nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒04‒15
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. New Technology and Increasing Returns: The End of the Antitrust Century? By Basu, Kaushik
  2. The Production of Information in an Online World: Is Copy Right? By Julia Cage; Nicolas Hervé; Marie-Luce Viaud
  3. Pricing under Fairness Concerns By Erik Eyster; Kristof Madarasz; Pascal Michaillat
  4. Endogenous vertical segmentation in a Cournot oligopoly By BELLEFLAMME Paul,; FORLIN Valeria,
  5. Transport Price, Product Differentiation and R&D in an Oligopoly By Kanehara, Daishoku; Kamei, Keita
  6. 25 Years of European Merger Control By Pauline Affeldt; Tomaso Duso; Florian Szücs
  7. Antitrust Analysis with Upward Pricing Pressure and Cost Efficiencies By Jessica Dutra; Tarun Sabarwal
  8. The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy By Reda Cherif; Fuad Hasanov
  9. Public-Private Competition in Regulated Markets By Ziad R. Ghandour

  1. By: Basu, Kaushik (World Bank)
    Abstract: The advance of digital technology is changing the nature of markets, enhancing the capacity of corporations to extract more consumers' surplus and lower the wages paid to workers. The rise of new technology has also diminished the efficacy of traditional laws to regulate firms and corporations. This is best illustrated by antitrust laws. With the new technology, there is greater returns to scale in production, and further, it is possible to have different components of the same final good be produced by different firms in faraway places. Unlike in earlier times the n firms in one industry, say the automobile industry, would all be producing cars, now the n firms in that industry produce n different parts of the product, thereby getting enormous returns to scale. Such markets are described as vertically serrated markets and their equilibria are characterized. Traditional antitrust law does not apply to these markets because the high returns to scale are natural and not artificially induced. This compels us to look for novel ways to regulate such markets. This paper discusses, in particular, laws that compel firms to have widely dispersed share holdings.
    Keywords: antitrust law, share distribution, technological advance, labor demand
    JEL: K21 L13 O33
    Date: 2019–04
  2. By: Julia Cage (Département d'économie); Nicolas Hervé (Institut national de l'audiovisuel); Marie-Luce Viaud (Institut national de l'audiovisuel)
    Abstract: This paper documents the extent of copying and estimates the returns to originality in online news production. We build a unique dataset combining all the online content produced by French news media during the year 2013 with new micro audience data. We develop a topic detection algorithm that identifies each news event, trace the timeline of each story, and study news propagation. We unravel new evidence on online news production. First, we document high reactivity of online media: one quarter of the news stories are reproduced online in under 4 minutes. Second, we show that this comes with extensive copying: only 33% of the online content is original. Third, we investigate the cost of copying for original news producers. Using article-level variations and media-level daily audience combined with article-level social media statistics, we find that readers partly switch to the original producers, thereby mitigating the newsgathering incentive problem raised by copying.
    Keywords: Internet; Information spreading; Copyright; Social media; Reputation
    JEL: L11 L15 L82 L86
    Date: 2019–04
  3. By: Erik Eyster; Kristof Madarasz; Pascal Michaillat
    Abstract: This paper proposes a theory of pricing consistent with two well-documented patterns: customers care about fairness, and firms take these concerns into account when they set prices. The theory assumes that customers find a price unfair when it carries a high markup over cost, and that customers dislike unfair prices. Since markups are not observable, customers must extract them from prices. The theory assumes that customers infer less than rationally: when a price rises after an increase in marginal cost, customers partially misattribute the higher price to a higher markup---which they find unfair. Firms anticipate this response and trim their price increases, which reduces the passthrough of marginal costs into prices below one: prices are somewhat rigid. Embedded in a New Keynesian model---as a replacement of Calvo pricing---our theory produces monetary nonneutrality. When monetary policy loosens and inflation rises, customers misperceive markups as higher and feel unfairly treated; firms mitigate the perceived unfairness of prices by reducing their markups, which in general equilibrium leads to higher output.
