nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒08‒26
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Guiding Principles in Setting Cartel Sanctions By Marcel Boyer; Anne Catherine Faye; Éric Gravel; Rachidi Kotchoni
  2. Competition, Land Prices, and City Size By Sergey Kichko
  3. Nonlinear Pricing with Average-Price Bias By Martimort, David; Stole, Lars
  4. Pricing Better By Daniel Levy; Sourav Ray; Li Wang; Mark Bergen
  5. The Price to Consumers of Generic Pharmaceuticals: Beyond the Headlines By Richard G. Frank; Andrew Hicks; Ernst R. Berndt
  6. From Local to Global Competitors on the Beer Market By Erik Strøjer Madsen

  1. By: Marcel Boyer; Anne Catherine Faye; Éric Gravel; Rachidi Kotchoni
    Abstract: We discuss various theoretical and empirical hurdles that antitrust authorities and courts must overcome to determine appropriate cartel sanctions, namely regarding the probability of detection, cartel dynamics, cartel duration, and cartel overcharge. Nous discutons les enjeux et embûches théoriques et empiriques auxquels les autorités de concurrence et les tribunaux font face pour sanctionner les cartels, à savoir la probabilité de détection, la dynamique de cartel, la durée de l’impact et le surprix.
    Keywords: Cartels,Fines,Competition Policy,Antitrust, Cartels,Amendes,Politique de concurrence,Antitrust
    Date: 2019–08–16
  2. By: Sergey Kichko
    Abstract: Larger cities typically give rise to two opposite effects: tougher competition among firms and higher production costs. Using an urban model with substitutability of production factors and pro-competitive effects, I study the response of the market outcome to city size, land-use regulations, and commuting costs. For industries with low input shares of land, larger cities host more firms setting lower prices whereas for sectors with intermediate land shares larger cities accommodate more firms charging higher prices. Softer land-use regulations and/or lower commuting costs reinforce pro-competitive effects, making larger cities more attractive for residents via lower prices and broader product diversity.
    Keywords: land prices, pro-competitive effects, city size, product diversity, land-use regulations
    JEL: L11 L13 R13 R32 R52
    Date: 2019
  3. By: Martimort, David; Stole, Lars
    Abstract: Empirical evidence suggests that consumers facing complex nonlinear pricing often make choices based on average (not marginal) prices. Given such behavior, we characterize a monopolist's optimal nonlinear price schedule. In contrast to the textbook setting, nonlinear prices designed for ``average-price bias'' distort consumption downward for consumers at the top, may produce efficient consumption for consumers at the bottom, and typically feature quantity premia rather than quantity discounts. These properties arise because the bias replaces consumer information rents with curvature rents. Whether or not a monopolist prefers consumers with average-price bias depends upon underlying preferences and costs.
    Keywords: average-price bias; curvature rents; Nonlinear Pricing; price discrimination
    JEL: D82
    Date: 2019–07
  4. By: Daniel Levy (International School of Economics at Tbilisi State University, Georgia; Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; The Rimini Centre for Economic Analysis, Italy); Sourav Ray (Marketing Department, DeGroote School of Business McMaster University Hamilton, CANADA); Li Wang (CHEPA, McMaster University Hamilton, CANADA); Mark Bergen (Department of Marketing, Carlson School of Management University of Minnesota Minneapolis, USA)
    Abstract: Electronic shelf label (ESL) is an emerging price display technology around the world. While these new technologies require non-trivial investments by the retailer, they also promise significant operational efficiencies in the form of savings in material, labor and managerial costs. The presumed benefits of ESL, for example, tend to be focused around lower price adjustment costs (PAC), also known as menu costs. However, ESL not only can save PAC but may also enable the retailer to price “better,” generating greater value for the transacting parties. Thus, ESL’s strategic impact for retailers occurs between claiming these presumed efficiencies and realizing the value generating potential. Using transactions data from a longitudinal field experiment, we assess such impact of ESL by studying how it shapes retail pricing practices and outcomes. Our general finding is that ESL plays an enabling role to the retailer’s strategy – thereby enhancing the retailer’s sales and revenues. The price adjustment efficiencies of ESL allows retailers to do better waste management, price discovery, as well as leveraging value in information for consumers. However, ESL’s impact on prices is nuanced, based on the retail strategy (EDLP, HI-LO) being used. Papers quantifying emerging technologies’ impact on retail outcomes are sparse, even fewer investigating their role in pricing. To the best of our knowledge, ours is the first study to explore and quantify how ESL interacts with retail strategy to affect retail pricing practices and retail outcomes.
    Keywords: Retailing; Pricing; EDLP; HI-LO; Dynamic Capability; Menu Costs; Price Adjustment; Price Elasticity; Price Discovery
    Date: 2019
  5. By: Richard G. Frank; Andrew Hicks; Ernst R. Berndt
    Abstract: Generic drug prices have been the focus of much attention in recent years, with Congressional committees, executive agencies and private organizations all conducting investigations into the pricing patterns for generic drugs. Price spikes for selected old, off-patent drugs have also been widely reported in the media. To place these generic price increases into context, we construct two chained Laspeyres consumer price indexes (CPIs), using the 2007-2016 IBM MarketScan Commercial Claims and Encounters Research Database. The first ("direct out-of-pocket CPI") measures consumers' direct out-of-pocket payments to the dispensing pharmacy, while the second ("total CPI") represents the total revenues received by the dispensing pharmacy – the consumers' direct out-of-pocket payments plus the amount paid to the pharmacy by the insurer on behalf of the consumer. We find the chained direct-out-of-pocket CPI for generic prescription drugs declines by about 50% between 2007 and 2016, while the total CPI falls by nearly 80% over the same time period. The smaller decline in the direct out-of-pocket CPI than in the total CPI is due in part to consumers' increasingly moving away from fixed copayment benefit plans to pure coinsurance or a mixed package of coinsurance and copayments. While consumers are experiencing more cost sharing that in fact shifts more of the drug cost burden on to them, on balance in the US consumers have experienced substantial price declines for generic drugs.
    JEL: I11 L16 L65
    Date: 2019–07
  6. By: Erik Strøjer Madsen (Department of Economics and Business Economics, Aarhus University)
    Abstract: Liberalization of trade has been high on the political agenda after the Second World War. First through the international corporation in GATT and WTO and later the creation of the internal market in Western Europe and the opening up of Eastern Europe and China. The breweries respond to these changes in institution by a global M&A strategy and the following concentration of ownership among breweries increased the large breweries’ global market share dramatically. Why does this concentration in ownership take place, and was there some pay off to the breweries of this strategy? We will examine the market power hypothesis, how the increasing concentration has affected the growth of global brands and the beer prices. First, we examine where the increasing global concentration is reflected in a concentration of ownership in local markets. Next, we examine the effects of ownership concentration on the level of beer prices. Finally, we examine the effects of the global ownership on the market share of the global beer brand.
    Keywords: Branding, Brewing industry, Global market power
    JEL: L11 L66 M37
    Date: 2019–08–20

This nep-ind issue is ©2019 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.