nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒04‒08
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Market structure and cartel duration: Evidence from detected EU cartel cases By Swoboda, Sandra Maria
  2. Uncertainty and Risk-aversion in a Dynamic Oligopoly with Sticky Prices By Valentini, Edilio; Vitale, Paolo
  3. Two-Sided Market, R&D and Payments System Evolution By Bin Grace Li; James McAndrews; Zhu Wang
  4. Endogenous choice of minority shareholdings: Effects on product market competition By Samuel de Haas
  5. The Patent Troll: Benign Middleman or Stick-Up Artist? By Abrams, David; Akcigit, Ufuk; Oz, Gokhan; Pearce, Jeremy
  6. GDP-B: Accounting for the Value of New and Free Goods in the Digital Economy By Brynjolfsson, Erik; Collis, Avinash; Diewert, Erwin; Eggers, Felix; FOX, Kevin J.

  1. By: Swoboda, Sandra Maria
    Abstract: Cartel duration is influenced by market structure but it also varies depending on the cause of cartel death. This paper distinguishes between determinants which increase the probability of death by leniency application and those that increase the probability of death through intervention by competition authorities. Proportional hazard models with competing risks are applied to detected EU cartel cases for the period 2001 to 2017. The analysis indicates that the existence of industry specific problems or high cumulative market share do not give cartel members an incentive to apply for leniency, whereas companies which benefit from advantages or the existence of buyer power on the demand side are more likely to denounce the cartel. Regardless of the cause of their death, cartels lasted longer if they operated across different markets. Likewise, the probability of cartel detection by competition authorities decreases if cartel agreements affect heterogeneous products. In contrast, detection probability increases if companies are organised around an industry association with regular meetings or in case the cartel has a leader.
    Date: 2018
  2. By: Valentini, Edilio; Vitale, Paolo
    Abstract: In this paper we present a dynamic discrete-time model that allows to investigate the impact of risk-aversion in an oligopoly characterized by a homogeneous non-storable good, sticky prices and uncertainty. Our model nests the classical dynamic oligopoly model with sticky prices by Fershtman and Kamien (Fershtman and Kamien, 1987), which can be viewed as the continuous-time limit of our model with no uncertainty and no risk-aversion. Focusing on the continuous-time limit of the infinite horizon formulation we show that the optimal production strategy and the consequent equilibrium price are, respectively, directly and inversely related to the degrees of uncertainty and risk-aversion. However, the effect of uncertainty and risk-aversion crucially depends on price stickiness since, when prices can adjust instantaneously, the steady state equilibrium in our model with uncertainty and risk aversion collapses to Fershtman and Kamien’s analogue.
    Keywords: Research Methods/ Statistical Methods
    Date: 2019–03–19
  3. By: Bin Grace Li; James McAndrews; Zhu Wang
    Abstract: It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a twosided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel.
    Date: 2019–03–18
  4. By: Samuel de Haas (Justus-Liebig-University Giessen)
    Abstract: Non-controlling minority shareholdings in rivals (NCMS) lower the sustainability of collusion under a wide variety of circumstances. Nevertheless, NCMS are sometimes deemed to facilitate collusion, in particular if the level of NCMS is exogenous. The present paper endogenizes firms' choice of NCMS and answers the question: Would colluding firms find it rational to acquire NCMS in rivals? The study of the acquisition reveals that firms have an incentive to acquire NCMS which are accompanied by a shift from collusive to competitive behaviour.
    Keywords: Collusion, Coordinated Effects, Minority Shareholdings, Merger Control, Unilateral Effects
    JEL: G34 K21 L41
    Date: 2019
  5. By: Abrams, David; Akcigit, Ufuk; Oz, Gokhan; Pearce, Jeremy
    Abstract: How do non-practicing entities ("Patent Trolls") impact innovation and technological progress? Although this question has important implications for industrial policy, little direct evidence about it exists. This paper provides new theoretical and empirical evidence to fill that gap. In the process, we inform a debate that has historically portrayed non-practicing entities (NPEs) as either "benign middlemen", who help to reallocate IP to where it is most productive, or "stick-up artists", who exploit the patent system to extract rents and thereby hurt innovation. We employ unprecedented access to NPE-derived patent and financial data, as well as a novel model that guides our data analysis. We find that NPEs acquire patents from small firms and those that are more litigation-prone, as well as ones that are not core to the seller's business. When NPEs license patents, those that generate higher fees are closer to the licensee's business and more likely to be litigated. We also find that downstream innovation drops in fields where patents have been acquired by NPEs. Finally, our numerical analysis shows that the existence of NPEs encourages upstream innovation and discourages downstream innovation. The overall impact of NPEs depends on the share of patent infringements that come from non-innovating producers. Our results provide some support for both views of NPEs and suggests that a more nuanced perspective on NPEs and additional empirical work are needed to make informed policy decisions.
    Keywords: Innovation; Non-practicing entity; NPE; PAE; patent assertion entity; Patent litigation; patent troll
    JEL: O31 O34
    Date: 2019–03
  6. By: Brynjolfsson, Erik; Collis, Avinash; Diewert, Erwin; Eggers, Felix; FOX, Kevin J.
    Abstract: The welfare contributions of the digital economy, characterized by the proliferation of new and free goods, are not well-measured in our current national accounts. We derive explicit terms for the welfare contributions of these goods and introduce a new metric, GDP-B which quantifies their benefits, rather than costs. We apply this framework to several empirical examples including Facebook and smartphone cameras and estimate their valuations through incentive-compatible choice experiments. For example, including the welfare gains from Facebook would have added between 0.05 and 0.11 percentage points to GDP-B growth per year in the US.
    Keywords: Welfare measurement, GDP, Productivity, mismeasurement, productivity slowdown, new goods, free goods, online choice experiments, GDP-B
    JEL: C43 D60 E23 O3 O4
    Date: 2019–03–27

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