nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒10‒21
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Rational Buyers Search When Prices Increase By Cabral, Luís M B; Gilbukh, Sonia
  2. Firm acquisitions by family firms: A mixed gamble approach By Hussinger, Katrin; Issah, Abdul-Basit
  3. Vertical Integration under an Optimal Tax Policy: a Consumer Surplus Detrimental Result By Giuranno, Michele G.; Scrimitore, Marcella; Stamatopoulos, Giorgos
  4. Platform Competition with Multihoming on Both Sides: Subsidize or Not? By Yannis Bakos; Hanna Halaburda
  5. The Unexpected Consequences of Generic Entry By Micael Castanheira; Carmine Ornaghi; Georges Siotis
  6. Assessing DOJ’s Proposed Remedy in Sprint/T-Mobile: Can Ex Ante Competitive Conditions in Wireless Markets Be Restored? By Nicholas Economides; John Kwoka; Thomas Philippon; Robert Seamans; Hal Singer; Marshall Steinbaum; Lawrence J. White
  7. Foreign Competition and Domestic Innovation: Evidence from U.S. Patents By Autor, David; Dorn, David; Hanson, Gordon H.; Pisano, Gary; Shu, Pian
  8. Price Discrimination within and across EMU Markets: Evidence from French Exporters By Fontaine, Francois; Martin, Julien; Mejean, Isabelle

  1. By: Cabral, Luís M B; Gilbukh, Sonia
    Abstract: We develop a dynamic pricing model motivated by observed patterns in business-to-business (and some business-to-customer) transactions. Seller costs are perfectly correlated and evolve according to a Markov process. In every period, each buyer observes (for free) the price set by their current supplier, but not the other sellers' prices or the sellers' (common) cost level. By paying a cost s the buyer becomes "active" and benefits from (Bertrand) competition among sellers. We show that there exists a semi-separating equilibrium whereby sellers increase price immediately when costs increase and otherwise decrease price gradually. Moreover, buyers become active when prices increase but not otherwise. In sum, we deliver a theory whereby buyers become active ("search") if and only if their supplier increases price.
    JEL: D83
    Date: 2019–08
  2. By: Hussinger, Katrin; Issah, Abdul-Basit
    Abstract: This study elucidates the mixed gamble confronting family firms when considering a related firm acquisition. The socioemotional and financial wealth trade-off associated with related firm acquisitions as well as their long-term horizon turns family firms more likely to undertake a related acquisition than non-family firms, especially when they are performing above their aspiration level. Post-merger performance pattern confirm that family firms are able to create long-term value through these acquisitions and by doing so they surpass non-family firms. These findings stand in contrast to commonly used behavioural agency predictions, but can be reconciled with theory through a mixed gambles' lens.
    Keywords: firm acquisitions,related firm acquisitions,mixed gamble,aspiration level,socioemotional wealth,value creation
    JEL: G34 L10 L20 M20
    Date: 2019
  3. By: Giuranno, Michele G.; Scrimitore, Marcella; Stamatopoulos, Giorgos
    Abstract: It is widely believed that vertical integration in an environment without foreclosure, or more generally without any mechanism that restricts competition among firms, raises the welfare of consumers. In this paper we show that this can be overturned in a standard setting. We consider a vertical structure where each downstream firm purchases an input from its exclusive upstream supplier in the presence of a welfare maximizing government which taxes/subsidizes the product of the downstream market. We show that a single or multiple vertical integrations alter the optimal governmental policy in a way that hurts consumers: integration induces the government to reduce the optimal subsidy and, as a result, industry output and consumer welfare decline.
    Keywords: Research Methods/ Statistical Methods
    Date: 2019–10–17
  4. By: Yannis Bakos (Stern School of Business, New York University); Hanna Halaburda (Stern School of Business, New York University)
    Abstract: As the costs of joining platforms decrease, we often see participants in both sides of two-sided platforms to multihome, a case mostly ignored in the literature on competition between two-sided platforms. We help to fill this gap by developing a model for platform competition in a differentiated setting (a Hoteling line), which is similar to other models in the literature but focuses on the case where at least some agents on each side multihome. We show that in that case the strategic interdependence between the two sides of the same platform may be of lesser importance, or even not be present at all, compared to models that assume single-homing on at least one side of the market. The implication is that when multihoming may be present on both sides of the market, the benefit of subsidizing one side (typically the one with higher price elasticity) is diminished or may not be present at all. This outcome differs from most of the two-sided platform literature, where interdependence between the two sides served by the same platform is a major result leading to the policy implication that a platform will often maximize its total profits by subsidizing one side, typically the one with more elastic demand. Our analysis shows that the common strategic advice to subsidize one side in order to maximize total profits may be limited or even incorrect when both sides multihome, which can be significant given the increasing prevalence of multihoming.
