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

  1. The Herfindahl-Hirschman Index and the distribution of social surplus By Spiegel, Yossi
  2. Consumer Learning and Firm Dynamics By Zachary Mahone; Filippo Rebessi
  3. Sequencing R&D decisions with a consumer-friendly firm and spillovers By Leal, Mariel; Garcia, Arturo; Lee, Sang-Ho
  4. Explaining the Interplay Between Merchant Acceptance and Consumer Adoption in Two-Sided Markets for Payment Methods By Kim Huynh; Gradon Nicholls; Oleksandr Shcherbakov
  5. Measuring rail market power in wheat transportation By Su, Chi; Nolan, James
  7. Global Value Chains and the Innovation of the Chinese Mobile Phone Industry By Yuqing Xing

  1. By: Spiegel, Yossi
    Abstract: I show that in a broad range of oligopoly models where firms have (not necessarily identical) constant marginal cost, HHI is an increasing function of the ratio of producers' surplus and consumers' surplus and therefore reflects the division of surplus between firms' owners and consumers.
    Keywords: Consumer surplus; HHI; oligopoly; producer surplus
    JEL: D43 L41
    Date: 2019–08
  2. By: Zachary Mahone; Filippo Rebessi
    Abstract: We propose a general equilibrium model of industry where consumers learn about firms' unobserved product quality over time. Because consumers learn through purchase decisions, price setting is a crucial lever through which firms manipulate future demand. We map equilibrium policies to a range of empirical evidence on industry, firm, product and price dynamics. We then study how firms respond as consumer information varies. Specifically, we show that firms exacerbate information problems by constraining learning more aggressively in those markets where consumers are less informed. Developing an indicator of consumer information by product category, we find these are typically markets for consumer durables. Finally, the efficiency implications of this behavior and interaction with size-dependent policies are explored.
    Keywords: Learning; Firm Dynamics; Product Quality; Welfare
    JEL: E23 D83 L11
    Date: 2019–08
  3. By: Leal, Mariel; Garcia, Arturo; Lee, Sang-Ho
    Abstract: This study considers a duopoly model in which both a consumer-friendly (CF) firm and a for-profit (FP) firm undertake cost-reducing R&D investments in an endogenous R\&D timing game and then play Cournot output competition. When the CF firm chooses its profit-oriented consumer-friendliness, we show that the consumer-friendliness is non-monotone in spillovers under both simultaneous-move and sequential-move with FP firm’s leadership while it is decreasing under sequential-move with CF firm’s leadership. We also show that a simultaneous-move outcome is a unique equilibrium when the spillovers are low and the CF firm invests higher R&D and obtains higher profits. When the spillovers are not low, two sequential-move outcomes appear and the CF firm might obtain lower profits with higher spillovers under the CF firm leadership.
    Keywords: simultaneous R&D decisions; sequential R&D decisions; consumer-friendly firm; R&D spillovers
    JEL: L21 M21 O32
    Date: 2019–08
  4. By: Kim Huynh; Gradon Nicholls; Oleksandr Shcherbakov
    Abstract: Recent consumer and merchant surveys show a decrease in the use of cash at point-of-sale (POS). Increasingly, consumers and merchants have access to a growing array of payment innovations as substitutes for cash. The market for payments is two-sided, meaning that a method of payment can be used only if both consumers and merchants adopt/accept it. This paper develops a model to assess how innovations affect consumers’ adoption and merchants’ acceptance of various payment instruments, and their usage patterns at the POS. We model this interdependence in two stages. First, consumers and merchants decide on which methods of payment to adopt and accept, respectively. Second, consumers and merchants meet at the POS, and the consumer chooses their preferred method of payment given what the merchant accepts. Estimates from our model suggest that both sides of the market can benefit from accepting all means of payment. Further, our model predicts that merchants are much more sensitive to an increase in their payment costs than consumers. We use our model to predict what would happen under three scenarios. First, increasing merchants’ cost of using credit cards would significantly reduce merchant acceptance of this payment instrument in favour of debit. Second, the cost of using cash would have to increase substantially on both sides of the market for cash usage to fall below 1 percent of transaction volume. Finally, even if all consumers/merchants adopted/accepted all methods of payment, cash would fall but would remain at 20 percent of transaction volume. These findings suggest a completely cashless society is unlikely in the foreseeable future.
    Keywords: Bank notes; Digital Currencies and Fintech; Econometric and statistical methods; Financial services
    JEL: C51 L13 L15 L81 L96
    Date: 2019–08
  5. By: Su, Chi; Nolan, James
    Abstract: Many previous studies of rail market power in bulk transportation either focus the analysis at a national level or apply methods to analyze railway market behavior that are not always reliable. While railroads often appear competitive over bulk movements when evaluated on a national level, we offer that any exertion of market or duopoly power by a railway—if present—would be most likely to occur in local or regional markets where there is limited to no intramodal or intermodal competition. In addition, much of the prior research on rail market behavior relies on estimated railroad (marginal) costs, which are themselves unreliable and in turn generate questionable assessments of actual railway market power. To help shed light on this issue with respect to U.S. wheat transportation, this research evaluates regional-level market structure changes in two separate, high-volume wheat transportation corridors served by a rail duopoly. These are: (1) wheat moving from North Dakota to Minnesota; and (2) wheat moving from Kansas/Oklahoma to Texas. By assessing the nature of duopoly market power in these particular rail markets, the analysis helps support and inform policies designed to improve transportation markets for more captive wheat and grain shippers.
    Keywords: Industrial Organization, Research Methods/ Statistical Methods
    Date: 2019–09–04
  6. By: Giacomo Degli Antoni (University of Parma, Department of Law); Magalì Fia (Dipartimento di ingegneria gestionale, Politecnico di Milano); Lorenzo Sacconi (University of Milan)
    Abstract: In the debate surrounding various reforms in higher education systems, performance, along with how universities should be governed, have been main issues. We argue that the demand for shared governance, i.e., faculty participation in decision‐making vs. concentrated or top‐down decision‐ making, is driven by the characteristics of academic transactions. Especially in universities, shared governance prevents that the unilateral allocation of authority paves the way to the abuse of authority, which would depress incentives to undertake optimal idiosyncratic investments in human cognitive resources, or prevent cooperation in a context characterized by contractual incompleteness and transactions involving multiple specific investments and coessential resources. To empirically analyze our hypothesis, we collect original survey data of Italian universities in 2015. We find that shared decision‐making processes are correlated with better performance.
    Keywords: universities; shared governance; new public management; performance; theory of the firm; economics of institutions
    JEL: L2 L21 I2 I23 D2 D23
    Date: 2019–08
  7. By: Yuqing Xing (National Graduate Institute for Policy Studies, Tokyo, Japan)
    Abstract: Global Value chains (GVC) provide a new channel of innovation for firms participating in value chains or utilizing the value chain strategy to grow. Upgrading to high value added segments of GVCs step by step is a linear model of innovation. Our analysis on the Chinese firms involved in the value chain of the iPhone shows that the Chinese mobile industry has climbed up ladders of the iPhone value chain and performed relatively sophisticated tasks beyond simple assembly. In addition, by examining foreign value added and technology embedded in the smartphones of OPPO, Xiaomi and Huawei, we argue the Chinese smartphone vendors primarily follow a non-linear model of innovation, jumping directly to brand development before acquiring sufficient technology capacity. They have been focusing on incremental innovations and product differentiation by taking advantage of available technology platforms. The value chain strategy enabled them to overcome technology deficiency effectively and opened a short-cut to catch-up foreign rivals and evolve into leading smartphone makers in both domestic and foreign markets.
    Date: 2019–08

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