nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒09‒02
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price Discrimination in the Information Age: Prices, Poaching, and Privacy with Personalized Targeted Discounts By Anderson, Simon P; Baik, Alicia; Larson, Nathan
  2. Does competition increase pass-through? By Ritz, R.
  3. Innovation spillover, licensing, and ex-post privatization in international duopoly By Liu, Yi; Tan, Yu; Fang, Yu
  4. The Impact of Product Qualities on Downstream Bundling in a Distribution Channel By Angelika Endres; Joachim Heinzel
  5. Competition in Markets for Ancillary Services? The implications of rising distributed generation By Pollitt, M., Anaya, K.; Anaya, K.
  6. The impact of EU cartel policy reforms on the timing of settlements in private follow-on damages disputes: An empirical assessment of cases from 2001 to 2015 By Hans W. Friederiszick,; Linda Gratz,; Michael Rauber,
  7. Launch of a product and patents: evidence from the US cardiovascular pharmaceutical sector By Francesca Di Iorio; Maria Letizia Giorgietti
  8. A new approach to estimating state dependence in consumers’ brand choices applied to 762 pharmaceutical markets By Granlund, David
  9. Market concentration and bank M&As: Evidence from the European sovereign debt crisis By Leledakis, George N.; Pyrgiotakis, Emmanouil G.
  10. China’s Industrial Policy: an Empirical Evaluation By Panle Jia Barwick; Myrto Kalouptsidi; Nahim Bin Zahur
  11. Assessing Market Power in the Italian Electricity Market: A synthetic supply approach By Rossetto, F.; Grossi, L.; Pollitt, M.

  1. By: Anderson, Simon P; Baik, Alicia; Larson, Nathan
    Abstract: We study list price competition when firms can individually target discounts (at a cost) to consumers afterwards, and we address recent regulation (such as the GDPR in Europe) that has empowered consumers to protect their privacy by allowing them to choose whether to opt in to data-gathering and targeting. In equilibrium, consumers who can be targeted receive poaching and retention discount offers from their top two firms. These offers are in mixed strategies, but final profits on such a consumer are simple and Bertrand-like. More contestable consumers receive more ads and are more likely to buy the wrong product. Poaching exceeds retention when targeting is expensive, but this reverses when targeting is cheap. Absent opt-in choice, firm list pricing resembles monopoly, as marginal consumers are lost to the lowest feasible poaching offer, not to another firm's list price. Opt-in choice reintroduces the standard margin too on those who opt out. The winners and losers when targeting is unrestricted (rather than banned) depend on the curvature of demand. For the empirically plausible case (convex but log-concave), targeting pushes up list prices, reduces profits and total welfare, and (if demand is convex enough) hurts consumers on average. Outside of this case, more convex (concave) demand tends to make targeting more advantageous to firms (consumers). We then use our model to study the welfare effects of a policy that forbids targeted advertising to consumers who have not opted in. Consumers opt in or out depending on whether expected discounts outweigh the cost of foregone privacy. For empirically relevant demand structures, allowing opt-in makes all consumers better-off.
    Keywords: competitive price discrimination; discounting; GDPR; opt-in; privacy; targeted advertising
    JEL: D43 L12 L13 M37
    Date: 2019–06
  2. By: Ritz, R.
    Abstract: How does market power affect the rate of pass-through from marginal cost to the market price? A standard intuition is that more competition makes prices more “cost-reflective” and thus raises cost pass-through. This paper shows that this intuition is sensitive to the common assumption in the literature that firms’ marginal costs are constant. If firms have even modestly increasing marginal costs, more intense competition actually reduces pass through. These results apply to the “normal” case where pass-through is less than 100%. They have implications for competition policy and environmental regulation.