    Keywords: multihoming, platforms, two-sided platforms, network effects, platform subsidies
    JEL: L10 L81 L82 L86 O33
    Date: 2019–09
  5. By: Micael Castanheira; Carmine Ornaghi; Georges Siotis
    Abstract: Generic drugs are sold at a fraction of the original brand price. Yet, generic entry typically produces a drop in the quantity market share of the molecule losing exclusivity. This effect is economically and statistically significant for a large dataset covering hundreds of prescription drugs sold in the US during the period 1994Q1-2003Q4. This paper proposes the first systematic analysis of what appears to be a market anomaly.We propose a model to characterize the market equilibrium before and after generic entry. We identify precise conditions under which entry reduces the quantity market share of the molecule. Intriguingly, this is more likely to occur when the remaining patent-protected molecules feature low horizontal differentiation. We test this and other theoretical predictions of the model and find they are validated empirically.
    Keywords: Non-Price competition, Pharmaceutical industry, Generic entry, Consumer choice
    Date: 2019–10
  6. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); John Kwoka (Neal F. Finnegan Distinguished Professor of Economics, College of Social Sciences and Humanities, Northeastern University); Thomas Philippon (Max L. Heine Professor of Finance, NYU Stern School of Business, New York, New York 10012); Robert Seamans (Associate Professor of Management and Organizations, NYU Stern School of Business, New York, New York 10012); Hal Singer (Managing Director at Econ One, Adjunct Professor at Georgetown McDonough School of Business); Marshall Steinbaum (Assistant Professor, Economics Department, University of Utah); Lawrence J. White (Robert Kavesh Professor of Economics, NYU Stern School of Business, New York, New York 10012)
    Abstract: As economists with significant experience in competition and regulatory matters, we offer comments on the remedies proposed by the Department of Justice to address the competitive effects flowing from the proposed merger of Sprint and T-Mobile, as recognized by the DOJ’s Complaint. We find that the Proposed Final Judgment cannot and will not address the anticompetitive harms identified in the Complaint, or restore the ex ante competitive conditions in the affected antitrust product markets. By eliminating Sprint as an independent competitor, the Sprint/T-Mobile merger, even in the presence of DOJ’s proposed remedy, would inflict serious antitrust injury on consumers and competition.
    Keywords: Telecommunications; Merger; Tunney Act; Sprint; T-Mobile; Dish; DOJ
    JEL: L1 L4 L5 L9
    Date: 2019–10
  7. By: Autor, David (MIT); Dorn, David (University of Zurich); Hanson, Gordon H. (University of California, San Diego); Pisano, Gary (Harvard University); Shu, Pian (Georgia Institute of Technology)
    Abstract: Manufacturing accounts for more than three-quarters of U.S. corporate patents. The competitive shock to this sector emanating from China's economic ascent could in theory either augment or stifle U.S. innovation. Using three decades of U.S. patents matched to corporate owners, we quantify how foreign competition affects domestic innovation. Rising import exposure intensifies competitive pressure, reducing sales, profitability, and R&D expenditure at U.S. firms. Accounting for confounding sectoral patenting trends, we find that U.S. patent production declines in sectors facing greater import competition. This adverse effect is larger among initially less profitable and less capital-intensive firms.
    Keywords: innovation, patents, trade
    JEL: F14 O30
    Date: 2019–09
  8. By: Fontaine, Francois; Martin, Julien; Mejean, Isabelle
    Abstract: We study the cross-sectional dispersion of prices paid by EMU importers for French products. We document a significant level of price dispersion both within product categories across exporters, and within exporters across buyers. This latter source of price discrepancies, sellers' price discrimination across buyers, is indicative of deviations from the law-of-one price. Price discrimination (i) is substantial within the EU, within the euro area, and within EMU countries; (ii) has not decreased over the last two decades; (iii) is more prevalent among the largest firms and for more differentiated products; (iv) is lower among retailers and wholesalers; (v) is also observed within almost perfectly homogenous product categories, which suggests that a non-negligible share of price discrimination is triggered by heterogeneous markups rather than quality or composition effects. We then estimate a rich statistical decomposition of the variance of prices to shed light on exporters' pricing strategies.
    Date: 2019–08

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