nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒02‒03
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The economics of international competition policy: New challenges in the light of digitization? By Budzinski, Oliver
  2. It’s Not Price; It’s Quality. Satisfaction and Price Fairness Perception By Raul Jimenez Mori
  3. Wholesale price discrimination with regulatory asymmetry By Asseyer, Andreas
  4. Product Quality and Reputation in Experimental Markets By Blake Dunkle; R. Mark Isaac; Philip C. Solimine
  5. Mergers and partial tacit collusion By Grüb, Jens
  6. Pricing for the Stars Dynamic Pricing in the Presence of Rating Systems By André Stenzel; Christoph Wolf; Peter Schmidt
  7. Consumer Protection in an Online World: An Analysis of Occupational Licensing By Chiara Farronato; Andrey Fradkin; Bradley Larsen; Erik Brynjolfsson
  8. Industry Structure, Segmentation, and Competition in the U.S. Hotel Industry By R. Andrew Butters; Thomas N. Hubbard

  1. By: Budzinski, Oliver
    Abstract: The International Competition Network (ICN) celebrates its 20th birthday in 2020. It governs global competition by providing a cooperative forum for (mostly national) competition authorities from all around the world. In the absence of binding global competition rules and antitrust laws, it attempts to coordinate national and supranational competition policies by providing best practice recommendations and exercising peer pressure on deviating regimes. While the first twenty years of the ICN have been mostly a success story, the ubiquitous process of digitization poses new challenges to the voluntary and informal coordination of decentralized competition policies governing pro- and anticompetitive arrangements and conduct on international and intercontinental markets. First, the digitization of markets and goods increases the number of cross-border, interjurisdictional cases regarding cartels, mergers and acquisitions, as well as anticompetitive market behavior. Second, digital platforms and data-based business models increase the probability of dominant companies on intercontinental scales as well as problems of economic dependency on few global player companies. Third, the economics of digital platforms and data-based competition strategies partly differ from traditional standard economics and are still being developed in the academic world. Consequently, the previous convergence of competition policy practices across jurisdictions tends to shift towards a process of divergence with respect of how to deal with innovative pro- and anticompetitive conduct in the digital world. This essay discusses the influence of the effects from digitization on the problems of (only soft-coordinated) national competition policies in international markets like cross-border externalities, costs and burden of multiple procedures, loopholes in the protection of global competition, and the diversity of societies and competition regimes. It concludes by outlining the challenges that the ICN will face in its third decade.
    Keywords: international competition policy,international antitrust,International Competition Network,global governance,digitization,industrial economics,law and economics,international economics,international organizations,international business
    JEL: F02 F53 F55 K21 L40
    Date: 2020
  2. By: Raul Jimenez Mori
    Abstract: In developing countries, poor quality infrastructure that is highly subsidized is typically associated with populist political interference. In such a context, implementing cost-recovery tariffs, necessary to improve infrastructure services, is a political challenge. This paper examines how levels of enduser satisfaction and price fairness perception respond to different price-quality mixes of electricity services in the urban Dominican Republic. The analysis exploits a rich dataset that includes informal and formal users, as well as heterogeneity in a set of service characteristics (i.e., reliability and commercial quality). I further exploit temporal variation in exposure to service improvements and electricity subsidies to evaluate if consumer attitudes change over time. The results suggest that the marginal positive effect of improvements in service quality on satisfaction is greater than the marginal negative effects of increasing prices and eliminating subsidies combined. In this case study, I find no evidence of attitude adaptation, suggesting that favorable views of service improvements have lasting effects. Overall, the results seem to suggest that price adjustments related to electricity service improvements permanently increase customer satisfaction.
    Keywords: Consumer Satisfaction, Price Fairness, Electricity Services, Electricity Prices, Quality ofElectricity Services, Subsidies.
    JEL: D60 L94 L98
    Date: 2020–01–23
  3. By: Asseyer, Andreas
    Abstract: This paper studies the welfare effects of wholesale price discrimination between downstream firms operating under different regulatory systems. I model a monopolistic intermediate good market in which production cost differences between downstream firms may be due to regulatory or technological asymmetries. Price discrimination reduces regulatory distortions but may lower productive efficiency. Therefore, price discrimination increases welfare if regulation is the dominant source of cost differences. This provides a novel welfare rationale for exempting wholesale markets from the recent ban on geo-blocking in the EU.
