nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒03‒09
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Data and Competition: a General Framework with Applications to Mergers, Market Structure, and Privacy Policy By de Cornière, Alexandre; Taylor, Greg
  2. R&D incentives with uncertain probability of success By Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun
  3. Small firms and patenting revisited By Athreye, Suma; Fassio, Claudio; Roper, Stephen
  4. Media Competition and News Diets By Charles Angelucci; Julia Cage; Michael Sinkinson
  5. Coordinated Capacity Reductions and Public Communication in the Airline Industry By Gaurab Aryal; Federico Ciliberto; Benjamin T. Leyden
  6. Spatial Differentiation and Market Power in Input Procurement: Evidence from a Structural Model of the Corn Market By Jinho Jung; Juan Sesmero; Ralph Siebert
  7. Competing with Robots: Firm-Level Evidence from France By Daron Acemoglu; Claire LeLarge; Pascual Restrepo

  1. By: de Cornière, Alexandre; Taylor, Greg
    Abstract: What role does data play in competition? This question has been at the center of a fierce debate around competition policy in the digital economy. We use a competition-in-utilities approach to provide a general framework for studying the competitive effects of data, encompassing a wide range of markets where data has many different uses. We identify conditions for data to be unilaterally proor anti-competitive (UPC or UAC). The conditions are simple and often require no information about market demand. We apply our framework to study various applications of data, including training algorithms, targeting advertisements, and personalizing prices. We also show that whether data is UPC or UAC has important implications for policy issues such as data-driven mergers, market structure, and privacy policy.
    JEL: L1 L4 L5
    Date: 2020–02
  2. By: Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun
    Abstract: A firm’s decision to invest in R&D depends on a number of factors like availability of funds, extent of R&D spillovers, market structure, and success probability. However, probability of success depends, to a large extent, on factors endogenous to a firm. This means, success probability can be known to the firm undertaking R&D investment, not to the rivals, hence there is incomplete information about probability of success in R&D. There are also uncertainties about rival’s R&D decision and R&D status. In a duopoly we show that there is a non-monotone relation between R&D incentives and the level of information.
    Keywords: R&D incentives, Duopoly, Incomplete information, Type distribution
    JEL: D43 D82 L13 O31
    Date: 2020–01–31
  3. By: Athreye, Suma (Essex Business School); Fassio, Claudio (CIRCLE, Lund University); Roper, Stephen (Warwick Business School)
    Abstract: In order to observe a patent application at the firm level two conditions need to be met: new products need to be of patentable quality, which depends both on the degree of novelty of innovations and on the total number (portfolio) of innovations; and the benefits of patents need to be higher than the costs of owning them. Analyzing the patent propensity of small and large UK firms using a novel innovation-level survey (the SIPU survey) linked to Community Innovation Survey data we find that when we consider the whole innovation portfolio smaller firms do patent less than larger firms. However, using data on individual innovations, we find that smaller firms are no less likely to patent any specific innovation than larger firms. We argue that size differences in the probability to patent relate primarily to the ‘portfolio effect’, i.e. larger firms generate more innovations than smaller firms and therefore are more likely to create one or more which are patentable. As for the decision to patent a patentable innovation, we find that cost barriers, more than issues of innovation quality or enforceability, deter small firms from patenting specific innovations. Measures to address the costs of patenting for smaller firms – perhaps by considering patents as eligible costs for R&D tax credits – and/or subsidizing SMEs’ participation in IP litigation schemes may both encourage patent use by smaller firms.
    Keywords: Patenting; SME; small firms; UK
    JEL: O32 O34 O38
    Date: 2020–02–26
  4. By: Charles Angelucci (Columbia Business School); Julia Cage (Département d'économie); Michael Sinkinson (Yale School of Management)
    Abstract: News media operate in two-sided markets, offering bundles of content to readers as well as selling readers' attention to advertisers. Technological innovations in content delivery, such as the advent of broadcast television or of the Internet, affect both sides of the market, threatening the basic economic model of print news operations. We examine how the entry of television affected local newspapers as well as consumer media diets in the United States. We develop a model of print media and show that entry of national television news could adversely affect the provision of local news. We construct a novel dataset of U.S. newspapers' economic performance and content choices from 1944 to 1964. Our empirical strategy exploits quasi-random variation in the timing of the entry of television in different markets. We show that the entry of television was a negative shock for newspapers, particularly evening newspapers, in both the readership and advertising markets. Further, we find a drop in the total quantity of news printed, in particular original reporting, raising concerns about the provision of local news.
    JEL: D4 L11 L15 M37 N72
    Date: 2020–02
  5. By: Gaurab Aryal; Federico Ciliberto; Benjamin T. Leyden
    Abstract: We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. To this end, we first use text analytics to build a novel dataset on communication among airlines about their capacity choices. Estimates from our preferred specification show that when all legacy airlines in a market discuss the concept of “capacity discipline,” they reduce offered seats by 1.79%. We verify that this reduction materializes only when airlines communicate concurrently, and that it cannot be explained by other possibilities, including that airlines are simply announcing to investors their unilateral intentions to reduce capacity, and then following through on those announcements. Additional results from conditional-exogeneity tests and control function estimates confirm our interpretation.
    Keywords: airlines, communication, capacity discipline, text data
    JEL: D22 L13 L41 L93
    Date: 2020
  6. By: Jinho Jung; Juan Sesmero; Ralph Siebert
    Abstract: We estimate the cost of transporting corn and the resulting degree of spatial differentiation among downstream firms that buy corn from upstream farmers and examine whether such differentiation softens competition enabling buyers to exert market power (defined as the ability to pay a price for corn that is below its marginal value product net of processing cost). We estimate a structural model of spatial competition using corn procurement data from the U.S. state of Indiana from 2004 to 2014. We adopt a strategy that allows us to estimate firm-level structural parameters while using aggregate data. Our results return a transportation cost of $0.12 per bushel per mile (5% of the corn price under average distance traveled), which provides evidence of spatial differentiation among buyers. The estimated average markdown is $0.80 per bushel (16% of the average corn price in the sample), of which $0.34 is explained by spatial differentiation and the rest by the fact that firms operated under binding capacity constraints. We also find that corn prices paid to farmers at the mill gate are independent of distance between the plant and the farm, providing evidence that firms do not engage in spatial price discrimination. Finally, we evaluate the effect of hypothetical mergers on input markets and farm surplus. A merger between nearby ethanol producers eases competition, increases markdowns by 20%, and triggers a sizable reduction in farm surplus. In contrast, a merger between distant buyers has little effect on competition and markdowns.
    Keywords: corn procurement, transportation costs, spatial differentiation, buyer power, spatial price discrimination, merger
    JEL: D43 L11 L13 L43 Q11 Q13
    Date: 2020
  7. By: Daron Acemoglu; Claire LeLarge; Pascual Restrepo
    Abstract: Using several sources, we construct a data set of robot purchases by French manufacturing firms and study the firm-level implications of robot adoption. Out of 55,390 firms in our sample, 598 have adopted robots between 2010 and 2015, but these firms account for 20% of manufacturing employment and value added. Consistent with theory, robot adopters experience significant declines in labor share and the share of production workers in employment, and increases in value added and productivity. They expand their overall employment as well. However, this expansion comes at the expense of their competitors (as automation reduces their relative costs). We show that the overall impact of robot adoption on industry employment is negative. We further document that the impact of robots on overall labor share is greater than their firm-level effects because robot adopters are larger and grow faster than their competitors.
    JEL: J23 J24 L11
    Date: 2020–02

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