nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒01‒20
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cartel Formation with Quality Differentiation By Iwan Bos; Marco Marini; Riccardo Saulle
  2. Merger Policy in Digital Markets: An Ex-Post Assessment By Elena Argentesi; Paolo Buccirossi; Emilio Calvano; Tomaso Duso; Alessia Marrazzo; Salvatore Nava
  3. Defining and Measuring the Innovativeness of Firms By Giuliana Battisti; Paul Stoneman
  4. The competitive impacts of exclusivity and price transparency in markets with digital platforms By BELLEFLAMME, Paul,; PEITZ, Martin,
  5. Inefficiencies in Digital Advertising Markets By Brett R Gordon; Kinshuk Jerath; Zsolt Katona; Sridhar Narayanan; Jiwoong Shin; Kenneth C Wilbur

  1. By: Iwan Bos; Marco Marini (Department of Social and Economic Sciences, Sapienza University of Rome and CREI, Italy); Riccardo Saulle (DSEA, University of Padova, Italy)
    Abstract: Research on collusion in vertically differentiated markets is conducted under one or two potentially restrictive assumptions. Either there is a single industry-wide cartel or costs are assumed to be independent of quality or quantity. We explore the extent to which these assumptions are indeed restrictive by relaxing both. For a wide range of coalition structures, profit-maximizing cartels of any size price most of their lower quality products out of the market as long as production costs do not increase too much with quality. If these costs rise sufficiently, however, then market share is maintained for all product variants. All cartel sizes may emerge in equilibrium when exclusively considering individual deviations, but the industry-wide cartel is the only one immune to deviations by coalitions of members. Overall, our findings suggest that firms have a strong incentive to coordinate prices when the products involved are vertically differentiated.
    Keywords: Cartel Formation, Collusion, Vertical Differentiation, Endogenous Coalition Formation, Industry-wide Cartel, Partial Cartels.
    JEL: D42 D43 L1 L12 L13 L41
    Date: 2019–12
  2. By: Elena Argentesi; Paolo Buccirossi; Emilio Calvano; Tomaso Duso; Alessia Marrazzo; Salvatore Nava
    Abstract: This paper presents a broad retrospective evaluation of mergers and merger decisions in the digital sector. We first discuss the most crucial features of digital markets such as network effects, multi-sidedness, big data, and rapid innovation that create important challenges for competition policy. We show that these features have been key determinants of the theories of harm in major merger cases in the past few years. We then analyse the characteristics of almost 300 acquisitions carried out by three major digital companies –Amazon, Facebook, and Google –between 2008 and 2018. We cluster target companies on their area of economic activity and show that they span a wide range of economic sectors. In most cases, their products and services appear to be complementary to those supplied by the acquirers. Moreover, target companies seem to be particularly young, being four-years-old or younger in nearly 60% of cases at the time of the acquisition. Finally, we examine two important merger cases, Facebook/Instagram and Google/Waze, providing a systematic assessment of the theories of harm considered by the UK competition authorities as well as evidence on the evolution of the market after the transactions were approved. We discuss whether the CAs performed complete and careful analyses to foresee the competitive consequences of the investigated mergers and whether a more effective merger control regime can be achieved within the current legal framework.
    Keywords: digital markets, mergers, network effects, big data, platforms, ex-post, antitrust
    JEL: L40 K21
    Date: 2019
  3. By: Giuliana Battisti; Paul Stoneman
    Abstract: In this paper an encompassing, output orientated, indicator of the innovativeness of firms which defines innovation as the successful exploitation of new ideas, is formalised as the contribution of innovative activity to firm profit growth and measured as the difference between growth in the (endogenously determined) nominal profits of the firm and an appropriately weighted sum of exogenously determined (i) growth in wage rates and (ii) inflation/demand shifts in the market for the firm’s output. The measure can be calculated for any firm using publicly available accounting data. For an unbalanced sample of 16,457 quoted firms over the period 1988-2012, operating in 39 sectors, and in 38 countries, the mean value of the innovativeness measure over the whole panel data set is estimated as 5.15% p.a. Statistically significant differences in innovative performance within and across countries, sectors and time are identified.
    Keywords: Firms, innovativeness, international, measurement
    JEL: O32
    Date: 2019–11
  4. By: BELLEFLAMME, Paul, (Université catholique de Louvain, CORE, Belgium); PEITZ, Martin, (Universität Mannheim)
    Abstract: Two-sided digital platforms not only decide about the price structure, but often have non-price instruments at their disposal. Our objective in this article is to review recent work that aims at better understanding the possible pro- or anti-competitive effects of two specific non-price strategies: exclusivity as the contractual obligation to singlehome and price transparency as the disclosure of information about otherwise unobserved prices paid by users on the other side. Regarding the incentives that platforms may have to restrict users from visiting more than one platform at a time, one finding is that when platforms find it profitable to impose exclusivity on one side, users on the other side always suffer. Regarding price transparency in situations in which users on one side may not observe the prices that platforms set on the other side, we find that a monopoly platform is willing to remedy this problem by being transparent about all prices, whereas competing platform would in general prefer more opaqueness. From our findings we derive lessons for competition authorities.
    JEL: H20 H31 H50
    Date: 2019–11–18
  5. By: Brett R Gordon; Kinshuk Jerath; Zsolt Katona; Sridhar Narayanan; Jiwoong Shin; Kenneth C Wilbur
    Abstract: Digital advertising markets are growing and attracting increased scrutiny. This paper explores four market inefficiencies that remain poorly understood: ad effect measurement, frictions between and within advertising channel members, ad blocking and ad fraud. These topics are not unique to digital advertising, but each manifests in new ways in markets for digital ads. We focus on relevant findings in the academic literature, recent developments in practice, and promising topics for future research.
    Date: 2019–12

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