    Keywords: Price discrimination,Intermediate good markets,International price discrimination,Geo-blocking
    JEL: D43 L11 L42
    Date: 2020
  4. By: Blake Dunkle (Caldwell and Kerr Advertising); R. Mark Isaac (Department of Economics, Florida State University); Philip C. Solimine (Department of Economics and Department of Scientific Computing, Florida State University)
    Abstract: In this paper we conduct a market experiment with the opportunity for sellers to send a nonbinding advertisement of their product quality, and examine the effects of including a reputation aggregation system for sellers in these markets. In order to closely match the setting of real life markets, we simulate a high-frequency online trading environment in which sellers are given unique identi ers. Ideally, a fi xed identity for the sellers should allow them to build a reputation for delivering high-quality goods to the market, increasing the efficiency of market outcomes. In some sessions, we prompt buyers to respond to their purchases with a canonical "five-star" rating. We demonstrate the robustness of classic experimental results to a more technologically advanced market environment; using a design which both remains true to the spirit of these original experimental tests and reflects more of the features which are present in newly-ubiquitous online markets. Additionally, we fi nd substantial efficiency gains from the addition of the ratings system. Even with the ratings, however, the gains were not enough to obtain perfectly efficient market outcomes. Furthermore, we examine the formation of reputations by the sellers (with and without ratings) and the effect of these reputations on the decisions of buyers and sellers in the market.
    Keywords: Product Quality, Seller Reputation, Ratings, Experimental Market Design
    JEL: D4 D9 L1
    Date: 2020–01
  5. By: Grüb, Jens
    Abstract: This paper studies whether mergers may lead to partial tacit collusion, thereby having the potential to induce simultaneous coordinated and non-coordinated effects. We use a Bertrand-Edgeworth model with heterogeneous discount factors to derive conditions for profitable and stable collusion and provide a numerical example. Mergers that change the market structure in a way such that maverick firms are eliminated or colluding firms reach a critical share in total capacity can lead to partial collusion.
    Keywords: Partial Collusion,Tacit Collusion,Mergers,Coordinated Effects,Non-coordinated Effects,Umbrella Effects
    Date: 2019
  6. By: André Stenzel; Christoph Wolf; Peter Schmidt
    Abstract: We study dynamic pricing in the presence of product ratings. A monopolist sells a good of unknown quality to short-lived heterogeneous consumers who observe aggregate ratings reflecting past reviews. Long-run outcomes depend on the sensitivity of the rating system to incoming reviews and the degree to which reviews internalize the purchase price. When internalization is high, low prices induce good reviews. For low internalization, good reviews obtain with high prices via selection on consumer tastes. Sensitivity benefits the seller due to easier ratings management, but may harm consumers by exacerbating upward pricing pressure when internalization is low.
    Keywords: Rating Systems, Dynamic Pricing, Asymmetric Information
    JEL: D21 D82 L15
    Date: 2020–01
  7. By: Chiara Farronato; Andrey Fradkin; Bradley Larsen; Erik Brynjolfsson
    Abstract: We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for residential home services. We exploit exogenous variation in the time at which licenses are displayed on the platform to identify the causal effects of licensing information on consumer choices. We find that the platform-verified licensing status of a professional is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. We also use variation in regulation stringency across states and occupations to measure the effects of licensing on aggregate market outcomes on the platform. Our results show that more stringent licensing regulations are associated with less competition and higher prices but not with any improvement in customer satisfaction as measured by review ratings or the propensity to use the platform again.
    JEL: J2 J44 K2 L15 L51 L88
    Date: 2020–01
  8. By: R. Andrew Butters; Thomas N. Hubbard
    Abstract: This paper investigates how increases in concentration can be interrupted or reversed by changes in how firms compete on quality. We examine the U.S. hotel industry during the past half century. We document that starting in the early 1980s, quality competition came more in the form of costs that vary with hotel size, and less in the form of costs that are fixed with hotel size, particularly for business travelers. We then show that, consistent with Sutton (1991), industry structure has evolved differently since then in areas that are business travel versus personal travel destinations. Demand increases have been associated with more, but smaller, hotels in business travel destinations. In contrast, the growth in the number of hotels is much smaller, and the growth in average hotel size is much greater, in personal travel destinations. We provide evidence that this change reflects the emergence of two new classes of hotels – limited service and all-suites hotels – that did not exist before the early 1980s. These entrants – many of which had high quality rooms but which had limited out-of-room amenities – had a narrower competitive impact on other hotels than did the entrants of the 1960s and 1970s, which competed more on out-of-the-room amenities, and this led the industry structure to evolve differently.
    JEL: L1 L22
    Date: 2019–12

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