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on Industrial Organization |
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Issue of 2019‒05‒27
sixteen papers chosen by |
| By: | Catilina, Eliane |
| Abstract: | This paper presents a model of information acquisition in Cournot Market with stochastic demand where the acquisition cost is endogenously determined. The novelty is to consider the possibility of cost reducing alliances to be formed in the first-stage of a two-stage acquisition game. This paper encompasses the main assumptions found in the current literature on information acquisition regarding the role of information and how it affects firms’ profits in a two stage the game. However, we argue that by adding natural assumptions regarding the choices and trade-offs between cost reduction and loss of strategic value we provide a better prediction for the outcome of information acquisition games and welfare implications. |
| Keywords: | Information acquisition; Cost Sharing Alliances; Information Asymmetry; Strong Nash Equilibrium. |
| JEL: | D43 D81 L13 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93896&r=all |
| By: | Francisco Gomez Martinez (BI Norwegian Business School); Sander Onderstal (University of Amsterdam); Maarten Pieter Schinkel (University of Amsterdam) |
| Abstract: | Competition has been argued to erode socially responsible behavior in markets, suggesting that allowing cartel agreements among firms may promote public interest objectives. We test this idea in a laboratory experiment. Participants playing the role of firms choose between offering a ‘fair’ and an ‘unfair’ good to a consumer participant. When the unfair good is traded, a negative externality is imposed on a third party. We vary whether or not the firms are allowed to coordinate on the type of good they sell. We find that the opportunity to coordinate has no significant impact on the fraction of fair goods traded on the market, but polarizes: more of the same good, fair or unfair, is offered. Consumer surplus and profit are, on average, not affected. Irrespective of whether coordination between firms is allowed, participants are more likely to trade the fair good, the stronger their third-party preferences are. These findings suggest that both consumer and managerial values are more important drivers of socially responsible behavior than opportunities for firms to coordinate their CSR activities. We highlight implications for competition policy, where cartels may be exempted on CSR grounds. |
| Keywords: | Collusion, Corporate social responsibility, Public interest, Laboratory experiment, Competition policy |
| JEL: | L41 C92 M14 |
| Date: | 2019–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20190034&r=all |
| By: | Achyuta Adhvaryu; Anant Nyshadham; Jorge A. Tamayo |
| Abstract: | Which managerial skills, traits, and practices matter most for productivity? How does the observability of these features affect how appropriately they are priced into wages? Combining two years of daily, line-level production data from a large Indian garment firm with rich survey data on line managers, we find that several key dimensions of managerial quality, like attention, autonomy, and control, are important for learning-by-doing as well as for overall productivity, but are not commensurately rewarded in pay. Counterfactual simulations of our structural model show large gains from screening potential hires via psychometric measurement and training to improve managerial practices. |
| JEL: | D24 L2 M11 M12 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25852&r=all |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper considers a mixed triopoly model where a state-owned firm, a domestic labor-managed firm and a foreign capitalist firm are allowed to pre-install capacity as a strategic commitment device. First, each firm simultaneously and independently chooses its capacity level. None of the firms can reduce or dispose of capacity. Second, each firm simultaneously and independently chooses its output level. The paper shows that there is an equilibrium solution where only the domestic labor-managed firm pre-installs excess capacity as a strategic commitment device. |
| Keywords: | Excess capacity; State-owned firm; Domestic labor-managed firm; Foreign capitalist firm |
| JEL: | C72 D21 F23 L30 |
| Date: | 2019–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94051&r=all |
| By: | Barbieri, Stefano; Konrad, Kai A.; Malueg, David A. |
| Abstract: | We consider a preemption game between groups where the first agent to take a costly action wins the prize on behalf of his group. We describe the equilibrium solution of this problem when players differ in their own costs of action and these costs are private information. The equilibrium is typically characterized by delay. The nature of the equilibrium depends on key parameters such as the number of groups and their size. More competition between groups reduces delay, whereas in larger groups members of a given cost type are more reluctant to act but may yield an earlier resolution of the conflict. We analyze asymmetries across groups, focusing on group size and strength of the externalities within groups. |
| Keywords: | dynamic conflict; free riding; incomplete information; inter-group conflict; preemption; waiting |
| JEL: | D74 H41 L13 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13738&r=all |
| By: | Michael Bailey; Drew M. Johnston; Theresa Kuchler; Johannes Stroebel; Arlene Wong |
