nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒03‒25
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Personalized Pricing and Brand Distribution By Jullien, Bruno; Reisinger, Markus; Rey, Patrick
  2. Geography, Competition, and Optimal Multilateral Trade Policy By Nocco, Antonella; Ottaviano, Gianmarco; Salto, Matteo
  3. Leveraging Loyalty Programs Using Competitor Based Targeting By Hollenbeck, Brett; Taylor, Wayne
  4. Firm Size Distribution and Variable Elasticity of Demand By Yuichiro Matsumoto
  5. Electric Power Distribution in the World: Today and Tomorrow By Sinan Küfeoglu; Michael Pollitt; Karim Anaya

  1. By: Jullien, Bruno; Reisinger, Markus; Rey, Patrick
    Abstract: This paper examines the effects of personalized pricing on brand distribution. We explore whether a brand manufacturer prefers to sell through its own retail outlet only (mono distribution) or through an independent retailer as well (dual distribution). Personalized pricing allows for higher rent extraction but also leads to more fierce intra-brand competition than does uniform pricing. Due to the latter effect, a brand manufacturer may prefer mono distribution even if the retailer broadens the demand of the manufacturer’s product. By contrast, with uniform pricing, selling through both channels is always optimal. This result holds for wholesale contracts consisting of two-part tariffs as well as for linear wholesale tariffs. We also show that the manufacturer may obtain its largest profit in a hybrid pricing regime, in which only the retailer charges personalized prices. Keywords: personalized pricing, distribution channels, dual distribution, vertical contracting, downstream competition.
    Keywords: personalized pricing; distribution channels; dual distribution; vertical contracting; downstream competition.
    Date: 2019–03
  2. By: Nocco, Antonella; Ottaviano, Gianmarco; Salto, Matteo
    Abstract: How should multilateral trade policy be designed in a world in which countries differ in terms of market access and technology, and firms with market power differ in terms of productivity? We answer this question in a model of monopolistic competition in which variable markups increasing in firm size are a key source of misallocation across firms and countries. We use `disadvantaged' to refer to countries with smaller market size, worse state of technology (in terms of higher innovation and production costs), and worse geography (in terms of more remoteness from other countries). We show that, in a global welfare perspective, optimal multilateral trade policy should: promote the sales of low cost firms to all countries, but especially to disadvantaged ones; trim the sales of high cost firms to all countries, but especially to disadvantaged ones; reduce firm entry in all countries, but especially in disadvantaged ones. This would not only restore efficiency but also reduce welfare inequality between advantaged and disadvantaged countries if their differences in market size, state of technology and geography are large enough.
    Keywords: Firm Heterogeneity; International trade policy; monopolistic competition; multilateralism; Pricing to market
    JEL: D4 D6 F1 L0 L1
    Date: 2019–03
  3. By: Hollenbeck, Brett; Taylor, Wayne
    Abstract: Loyalty programs are widely used by firms but their effectiveness is subject to debate. These programs provide discounts and perks to loyal customers and are costly to administer, and with uncertain effectiveness at increasing spending or stealing business from rivals. We use a large new dataset on retail purchases before and after joining a loyalty program (LP) at the customer level to evaluate what determines LP effectiveness. We exploit detailed spatial data on customer and store locations, including locations of competing firms. A simple analysis shows that location relative to competitors is the strongest predictor of LP effectiveness, suggesting that LPs work primarily through business stealing and not through other demand expansion. We next estimate what variables best predict LP effectiveness using high-dimensional data on spatial relationships between customers, the focal firm’s stores, and competing stores as well as customers’ historical spending patterns. We use LASSO regularization to show that spatial relationships are more predictive of LP effects than are past sales data. Finally, we show how firms can use this type of predictive analytics model to leverage customer and competitor location data to substantially increase the performance of their LP through spatially driven targeting rules.
    Keywords: Loyalty programs, predictive analytics, spatial models, retail competition, machine learning
    JEL: C45 C52 L13 L21 M31
    Date: 2019
  4. By: Yuichiro Matsumoto (Osaka University)
    Abstract: Prior studies suggest that a Pareto distribution of the firm fs productivity distribution is difficult to replicate the observed log standard deviation of firm sales. These studies are based on constant elasticity preferences, which entail too low log sales deviation. The present study shows that, in contrast to constant elasticity cases, the log standard deviation is too high in variable elasticity cases. To match the observed sales dispersion, one must set a Pareto tail parameter relatively higher values.
    Keywords: Firm Size Distribution, Pareto Distribution, Variable Elasticity of Substitution
    JEL: L10 L11 L13
    Date: 2019–03
  5. By: Sinan Küfeoglu (Energy Policy Research Group University of Cambridge); Michael Pollitt (Energy Policy Research Group University of Cambridge); Karim Anaya (Energy Policy Research Group University of Cambridge)
    Keywords: distribution system operator; DSO; market platform; transmission system operator; TSO
    JEL: L94
    Date: 2018–08

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