    Keywords: Cost pass-through, imperfect competition, perfect competition, production technology
    JEL: D24 D41 D42 D43
    Date: 2019–08–21
  3. By: Liu, Yi; Tan, Yu; Fang, Yu
    Abstract: This paper studies the impact of innovation spillover and licensing on optimal ex-post privatization policies by involving an exogenous R&D activity in a partial-equilibrium international duopoly setting. By assuming a domestic public firm is relatively inefficient compared to its foreign private rival, we characterize and discuss optimal privatization policies under both foreign private and domestic public innovation. The theoretical results suggest that foreign private (domestic public) innovation, including both spillover and licensing, reduces (increases) the optimal degree of ex-post privatization. In addition, innovation spillover and licensing have the same impact direction on privatization policies. The numerical evidence supports these theoretical findings.
    Keywords: Spillover, Licensing, Ex-post Privatization, International Duopoly
    JEL: F13 H4 L13 L24 L33
    Date: 2019–08–09
  4. By: Angelika Endres (Paderborn University); Joachim Heinzel (Paderborn University)
    Abstract: We study the impact of exogenous product qualities on a downstream firm’s decision to bundle and the welfare effects of downstream bundling. We consider a distribution channel with two downstream firms and two price-setting monopolistic upstream producers. One upstream firm sells its good 1 exclusively to one downstream firm and the other upstream firm sells its good 2 to both downstream firms. The downstream firms compete in prices and the two-product downstream firm has the option to bundle its goods. We find that downstream bundling aggravates the problem of double marginalization in the channel, but reduces the intensity of downstream competition. Finally, bundling is profitable for the two-product downstream firm only when the quality of good 2 exceeds the quality of good 1. However, bundling is always profitable when the production process is controlled by the downstream industry. The impact on total welfare is ambiguous and depends on the distribution of market power in the channel and the quality levels of the goods.
    Keywords: channel conflicts; double marginalization; downstream bundling; leverage theory; quality differentiation
    JEL: D21 D61 L11 L15
    Date: 2019–08
  5. By: Pollitt, M., Anaya, K.; Anaya, K.
    Abstract: Ancillary services are electricity products which include balancing energy, frequency regulation, voltage support, constraint management and reserves. Traditionally they have been procured by system operators from large conventional power plants, as by-products of the production of energy. This paper discusses the use of markets to procure ancillary services in the face of potentially higher demand for them, caused by rising amounts of intermittent renewable generation. We discuss: the nature of markets for ancillary services; what we really mean by ancillary services; how they are impacted by the rise of distributed generation; how they are currently procured; how they relate to the rest of the electricity system; the current state of evidence on ancillary services markets; whether these markets ever be as competitive as conventional wholesale energy markets, and offer some conclusions.
    Keywords: ancillary services, balancing energy, frequency regulation, reactive power, constraint management, reserves
    JEL: L94
    Date: 2019–08–21
  6. By: Hans W. Friederiszick, (ESMT European School of Management and Technology and E.CA Economics); Linda Gratz, (E.CA Economics); Michael Rauber, (E.CA Economics)
    Abstract: Private cartel damages litigation is on the rise in Europe since early 2000. This development has been initiated by the European courts and was supported by various policy initiatives of the European Commission, which found its culmination in the implementation of the EU Directive on Antitrust Damages end of 2016. This paper explores the impact of this reform process on effective compensation of damaged parties of cartel infringements. For that purpose we analyse all European cartel cases with a decision date between 2001 and 2015, for which we analyse litigation activity and speed. Overall, we find a substantial reduction of the time until first settlement (increase in litigation speed) together with a persisting high share of cases being litigated (high litigation activity). This supports the view that the reform not only increased the claimant’s expectation about the amount of damages being awarded, but also resulted in an alignment in the expectations of claimants and defendants in the final damages amount, i.e. the European Commission succeeded in reaching its objective to clarify and harmonize legal concepts across Europe.
    Keywords: Cartels, private damages, competition law
    Date: 2019–08–26
  7. By: Francesca Di Iorio (Università di Napoli Federico II); Maria Letizia Giorgietti (Università di Milano)
    Abstract: Recent literature on the role of patents in shaping competition between incumbents and new entrants shows mixed evidence, as patents can discourage entry into markets but may also encourage potential entrants by increasing profitability from research and development. The increasing use of patents as strategic weapons motivates this investigation of the impact of innovation on competition. In a case study of US pharmaceutical cardiovascular submarkets over the period 1988-1998, we use a panel probit model to study the impact of a firm’s patents and rivals’ patents in the firm’s decision to launch new products. Our results show that the number of a firm’s lagged patents encourages the firm’s entry with new products, while rivals’ initial stock of patents discourages entry, but more recent patents promote entry by opening new technological opportunities.
