nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒01‒27
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Multi-product bargaining, bundling, and buyer power By Dertwinkel-Kalt, Markus; Wey, Christian
  2. Spatial Distribution of Supply and the Role of Market Thickness: Theory and Evidence from Ride Sharing By Soheil Ghili; Vineet Kumar
  3. Vertical Integration as a Source of Hold-up: an Experiment By Allain, Marie-Laure; Chambolle, Claire; Rey, Patrick; Teyssier, Sabrina
  4. The governance of SOEs operating under monopoly situation By Pierre BAUBY
  5. Merger Efficiency Gains: Evidence from a Large Transport Merger in France By Ariane Charpin; Joanna Piechuka
  6. Gasoline Demand in Saudi Arabia: Are the Price and Income Elasticities Constant? By Jeyhun Mikayilov; Fred Joutz; Fakhri Hasanov
  7. Does Locational Marginal Pricing Impact Generation Investment Location Decisions? An Analysis of Texas's Wholesale Electricity Market By Brown, David P.; Zarnikau, Jay; Woo, Chi-Keung

  1. By: Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We re-consider the bilateral bargaining problem of a multi-product, manufacturer-retailer trading relationship. O'Brien and Shaffer (Rand JE 35:573-598, 2005) have shown that the unbundling of contracts leads to downward distorted production levels if seller power is strong, while otherwise the joint profit maximizing quantities are contracted (which is also always the case when bundling contracts are feasible). We show that the unbundling of contracts also leads to downward distorted output levels when the buyer firm has sufficient (Nash) bargaining power (i.e., buyer power). Our result is driven by cost substitutability (diseconomies of scope).
    Keywords: Vertical Restraints,Bundling,Buyer Power
    JEL: L13 L41 K21
    Date: 2019
  2. By: Soheil Ghili (Cowles Foundation & School of Management, Yale University); Vineet Kumar (School of Management, Yale University)
    Abstract: This paper develops a strategy with simple implementation and limited data requirements to identify spatial distortion of supply from demand -or, equivalently, unequal access to supply among regions- in transportation markets. We apply our method to ride-level, multi-platform data from New York City (NYC) and show that for smaller rideshare platforms, supply tends to be disproportionately concentrated in more densely populated areas. We also develop a theoretical model to argue that a smaller platform size, all else being equal, distorts the supply of drivers toward more densely populated areas due to network effects. Motivated by this, we estimate a minimum required platform size to avoid geographical supply distortions, which informs the current policy debate in NYC around whether ridesharing platforms should be downsized. We nd the minimum required size to be approximately 3.5M rides/month for NYC, implying that downsizing Lyft or Via-but not Uber{can increase geographical inequity.
    Keywords: Spatial Markets, Transportation, Geographical Inequity, Market Thickness, Ridesharing
    JEL: L13 R41 D62
    Date: 2020–01
  3. By: Allain, Marie-Laure; Chambolle, Claire; Rey, Patrick; Teyssier, Sabrina
    Abstract: In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, partial vertical integration may create hold-up problems for the rival. We develop an experiment to test this theoretical prediction in two setups, in which suppliers can either pre-commit ex ante to appropriating part of the joint profit, or degrade ex post the support they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems in both setups. However, we observe more departures from theory in the second one. Bounded rationality and social preferences provide a rationale for these departures.
    Keywords: Vertical Integration; Hold-up; Experimental Economics; Bounded Rationality; Social Preferences.
    JEL: C91 D90 L13 L41
    Date: 2020–01
  4. By: Pierre BAUBY (Institut d’Etudes Politiques (Sciences Po) Paris, Researcher and Professor of Political Science. Chairman of Reconstruire l’action publique (RAP), Director of Observatoire de l’action publique of Fondation Jean-Jaurès (France))
    Abstract: This paper aims to treat specific issues about the governance of SOEs operating under monopoly situations, in particular the link between regulation, evaluation, control and modernisation of such enterprises. The survey of the literature reveals a lot of studies on some of these topics, but very few on the link between them and such SOEs’. The paper addresses in particular the asymmetries of information and expertise between public authorities and SOEs; the strategic role of the State in the EU context, rights and duties of public authorities; how to minimize asymmetries of information between monopoly situations and public authorities; what type of regulatory bodies can be set up; how to implement evaluation both of “regulation†and of the economic and social efficiency of each SOE; why and how to involve stakeholders’ participation.
    Keywords: Monopoly situations; Asymmetries; Strategic State; Regulation; Evaluation; Participation
    JEL: K2 L12 L43 L50
    Date: 2019
  5. By: Ariane Charpin; Joanna Piechuka
    Abstract: Many industries are seeing an increase in concentration, leading to a discussion on the effectiveness of horizontal merger enforcement. The policy debate shows that one of the key arguments put forward when supporting potential mergers is the possibility of realization of merger efficiency gains, specifically in the transport industry. Yet, there exists little empirical evidence on the actual effects of realized mergers on cost efficiencies. We exploit a large and highly debated merger that took place in the French transport industry to evaluate whether a merger between two major transport groups may give rise to merger efficiency gains. We exploit the industry setting to employ a difference-in-differences methodology evaluating the effect of the merger on operating costs of merging transport groups. Our results show that the merger did not lead to any merger specific efficiency gains for the merging parties. Our study relies on the use of several control groups and is robust to a great number of robustness checks as well as to the introduction of heterogeneous treatment effects, depending on the identity of the merging party, the contract type in place, as well as the closeness of competition of local operators. Overall, our study contributes to a growing number of case studies undertaken by economists that can help determine whether horizontal merger policy is being properly enforced.
    Keywords: Ex-post Evaluation; Mergers; Transport industry; Merger cost efficiencies
    JEL: C31 L40 L50 L92
    Date: 2020
  6. By: Jeyhun Mikayilov; Fred Joutz; Fakhri Hasanov (King Abdullah Petroleum Studies and Research Center)
    Abstract: After the drop in international oil prices in 2014, oil-exporting countries started to launch new policies to develop their economies. It is important that policymakers involved in energy and economic development understand how economic agents respond to increased energy prices and how the latter affects the demand for different fuels.
    Keywords: Gasoline Demand, Gasoline Prices, Time-varying elasticities
    Date: 2019–12–26
  7. By: Brown, David P. (University of Alberta, Department of Economics); Zarnikau, Jay (University of Texas at Austin); Woo, Chi-Keung (Education University of Hong Kong)
    Abstract: Using data from Texas’s wholesale electricity market, we investigate if there is a relationship between nodal prices and investment location decisions of utility scale generation. We find some evidence that new investment arises in areas with recently elevated nodal prices. However, we find no evidence that new generation resources receive a nodal price premium post-entry as projected by the expectation of higher nodal prices. Further, we employ a regression analysis to test the relationship between expected nodal prices and the probability of entry at a given node. While this analysis finds a positive relationship between expected nodal prices and investment for natural-gas-fueled peaking assets, this relationship is sensitive to model specification. Our findings suggest that factors other than nodal prices are more likely drivers of utility scale generation capacity investment location decisions in Texas.
    Keywords: Electricity; Regulation; Entry; Locational Marginal Pricing
    JEL: L11 L51 L94 Q41 Q48
    Date: 2020–01–17

This nep-ind issue is ©2020 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.