| Abstract: | We study the nature of peer effects in the market for new cell phones. Our analysis builds on de-identified data from Facebook that combine information on social networks with information on users' cell phone models. To identify peer effects, we use variation in friends' new phone acquisitions resulting from random phone losses and carrier-specific contract terms. A new phone purchase by a friend has a substantial positive and long-term effect on an individual's own demand for phones of the same brand, most of which is concentrated on the particular model purchased by the friend. We provide evidence that social learning contributes substantially to the observed peer effects. While peer effects increase the overall demand for cell phones, a friend's purchase of a new phone of a particular brand can reduce individuals' own demand for phones from competing brands---in particular those running on a different operating system. We discuss the implications of these findings for the nature of firm competition. We also find that stronger peer effects are exerted by more price-sensitive individuals. This positive correlation suggests that the elasticity of aggregate demand is substantially larger than the elasticity of individual demand. Through this channel, peer effects reduce firms' markups and, in many models, contribute to higher consumer surplus and more efficient resource allocation. |
| JEL: | D40 L1 L2 M3 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25843&r=all |
| By: | Kenneth Gillingham; Sébastien Houde; Arthur van Benthem |
| Abstract: | A central question in the analysis of fuel-economy policy is whether consumers are myopic with regards to future fuel costs. We provide the first evidence on consumer valuation of fuel economy from a natural experiment. We examine the short-run equilibrium effects of an exogenous restatement of fuel-economy ratings that affected 1.6 million vehicles. Using the implied changes in willingness-to-pay, we find that consumers act myopically: consumers are indifferent between $1 in discounted fuel costs and 15-38 cents in the vehicle purchase price when discounting at 4%. This myopia persists under a wide range of assumptions. |
| JEL: | D12 L62 Q4 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25845&r=all |
| By: | Kenneth Gillingham; Fedor Iskhakov; Anders Munk-Nielsen; John P. Rust; Bertel Schjerning |
| Abstract: | We introduce a computationally tractable dynamic equilibrium model of the automobile market where new and used cars of multiple types (e.g. makes/models) are traded by heterogeneous consumers. Prices and quantities are determined endogenously to equate supply and demand for all car types and vintages, along with the ages at which cars are scrapped. The model allows for transactions costs, taxes, flexible specifications of car characteristics, consumer preferences, and heterogeneity. We apply the model to two examples: a revenue-neutral replacement of the new vehicle registration tax with a higher fuel tax and a hypothetical “merger to monopoly” in an oligopolistic new car market. We show substantial gains in consumer welfare from the tax policy change, as well as important effects on government revenues, automobile prices, driving, fuel consumption and CO 2 emissions, while the merger leads to substantial welfare losses. |
| JEL: | L9 L98 Q4 Q5 R4 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25840&r=all |
| By: | Bárcena Ruiz, Juan Carlos; Casado Izaga, Francisco Javier |
| Abstract: | This paper investigates zoning in two neighboring towns in which firms are owned by investors that reside in the two towns. We find that local regulators use zoning strategically depending on the weight of local profits in social welfare. When they are high enough both towns are zoned. For intermediate values an asymmetric result emerges: only one regulator resorts to zoning despite the symmetry in the percentage of ownership of the neighboring firms. For a low weight of local profits, towns may or may not be zoned. Zoning restrictions on the location of firms are tighter when local profits are more significant for social welfare. |
| Keywords: | zoning, spatial, competition, foreign, ownership, location, choice |
| JEL: | L13 R32 R38 |
| Date: | 2019–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:32820&r=all |
| By: | Thierry Kirat; Frédéric Marty |
| Abstract: | This paper presents the late convergence process from US economists that led them to support a strong antitrust enforcement in the late thirties despite their long standing distrust toward this legislation. The 1945 Alcoa decision crafted by Judge Hand embodied the results of this convergence. The purpose of antitrust law enforcement does not consist in promoting economic efficiency, as today’s more economic approach advocates, but in searching for a reasonable compromise aiming at preventing improper uses of economic power. This paper presents the path from which institutionalist economists, on one side, and Chicagoan neoliberals, on the other one, have converged on supporting the President F.D. Roosevelt administration towards reinvigorating antitrust law enforcement as of 1938, putting aside their initial preferences for a regulated competition model or for laissez-faire. |
| Keywords: | Antitrust,efficiency,economic power,institutional economics,Chicago School, |
| JEL: | B25 K21 L40 N42 |
| Date: | 2019–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2019s-12&r=all |
| By: | Murphy, Daniel |
| Abstract: | From five-star hotels and Michelin Star restaurants, few industries signal their quality and unique selling points through the use of third-party seals like tourism. However, despite using seals and certifications in advertising being widespread, little academic research has been conducted into their effectiveness. Through the running of campaigns on Facebook’s Ad Manager for Indian airline Jet Airways, this study applies the Third-Party Seal Model to optimise campaign audiences to target the right prospects with the most effective message. Findings and a practical framework for optimal campaign delivery for the airline industry are presented. |
