nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒02‒17
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Oligopolistic Upstream Competition with Differentiated Inputs By Joachim Heinzel; Simon Hoof
  2. Spatial competition with unit-demand functions By Ga\"etan Fournier; Karine Van Der Straeten; J\"orgen Weibull
  3. Is the Antitrust Policy Trustful? (I) - Strategy Machanism of Lockefeller’s Monoploy By Luo, James L.
  4. Patterns of Price Competition and the Structure of Consumer Choice By Armstrong, Mark; Vickers, John
  5. On a Stackelberg leader's incentive to invite entry into horizontally differentiated oligopolies with network externalities: A reexamination By Ryoma KITAMURA; Tsuyoshi TOSHIMITSU
  6. The 2008 U.S. Auto Market Collapse By Bill Dupor; Rong Li; M. Saif Mehkari; Yi-Chan Tsai
  7. Competition and privacy in online markets: Evidence from the mobile app industry By Kesler, Reinhold; Kummer, Michael E.; Schulte, Patrick

  1. By: Joachim Heinzel (Paderborn University); Simon Hoof (Paderborn University)
    Abstract: We consider a vertical supply chain that consists of a downstream final good producer and n >= 2 upstream intermediate good producers. The final good producer transforms the n differentiated inputs into an output good via a CES production function and sells the composed good to the final consumers. We study the impact of upstream price and upstream quantity competition on the supply chain. We find that the intermediate good producers prefer price over quantity competition when the inputs are complements and vice versa when they are substitutes. However, the final good producer and the consumers prefer price over quantity competition for all degrees of input differentiation. We additionally observe that the welfare optimal solution materializes when a horizontally integrated upstream market merges vertically with the downstream producer.
    Keywords: CES production function; Input competition; Product differentiation
    JEL: L00 L13
    Date: 2020–02
  2. By: Ga\"etan Fournier; Karine Van Der Straeten; J\"orgen Weibull
    Abstract: This paper studies a spatial competition game between two firms that sell a homogeneous good at some pre-determined fixed price. A population of consumers is spread out over the real line, and the two firms simultaneously choose location in this same space. When buying from one of the firms, consumers incur the fixed price plus some transportation costs, which are increasing with their distance to the firm. Under the assumption that each consumer is ready to buy one unit of the good whatever the locations of the firms, firms converge to the median location: there is "minimal differentiation". In this article, we relax this assumption and assume that there is an upper limit to the distance a consumer is ready to cover to buy the good. We show that the game always has at least one Nash equilibrium in pure strategy. Under this more general assumption, the "minimal differentiation principle" no longer holds in general. At equilibrium, firms choose "minimal", "intermediate" or "full" differentiation, depending on this critical distance a consumer is ready to cover and on the shape of the distribution of consumers' locations.
    Date: 2020–01
  3. By: Luo, James L.
    Abstract: This paper develops a non-equilibrium concept to deal with the competition process in the free market and designs time-featured models to analyze the cases of Rockefeller’s monopolization rather than the oligarch models based on Nash equilibrium. It derives some results that are quite different from popular perception of monopoly and reject all accusations of antitrust laws. The conclusion applies to a wide class of markets and extends its application to the field of lawmaking.
    Date: 2020–01–17
  4. By: Armstrong, Mark; Vickers, John
    Abstract: We explore patterns of price competition in an oligopoly where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of interaction between pairs of firms. We show how entry, merger and market expansion can affect patterns of price competition in novel ways.
    Keywords: Bertrand competition, price dispersion, consideration sets, mixed strategies
    JEL: C72 D43 D83 L13 L15
    Date: 2020–01
  5. By: Ryoma KITAMURA (Faculty of Economics, Otemon Gakuin University); Tsuyoshi TOSHIMITSU (School of Economics, Kwansei Gakuin University)
    Abstract: We develop a model of horizontally differentiated oligopolies with network externalities and reconsider a Stackelberg leader's incentive to invite entry, a problem previously examined by Economides (1996) and Kim (2002). We demonstrate that a Stackelberg leader has (does not have) an incentive to invite entry if the degree of network externalities is larger (smaller) than that of the product substitutability, such that a follower's profit increases (decreases).
    Keywords: Network externality; Horizontally differentiated oligopoly; Stackelberg competition; Entry; Passive expectation; Responsive expectation
    JEL: D21 D43 D62 L13
  6. By: Bill Dupor (Federal Reserve Bank of St Louis); Rong Li; M. Saif Mehkari; Yi-Chan Tsai
    Abstract: New vehicle sales in the U.S. fell nearly 40 percent during the past recession, causing significant job losses and unprecedented government interventions in the auto industry. This paper explores three potential explanations for this decline: increasing oil prices, falling home values, and falling household income expectations. First, we use the historical macroeconomic relationship between oil prices and vehicle sales to show that the oil price spike explains roughly 15 percent of the auto sales decline between 2007 and 2009. Second, we establish that declining home values explain only a small portion of the observed reduction in household new vehicle sales. Using a county-level panel from the episode, we find (1) a one-dollar fall in home values reduced household new vehicle spending by 0.5 to 0.7 cents and overall new vehicle spending by 0.9 to 1.2 cents and (2) falling home values explain between 16 and 19 percent of the overall new vehicle spending decline. Next, examining state-level data for 1997-2016, we find (3) the short-run responses of new vehicle consumption to home value changes are larger in the 2005-2011 period relative to other years, but at longer horizons (e.g. 5 years), the responses are similar across the two sub-periods and (4) the service flow from vehicles, as measured by miles traveled, responds very little to house price shocks. We also detail the sources of the differences between our findings (1) and (2) from existing research. Third, we establish that declining current and expected future income expectations potentially played an important role in the auto market's collapse. We build a permanent income model augmented to include infrequent repeated car buying. Our calibrated model matches the pre-recession distribution of auto vintages and the liquid-wealth-to-income ratio, and exhibits a large vehicle sales decline in response to a mild decline in expected permanent income due to a transitory slowdown in income growth. In response to the shock, households delay replacing existing vehicles, allowing them to smooth the effects of the income shock without significantly adjusting the service flow from their vehicles. Augmenting our model with a richer set of household expectations allows us to match 65 percent of the overall new vehicle spending decline (i.e. roughly the portion of the decline not explained by oil prices and falling home values). Combining our negative results regarding housing wealth and oil prices with our positive model-based findings, we interpret the auto market collapse as consistent with existing permanent income based approaches to durable goods purchases (e.g., Leahy and Zeira (2005)).
    Keywords: new auto sales; 2007-2009 recession
    JEL: E27 E32
    Date: 2020–01–31
  7. By: Kesler, Reinhold; Kummer, Michael E.; Schulte, Patrick
    Abstract: Policy makers are increasingly concerned about the combination of market power and massive data collection in digital markets. This concern is fueled by the theoretical prediction that more market power causes firms to collect ever more data from their users. We investigate the relationship between market power and data collection empirically. We analyze data about more than 1.5 million mobile applications in several thousand submarkets of Google's Play Store. We observe these data for over two years and combine information on an app's data collection with information about its competitive environment. Our analysis highlights a robust positive relationship between market power and data collection. We find that more data are being collected in concentrated markets, and apps with higher market shares collect more data. This pattern robustly emerges across a series of cross-sectional and panel regressions as well as a series of specifications that exploit exogenous variation.
    Keywords: Competition,Market Power,Privacy,User Data,Apps
    JEL: L17 D4 D85 D29
    Date: 2019

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