    Date: 2019–04
  4. By: BELLEFLAMME Paul, (CORE, UCLouvain); FORLIN Valeria, (CORE, UCLouvain and European Commission, DG Clima)
    Abstract: An arbitrary number of (ex ante symmetric) firms first choose whether to produce a high-quality or a low-quality product and then the quantity of product to put on the market. We establish the following results: (i) there exists competition within and across quality segments; (ii) firms may be better off producing the low quality if competition within this segment is sufficiently low; (iii) a firm's switch across qualities may benefit all the other firms; (iv) there exists a unique partition of the firms between the two quality segments; (v) if high quality has a larger cost-quality ratio, then the equilibrium exhibits vertical differentiation; (vi) there may be too much differentiation from the consumers' point of view.
    Keywords: quality, differentiation, oligopolistic competition
    JEL: D43 L13 L25
    Date: 2019–03–06
  5. By: Kanehara, Daishoku; Kamei, Keita
    Abstract: This study incorporates transport price and endogenous product differentiation in an international oligopoly. Assuming endogenous determination of transport price based on the profit maximization of the transporter and using a three-stage game, we analyze the effect of the degree and difficulty of product differentiation on transport price. We show that both negatively affect the endogenous transport price. The intuition of this result comes from that the positive effect of a decrease in endogenous transport price on the demand for the differentiated products is greater than the negative effect on the price.
    Keywords: Endogenous Product Differentiation; International Trade; Oligopoly; Product R&D; Transport Price.
    JEL: F12 L13 L16 O1
    Date: 2019–04–07
  6. By: Pauline Affeldt; Tomaso Duso; Florian Szücs
    Abstract: We study the evolution of the EC’s merger decision procedure over the first 25 years of European competition policy. Using a novel dataset constructed at the level of the relevant markets and containing all merger cases over the 1990-2014 period, we evaluate how consistently arguments related to structural market parameters were applied over time. Using non-parametric machine learning techniques, we find that the importance of market shares and concentration measures has declined while the importance of barriers to entry and the risk of foreclosure has increased in the EC’s merger assessment following the 2004 merger policy reform.
    Keywords: Merger policy, DG competition, causal forests
    JEL: K21 L40
    Date: 2019
  7. By: Jessica Dutra (Department of Economics, The University of Kansas); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: We investigate the accuracy of UPP as a tool in antitrust analysis when there are cost efficiencies from a horizontal merger. We include model-based, merger-specific cost efficiencies in a tractable manner and extend the standard UPP formulation to account for these efficiencies. The efficacy of the new UPP formulations is analyzed using Monte Carlo simulation of 40,000 mergers (8 scenarios, 5,000 mergers in each scenario). We find that the new UPP formulations yield substantial gains in prediction of post-merger prices, and there are substantial gains in merger screening accuracy as well. Moreover, the new UPP formulations outperform the standard UPP formulation at higher thresholds for all the standard cases in the paper. The results support the inclusion of model-based cost efficiencies in the standard UPP formulation for more accurate antitrust decision-making.
    Keywords: upward pricing pressure, merger efficiency, monte carlo, UPP, mergers, antitrust, unilateral effects, cost efficiencies
    JEL: K21 L11 L41 L13
    Date: 2019–04
  8. By: Reda Cherif; Fuad Hasanov
    Abstract: Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.
    Date: 2019–03–26
  9. By: Ziad R. Ghandour (Department of Economics / NIPE, University of Minho)
    Abstract: We analyse the effect of competition on quality provision in mixed markets, such as healthcare and education, where public and private providers coexist. We draw two key assumptions about the public provider in such markets, namely in that it faces a regulated price and is (partly) motivated. We also explore the effects of changes in the state subsidy and co-payment fees. Our main contribution is that, under certain circumstances, more competition leads to lower average quality in equilibrium. Similarly, the effects of higher co-payment fees or larger state subsidies on average quality are also a priori ambiguous. These conclusions hold regardless of whether providers seek profit maximisation or the public provider has altruistic preferences. Furthermore, we characterise the incentives for the private provider to unilaterally relocate towards the public provider.
    Keywords: Mixed Duopoly, Competition, Quality Provision, Motivated Provider, State Subsidy, Co-payment Fees
    JEL: D4 L1 L2 L3
    Date: 2019

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