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on Industrial Organization |
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Issue of 2020‒04‒20
eight papers chosen by |
| By: | Shekhar, Shiva |
| Abstract: | This article studies competition between different types of ad-funded platforms attracting consumers with free services. Consumers often find advertisements a nuisance on such platforms. We study how under a competitive setting platforms balance the tension between attracting consumers and rent extraction from the advertising side. We propose a flexible yet simple model that studies competition between standard platforms and social media platforms (with same-side network effects). We find that an increase in either positive same-side network effects or an increase in consumer disutility from advertisements leads to a reduction in the number of ads on that platform. When competing platforms merge, consumer side network effects do not impact prices and the number of ads is higher. In a setting where consumers present a negative (congestion) externality on each other, competition fails to protect consumer welfare and behaves erratically. Finally, we present a few extensions and discuss some policy implications. |
| Keywords: | Social media platforms, platforms, two-sided markets, same side network effects, cross side network effects, advertising. |
| JEL: | K21 L13 L82 L86 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99364&r=all |
| By: | Guenette,Justin Damien |
| Abstract: | The use of price controls is widespread across emerging markets and developing economies, including for food and key imported and exported commodities. Although they are sometimes used as a tool for social policy, price controls can dampen investment and growth, worsen poverty outcomes, cause countries to incur heavy fiscal burdens, and complicate the effective conduct of monetary policy. Replacing price controls with expanded and better-targeted social safety nets, coupled with reforms to encourage competition and a sound regulatory environment, can be pro-poor and pro-growth. Such reforms need to be carefully communicated and sequenced to ensure political and social acceptance. Where they exist, price control regimes should be transparent and supported by well-capitalized stabilization funds or national hedging strategies to ensure fiscal sustainability. |
| Date: | 2020–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9212&r=all |
| By: | Benjamin Radoc (Philippine Competition Commission and Department of Economics, Ateneo de Manila University); Philip Amadeus Libre (Asian Development Bank (Consultant)); Shanti Aubren Prado (World Bank Group (Consultant)) |
| Abstract: | Competition authorities around the world have adopted leniency programs creating incentives for cartel members to come forward and provide information sufficient for cartel prosecution. We conducted a laboratory experiment simulating an infinitely repeated 4-player Bertrand game with homogeneous goods. The experiment allowed us to determine the effect of detection rate, penalty discount, and penalty rate on cartel formation and leniency application. Similar to past studies, we find that imposing a leniency program effectively deters cartel formation. However, surviving cartels quickly learn to cooperate. Leniency application is dependent on the immunity incentive (full penalty discount) and the risk of cartel detection, but not on the penalty rate. |
| Keywords: | antitrust, cartel, experiment, leniency program |
| JEL: | K21 L13 L44 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:agy:dpaper:202003&r=all |
| By: | Hannes Wallimann; David Imhof; Martin Huber |
| Abstract: | We propose a new method for flagging bid rigging, which is particularly useful for detecting incomplete bid-rigging cartels. Our approach combines screens, i.e. statistics derived from the distribution of bids in a tender, with machine learning to predict the probability of collusion. As a methodological innovation, we calculate such screens for all possible subgroups of three or four bids within a tender and use summary statistics like the mean, median, maximum, and minimum of each screen as predictors in the machine learning algorithm. This approach tackles the issue that competitive bids in incomplete cartels distort the statistical signals produced by bid rigging. We demonstrate that our algorithm outperforms previously suggested methods in applications to incomplete cartels based on empirical data from Switzerland. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2004.05629&r=all |
| By: | Youming Liu; Shanjun Li; Caixia Shen |
| Abstract: | The efficiency of resource allocation is often analyzed in static frameworks with a focus on the cross-sectional heterogeneity in the willingness to pay among users. When the resource is durable in nature, the temporal heterogeneity could be important in assessing the efficiency properties of different allocation mechanisms. This paper uses a dynamic model to empirically quantify the efficiency outcome of using lotteries to allocate scarce resources among forward-looking consumers. In the context of the lottery policy for vehicle licenses in Beijing, our analysis shows that lotteries significantly affect intertemporal decisions in that households participate in lotteries at least four years earlier on average than they would be in a counterfactual environment of no quantity constraint. The welfare loss due to temporal heterogeneity and resulting changes in participation decisions accounts for over half of the total welfare loss from the lottery policy. The analysis highlights the importance of taking dynamic efficiency into account in designing resource allocation mechanisms. |
| JEL: | L51 L62 R21 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26904&r=all |
| By: | Chen, Jiaqi; Lee, Sang-Ho |
| Abstract: | This paper investigates strategic choices between duopolistic firms’ R&D investments and government’s output subsidies in an endogenous timing game with research spillovers. We show that a simultaneous-move game among three players appears at equilibrium if the spillovers are very low while government leadership with both firms’ simultaneous-move game appears otherwise. We also show that government followership appears unless the spillovers are low or high, while both the government leadership and followership outcomes are socially desirable at quilibrium. However, a single firm’s leadership equilibrium appears if the spillovers are high, but it causes a welfare loss. |
| Keywords: | Endogenous timing game; Research spillovers, R&D investments; Output subsidies; |
| JEL: | H21 L13 |
| Date: | 2020–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99503&r=all |
| By: | Davide Dragone; Davide Raggi |
| Abstract: | The milk addiction paradox refers to an empirical finding in which commodities that are typically considered to be non addictive, such as milk, appear instead to be addictive. This result seems more likely when there is persistence in consumption and when using aggregate data, and it suggests that the AR(2) model typically used in the addiction literature is prone to produce spurious result in favor of rational addiction. Using both simulated and real data, we show that the milk addiction paradox disappears when estimating the data using an AR(1) linear specification that describes the saddle-path solution of the rational addiction model. The AR(1) specification is able to correctly discriminate between rational addiction and simple persistence in the data, to test for the main features of rational addiction, and to produce unbiased estimates of the short and long-run elasticity of demand. These results hold both with individual and aggregated data, and they suggest that, for testing rational addiction, the AR(1) model is a better empirical alternative than the canonical AR(2) model. |
| JEL: | D11 D12 I12 L66 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1144&r=all |
| By: | Marco Bonomo; Carlos Carvalho; Oleksiy Kryvtsov; Sigal Ribon; Rodolfo Rigato |
| Abstract: | Standard theories of price adjustment are based on the problem of a single-product firm, and therefore they may not be well suited to analyze price dynamics in the economy with multiproduct firms. To guide new theory, we study a unique dataset with comprehensive coverage of daily prices in large multi-product food retailers in Israel. We find that a typical retail store synchronizes its regular price changes around occasional “peak" days when, once or twice a month, it reprices around 10% of its products. To assess the implications of partial price synchronization for inflation dynamics, we develop a new price-setting model in which a firm sells a continuum of products and faces economies of scope in price adjustment. The model generates the partial synchronization pattern with peaks of re-pricing activity observed in the data. We show analytically and numerically that synchronization of price changes attenuates the average price response to a monetary shock; however, only high degrees of synchronization can materially strengthen monetary non-neutrality. Hence, the synchronization of price changes observed in the data is consistent with considerable aggregate price flexibility. |
| Keywords: | Inflation and prices; Market structure and pricing; Monetary Policy |
| JEL: | D21 D22 E31 E52 L11 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-12&r=all |