| Keywords: | Third-Party Seal Model; social media advertising; airline marketing; third-party seals; online advertising |
| JEL: | L83 L93 M37 |
| Date: | 2019–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93886&r=all |
| By: | Nikhil Garg; Hamid Nazerzadeh |
| Abstract: | Uber and Lyft ride-hailing marketplaces use dynamic pricing, often called surge, to balance the supply of available drivers with the demand for rides. We study pricing mechanisms for such marketplaces from the perspective of drivers, presenting the theoretical foundation that has informed the design of Uber's new additive driver surge mechanism. We present a dynamic stochastic model to capture the impact of surge pricing on driver earnings and their strategies to maximize such earnings. In this setting, some time periods (surge) are more valuable than others (non-surge), and so trips of different time lengths vary in the opportunity cost they impose on drivers. First, we show that multiplicative surge, historically the standard on ride-hailing platforms, is not incentive compatible in a dynamic setting. We then propose a structured, incentive-compatible pricing mechanism. This closed-form mechanism has a simple form, and is well-approximated by Uber's new additive surge mechanism. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1905.07544&r=all |
| By: | Douglas L. Campbell (New Economic School (NES)); Karsten Mau (Maastricht University) |
| Abstract: | Bloom, Draca, and Van Reenen (2016) find that Chinese competition induced a rise in patenting, IT adoption, and TFP by 30% of the total increase in Europe in the early 2000s. We find that the average patents per firm fell by 94% for the most Chinacompeting firms in their sample, but also by 94% for non-competing firms (starting from an initially higher level), and that various intuitive controls, such as controls for sectoral trends, renders the impact on patents-per-firm insignificant. We also find that while TFP appears to be positively correlated with the rise in Chinese competition, IV estimates are inconclusive, and other measures of productivity, such as value-added per worker and profits, are not correlated. Various instrumental and proxy variable approaches also do not support a positive impact of the rise of China on European patents. |
| Keywords: | Patents, China, Europe, Textiles, Trade Shocks, Manufacturing |
| JEL: | F14 F13 L25 L60 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0252&r=all |
| By: | Blázquez de Paz, Mario (the Norwegian University of Science and Technology, Trondheim) |
| Abstract: | Zonal pricing electricity markets operate sequentially. First, the suppliers compete in a spot market. Second, to alleviate the congestion in the transmission line, in a redispatch market, the suppliers in the importing node are called into operation to increase their production, and the suppliers in the exporting node are compensated to reduce their production. I characterize the equilibrium in a zonal market when the competition is imperfect and the spot and redispatch markets operate sequentially. I also work out the equilibrium when the transmission line is taken into account in the spot market, i.e., it is not necessary to introduce a redispatch market to alleviate the congestion in the transmission line. I find that the consumers' welfare and suppliers' profits depend crucially on the type of redispatch design implemented by the auctioneer, and that could introduce long term investment distortions. |
| Keywords: | Electricity auctions; Redispatch design; Transmission constraint; Zonal pricing electricity markets |
| JEL: | D43 D44 L13 L94 |
| Date: | 2019–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1278&r=all |
| By: | John Asker; C. Scott Hemphill |
| Abstract: | In this paper we examine exclusion accomplished by a coalition of firms—frequently, a coalition of suppliers and customers—that share the benefits of exclusion. As a particular historical example, we study the Canadian sugar industry of the 1880s, which was controlled by a complex coalition of refiners and wholesalers. We assess the incentives and conduct of the parties as revealed in the records of a House of Commons inquiry into anticompetitive practices in the industry. Drawing upon this example, we identify and evaluate several doctrinal approaches to establishing antitrust liability for anticompetitive exclusionary coalitions. |
| JEL: | D43 K21 L40 L41 L42 N81 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25856&r=all |
| By: | Berden, Carolien; Croes, R.; Kemp, R.; Mikkers, Misja (Tilburg University, TILEC); van der Noll, Rob; Shestalova, V. (Tilburg University, TILEC); Svitak, Jan (Tilburg University, TILEC) |
| Abstract: | The Dutch government introduced managed competition to the health care sec- tor in 2006. In this regulatory framework insurers compete for enrollees and providers compete for contracts with insurers. The resulting contracts are de- termined by bargaining, which outcome depends on the relative position of the provider. In this paper, we compare how commonly used market power indi- cators predict bargaining outcomes. We combine 2013 transaction data with bilateral contract data. Our empirical models explain the relative dierences in hospitals' revenues while controlling for dierences in the complexity of patients. Four indicators are used: the logit competition index (LOCI), willingness-to-pay (WTP), Elzinga-Hogarty market share and a rule-of-thumb market share. We nd that WTP and LOCI perform best empirically. |
| Keywords: | hospital competition; market power; bargaining |
| JEL: | I11 L44 L13 D22 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutil:e30db5a4-5c1c-450b-8f1d-635ae9a2373e&r=all |