nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒03‒30
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Rising Bank Concentration By Dean Corbae; Pablo D'Erasmo
  2. Platform Competition with Multi-Homing on Both Sides: Subsidize or Not? By Yannis Bakos; Hanna Halaburda
  3. Superstars in two-sided markets: exclusives or not? By Carroni, Elias; Madio, Leonardo; Shekhar, Shiva
  4. How Big is the “Lemons” Problem? Historical Evidence from French Wines By Pierre Mérel; Ariel Ortiz-Bobea; Emmanuel Paroissien
  5. Price Dynamics of Swedish Pharmaceuticals By Janssen, Aljoscha

  1. By: Dean Corbae; Pablo D'Erasmo
    Abstract: Concentration of insured deposit funding among the top four commercial banks in the U.S. has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's funding base. In this paper, we build an industry equilibrium model in which banks endogenously climb a funding base ladder. Rising concentration occurs along a transition path between two steady states after branching costs decline.
    JEL: E44 G21 L11 L13
    Date: 2020–03
  2. By: Yannis Bakos; Hanna Halaburda
    Abstract: A major result in the study of two-sided platforms is the strategic interdependence between the two sides of the same platform, leading to the implication that a platform can maximize its total profits by subsidizing one of its sides. We show that this result largely depends on assuming that at least one side of the market single-homes. As technology makes joining multiple platforms easier, we increasingly observe that participants on both sides of two-sided platforms multi-home. The case of multi-homing on both sides is mostly ignored in the literature on competition between two-sided platforms. We help fill this gap by developing a model for platform competition in a differentiated setting (a Hoteling line), which is similar to other models in the literature but focuses on the case where at least some agents on each side multi-home. We show that when both sides in a platform market multi-home, the strategic interdependence between the two sides of the same platform will diminish or even disappear. Our analysis suggests that the common strategic advice to subsidize one side in order to maximize total profits may be limited or even incorrect when both sides multi-home, which is an important caveat given the increasing prevalence of multi-homing in platform markets.
    Keywords: multi-homing, platforms, two-sided platforms, network effects, platform subsidies
    JEL: O33 L11
    Date: 2020
  3. By: Carroni, Elias; Madio, Leonardo; Shekhar, Shiva
    Abstract: This article studies incentives for a premium provider (Superstar) to offer exclusive contracts to competing platforms mediating the interactions between consumers and firms. When platform competition is intense, more consumers affiliate with the platform favored by Superstar’s exclusive deal. This mechanism is self-reinforcing as more firms follow consumer decisions and some singlehome on the favored platform. Our model shows that the presence of indirect network externalities may overturn the common conclusion in the one-sided literature that exclusivity could be deemed as anti-competitive. Exclusivity can be welfare-enhancing and a vertical merger (platform-Superstar) may make non-exclusivity more likely than if the Superstar was independent.
    Keywords: exclusive contracts; platforms; two-sided markets; marquee player
    JEL: L13 L22 L86 K21
    Date: 2020–03
  4. By: Pierre Mérel (UC Davis - University of California [Davis] - University of California); Ariel Ortiz-Bobea (Cornell University); Emmanuel Paroissien (SMART - Structures et Marché Agricoles, Ressources et Territoires - AGROCAMPUS OUEST - INRA - Institut National de la Recherche Agronomique)
    Abstract: This paper provides empirical evidence of large welfare losses associated with asymmetric in- formation about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses represent up to 13% of total market value, suggesting an important role for credible certification schemes.
    Abstract: Cet article donne des preuves empiriques de pertes importantes de bien-être causées par l'asymétrie d'information sur la qualité des produits dans un marché concurrentiel. Lorsque les conso- mateurs ne peuvent pas observer les caractéristiques du produit au moment de l'achat, les pro- ducteurs atomistiques n'ont aucune incitation à fournir de biens de meilleure qualité s'ils sont plus coûteux à produire. Nous comparons les prix du vin dans les différentes circonscriptions administratives autour de la mise en place d'une réglementation historique visant à certifier la qualité de plus de 250 vins français d'appellation d'origine, de manière à identifier les pertes de bien-être dues à l'asymétrie d'information avant la réforme. Nous estimons que ces pertes représentent jusqu'à 13% de la valeur totale du marché, ce qui suggère un rôle important pour des systèmes de certification crédibles.
    Keywords: asymmetric information,adverse selection,quality uncertainty,welfare,wine appellation,information asymétrique,sélection adverse,qualité incertaine,bien-être,appellation des vin
    Date: 2020
  5. By: Janssen, Aljoscha (Singapore Management University)
    Abstract: This paper investigates price patterns of off-patent pharmaceuticals in Sweden. I show that price dynamics are dependent on the number of competitors in the market. The price patterns follow predictions from a model of dynamic price competition in which the demand for pharmaceuticals incorporates the known biases of consumers: habit persistence and brand preferences. Using the regulated market of Swedish pharmaceuticals, I show that price may help in identifying possible tacit collusion by manufacturers in markets where consumers experience behavioral frictions.
    Keywords: Pharmaceutical pricing; Dynamic oligopoly; State dependence; Price cycles
    JEL: D43 I11 L13 L40
    Date: 2020–03–18

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