally provided a few years ago, there has recently been a new tendency in this area, namely to share goods/services. It is important to remember that this type of economy creates values such as trust, transparency, authenticity, and mutual help. This article attempts to highlight how the collaborative economy has put its footprint on the tourism, what are the challenges, benefits and impediments to such an economy.
    Keywords: sharing economy; tourism; competitiveness; regulations; challenge
    JEL: L83
    Date: 2018–12–17
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:92100&r=all
  7. By: R. S.-H. LEE (Insee, Polytechnique et Crest-LMA); M. PAK (OCDE)
    Abstract: Global trade has recently slowed down after a peak in the 1990s and early 2000s. Existing literature shows evidence of pro-competitive effects of trade liberalisation during this booming period on prices, productivity and markups. The goal of this paper is to assess whether such pro-competitive effects are still carried on in the manufacturing industry of five Euro Area countries (Austria, Germany, Spain, France and Italy). Our analysis is based on Melitz and Ottaviano’s (2008) theoretical framework and its empirical setup by Chen et al. (2004, 2009). Our contribution is twofold. First, we use traditional trade indicators (gross and value added exports and imports) but also novel indicators that account for the development of global value chains. Second, from the findings of Chen et al. (2004, 2009), we go further by investigating the effect of trade at sector level with respect to quality upgrading and firm concentration. We find that pro-competitive effects are more significant when using import penetration in value-added terms and such effects are particularly strong in sectors with low concentration. Indeed, higher concentration seems to mitigate the trade-induced competition. However, our model focuses on price competition and further research on the quality upgrading would be complementary to our results.
    Keywords: inflation, markups, productivity, competition, globalisation
    JEL: E31 F12 F14 L11 L16
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:nse:doctra:g2018-06&r=all
  8. By: Bolotova, Yuliya V.
    Abstract: The organized Exchange spot (cash) cheese market is a private industry institution that has historically performed a primary price discovery function in the U.S. dairy industry. In addition to affecting cheese prices in contract cheese market, the Exchange spot cheese prices have influenced prices paid for milk at the farm level that are set within the system of Federal Milk Marketing Orders (FMMOs). The effects that the Exchange spot cheese market has on FMMOs milk pricing attract increased attention in light of the most recent concerns about increasing milk price volatility and its effect on the dairy farm profitability. While the design of milk pricing within FMMOs has evolved over the last three decades, the effect of the Exchange spot cheese prices on FMMOs milk pricing has intensified. This research conducts an econometric analysis of the behavior (i.e. the level and volatility) of the Exchange spot cheese price over three FMMOs milk pricing regimes.
    Keywords: Agricultural and Food Policy, Demand and Price Analysis
    Date: 2019–02
    URL: http://d.repec.org/n?u=RePEc:ags:saea19:283709&r=all
  9. By: Jonathon E. Hughes (Department of Economics, University of Colorado at Boulder); Ian Lange (Division of Economics and Business, Colorado School of Mines)
    Abstract: The movement to deregulate major industries over the past 40 years has produced large efficiency gains. However, distributional effects have been more difficult to assess. In the electricity sector, deregulation has vastly increased information available to market participants through the formation of wholesale markets. We test whether upstream suppliers, specifically railroads that transport coal from mines to power plants, use this information to capture economic rents that would otherwise accrue to electricity generators. Using natural gas prices as a proxy for generators' surplus, we find railroads charge higher markups when rents are larger. This effect is larger for deregulated plants, highlighting an important distributional impact of deregulation. This also means policies that change fuel prices can have substantially different effects on downstream consumers in regulated and deregulated markets.
    Keywords: Deregulation, Price Discrimination, Electricity Markets, Procurement Contracts
    JEL: L11 L51 Q48
    Date: 2018–11
    URL: http://d.repec.org/n?u=RePEc:mns:wpaper:wp201806&r=all
  10. By: Francesca Barigozzi (University of Bologna, Italy); Izabela Jelovac (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69131 Ecully, France)
    Abstract: Pharmaceutical innovations result from the successful achievement of basic research, produced by an upstream lab, and applied research, produced by a downstream lab. We focus on the negotiation process to finance basic research by setting public and private grants and to agree on the final price of a new drug. We show that exclusive funding of basic research is desirable. To increase consumers’ surplus and reduce negotiated prices for new drugs, basic and applied research should be integrated if the lab producing applied research has a relatively large bargaining power. When instead the health authority has the larger bargaining power, integration with the producer of basic research increases negotiated prices for new drugs and should be avoided, unless the gain in bargaining power after the integration is extremely high.
    Keywords: Pharmaceutical innovation, drug prices, negotiation, basic research, applied research
    JEL: D8
    Date: 2019
    URL: http://d.repec.org/n?u=RePEc:gat:wpaper:1902&r=all
  11. By: Bolotova, Yuliya V.
    Abstract: During the recent decade a group of large meat processors in the U.S. broiler and pork industries implemented a series of production control practices at various stages of the broiler and pork supply chains. The meat processors used these practices to mitigate agricultural supply volatility and increases in agricultural input prices (i.e. feed prices), which led to the over-supply problem adversely affecting their profitability. Direct and indirect buyers of broilers and pork filed antitrust lawsuits alleging that by implementing these production control practices (i.e. production cuts), the meat processors engaged in unlawful conspiracies with the purpose of fixing, increasing and stabilizing prices of broilers and pork paid by various participants in the broiler and pork supply chains. The research presented in the paper applies a traditional theoretical framework explaining the seller market power to understand the economics of the conduct and performance of the U.S. broiler and pork industries in light of the alleged price-fixing conspiracies. It also provides a basic empirical evidence on the market and price behavior during the period of alleged price-fixing conspiracies (i.e. the implementation of production cuts) and the period preceding the implementation of production cuts.
    Keywords: Demand and Price Analysis, Productivity Analysis
    Date: 2019–02
    URL: http://d.repec.org/n?u=RePEc:ags:saea19:283708&r=all
  12. By: Giacomo Rodano (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: This note shows the consequences of different methodological choices for the estimates of the incidence of zombie firms in Italy. We use as a benchmark the influential measure proposed by the OECD (Adalet McGowan et al. 2017a and 2017b) which identifies zombie firms based on a combination of firm age and values of the interest coverage ratio (operating profits to interest expenses). We show that a key decision is whether operating profits are taken before or after amortization and depreciation and we argue that using profits after amortization and depreciation has several undesirable characteristics: i) it overestimates the share of capital “trapped” into zombie firms, and, to a smaller extent, the share of zombie firms; ii) it is worse in predicting the future performance of firms; iii) it is more likely to classify as zombies in a given year firms which invested heavily in previous years and amortized that investment quickly (for example to enjoy tax breaks); iv) it is especially inappropriate for cross-country comparisons.
    Keywords: zombie firms, productivity, misallocation
    JEL: D24 L25 O47
    Date: 2019–01
    URL: http://d.repec.org/n?u=RePEc:bdi:opques:qef_483_19&r=all

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