    Keywords: Entry, Patents, Panel data, Probit model, Submarkets
    JEL: L11 L65 C11 C23 C25
    Date: 2019–02
  8. By: Granlund, David (Department of Economics, Umeå University)
    Abstract: This article shows how state dependence effects can be estimated for many markets and with few assumptions by using data on how the shares buying specific products differ between those who bought the same product on their latest purchase occasion and other consumers. Using as instrument information regarding which product was cheapest when consumers made their last purchase, I estimate that state dependence increases the probability that consumers will buy the product they bought the last time by 8 percentage points. This effect is larger for women and the elderly than for men and younger consumers. The state dependence effect is also larger for brand-names than for generic products, but not significantly related to number of previous purchases.
    Keywords: Brand choice; Consumer dynamics; Drugs; Quasi-experiment econometrics; State dependence
    JEL: D12 D90 I11 L65
    Date: 2019–08–22
  9. By: Leledakis, George N.; Pyrgiotakis, Emmanouil G.
    Abstract: Using a sample of 312 bank M&As announced between 1998 and 2016 in the EU-27 countries, this paper investigates the impact of market concentration and the European sovereign debt crisis on the way investors react to these corporate events. In Western European countries, we find results which contrast the conventional wisdom that acquiring banks lose around the merger announcement date. In fact, since 2009, acquiring banks shareholders gain approximately $34 million around the announcement, a $56 million improvement compared to the pre-crisis period. These documented shareholder gains are also accompanied by significant improvements in post-merger profitability. Markedly, we link this superior performance of the post-2008 acquirers with the degree of market concentration in the Western European region. Finally, results for the Eastern European countries indicate that the crisis did not have a significant impact on the quality of bank M&As in the region.
    Keywords: European sovereign debt crisis; bank mergers and acquisitions; market concentration; event study
    JEL: G01 G14 G15 G21 G34
    Date: 2019–08–26
  10. By: Panle Jia Barwick; Myrto Kalouptsidi; Nahim Bin Zahur
    Abstract: Despite the historic prevalence of industrial policy and its current popularity, few empirical studies directly evaluate its welfare consequences. This paper examines an important industrial policy in China in the 2000s, aiming to propel the country's shipbuilding industry to the largest globally. Using comprehensive data on shipyards worldwide and a dynamic model of firm entry, exit, investment, and production, we find that the scale of the policy was massive and boosted China's domestic investment, entry, and world market share dramatically. On the other hand, it created sizable distortions and led to increased industry fragmentation and idleness. The effectiveness of different policy instruments is mixed: production and investment subsidies can be justified by market share considerations, but entry subsidies are wasteful. Finally, the distortions could have been significantly reduced by implementing counter-cyclical policies and by targeting subsidies towards more productive firms.
    JEL: L1 L5 L6 O2
    Date: 2019–07
  11. By: Rossetto, F.; Grossi, L.; Pollitt, M.
    Abstract: The aim of this article is to investigate the effects of the bidding strategies of leading firms on market equilibria. The analysis focuses on the Italian wholesale electricity market from 2015 to 2018. The purpose is to assess if the observed market equilibria are the results of a competitive setting or if more competitive equilibria could have occurred. We use the methodology of synthetic supply proposed by Ciarreta et al. (2010a). This way, a new set of synthetic prices and quantities is computed. The comparison between the actual and synthetic prices allows us to assess the effects of market power on the actual equilibria. Results suggest that whilst there is a significant impact on prices, quantities seem not to be affected, due to the inelastic demand. Moreover, our findings suggest that the main impacts occurred during 2017 especially during those months where above average heating and cooling were required.
    Keywords: Electricity Wholesale Market, Market Power, Bidding Strategy, Synthetic Supply
    JEL: L94
    Date: 2019–08–21

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