nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒03‒23
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Intertemporal Price Discrimination in Sequential Quantity-Price Games By James D. Dana Jr.; Kevin R. Williams
  2. Optimal Advertising for Information Products By Shuran Zheng; Yiling Chen
  3. Product Quality and Strategic Asymmetry in International Trade By John Gilbert; Onur A. Koska; Reza Oladi
  4. Between Firm Changes in Earnings Inequality: The Dominant Role of Industry Effects By John C. Haltiwanger; James R. Spletzer
  5. Prices and Federal Policies in Opioid Markets By Casey B. Mulligan

  1. By: James D. Dana Jr.; Kevin R. Williams
    Abstract: This paper develops an oligopoly model in which firms first choose capacity and then compete in prices in a series of advance-purchase markets. We show that when the elasticity of demand falls across periods, strong competitive forces prevent firms from utilizing intertemporal price discrimination. We then enrich the model by allowing firms to use inventory controls, or sales limits assigned to individual prices. We show that competing firms can profitably use inventory controls. Thus, although typically viewed as a tool to manage demand uncertainty, we show that inventory controls can also facilitate price discrimination in oligopoly.
    JEL: D21 D43 L0 L13
    Date: 2020–02
  2. By: Shuran Zheng; Yiling Chen
    Abstract: When selling information, sometimes the seller can increase the revenue by giving away some partial information to change the buyer's belief about the information product, so the buyer may be more willing to purchase. This work studies the general problem of advertising information products by revealing some partial information. We consider a buyer who needs to make a decision, the outcome of which depends on the state of the world that is unknown to the buyer. There is an information seller who has access to information about the state of the world. The seller can advertise the information by revealing some partial information. We consider a seller who chooses an advertising strategy and then commits to it. The buyer decides whether to purchase the full information product after seeing the partial information. The seller's goal is to maximize the expected revenue. We prove that finding the optimal advertising strategy is hard, even in the simple case that the buyer type is known. Nevertheless, we show that when the buyer type is known, the problem is equivalent to finding the concave closure of a function. Based on this observation, we prove some properties of the optimal mechanism, which allow us to solve the optimal mechanism by a convex program (with exponential size in general, polynomial size for special cases). We also prove some interesting characterizations of the optimal mechanisms based on these properties. For the general problem when the seller only knows the type distribution of the buyer, it is NP-hard to find a constant factor approximation. We thus look at special cases and provide an approximation algorithm that finds an $\varepsilon$-suboptimal mechanism when it is not too hard to predict the possible type of buyer who will make the purchase.
    Date: 2020–02
  3. By: John Gilbert; Onur A. Koska (University of Canterbury); Reza Oladi
    Abstract: In a duopoly trade model with both horizontal and vertical product differentiation, we examine the endogenous choice of quantities and prices as strategic variables. We show that strategic asymmetry (such that a potential exporter commits to a quantity contract, while a local rival commits to a price contract) can be an equilibrium outcome when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low. A lower degree of horizontal product differentiation can make strategic asymmetry more likely. By endogenizing the quality choice, we also establish the conditions under which product quality choice gives rise to strategic asymmetry.
    Keywords: International trade; product quality; horizontal product differentiation; Cournot- Bertrand-Nash equilibrium
    JEL: D43 F12
    Date: 2020–03–01
  4. By: John C. Haltiwanger; James R. Spletzer
    Abstract: We find that most of the rising between firm earnings inequality that dominates the overall increase in inequality in the U.S. is accounted for by industry effects. These industry effects stem from rising inter-industry earnings differentials and not from changing distribution of employment across industries. We also find the rising inter-industry earnings differentials are almost completely accounted for by occupation effects. These results link together the key findings from separate components of the recent literature: one focuses on firm effects and the other on occupation effects. The link via industry effects challenges conventional wisdom.
    JEL: E24 J24 J31 L22
    Date: 2020–02
  5. By: Casey B. Mulligan
    Abstract: More than a dozen Federal policy changes since the year 2000 have affected incentives to prescribe, manufacture, and purchase both prescription and illicitly-manufactured opioids. To the extent that one of the policies, the 2013 “Holder memo,” had a meaningful effect on the cost structure of suppliers of heroin and illicit fentanyl, standard consumer theory predicts that the trend for opioid-involved fatalities would proceed in distinct phases. Prior to 2013, subsidies to, and conveniences for, prescribers and consumers would increase total opioid consumption by reducing the full price of Rx. More surprising is that, with heroin relatively cheap of late, any Rx opioid policy could – and likely does – have the opposite total-consumption effect after 2013 than it would before, especially when the more expensive Rx opioid products are most affected. Subsidies to benzodiazepines (an opioid complement) increase opioid consumption in both phases. While policy changes at first reduced the full price of Rx, and then later increased it, technological change in illicit markets is also a relevant factor over the longer term.
    JEL: H22 I18 K42 L51
    Date: 2020–02

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