nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒04‒27
nine papers chosen by

  1. Price-cost margins and fixed costs By Filip Abraham; Yannick Bormans; Jozef Konings; Werner Roeger
  2. Some Unpleasant Markup Arithmetic: Production Function Elasticities and their Estimation from Production Data By Steve Bond; Arshia Hashemi; Greg Kaplan; Piotr Zoch
  3. Vertical Integration as a Source of Hold-up: an Experiment By Marie-Laure ALLAIN; Claire CHAMBOLLE; Patrick REY; Sabrina TEYSSIER
  4. Digitalization and Platforms in Agriculture: Organizations, Power Asymmetry, and Collective Action Solutions By Kenney, Martin; Serhan, Hiam; Trystram, Gilles
  5. The Role of International Collaborations in Securing the Patent Grant By Drivas, Kyriakos; Kaplanis, Ioannis
  6. R&D or R vs. D? Firm Innovation Strategy and Equity Ownership By James Driver; Adam Kolasinski; Jared Stanfield
  7. Competition in the German Electricity Retail Business: Innovation and Growth Strategies By Amelung, Torsten
  8. Customer Satisfaction at E-Commerce Platform By Giao, Ha Nam Khanh
  9. Pricing Stallion Seasons for an Individual Stallion: The Existence of Top Tier Pricing and Market Power By Losey, Robert; Lambert, Thomas

  1. By: Filip Abraham; Yannick Bormans; Jozef Konings; Werner Roeger
    Abstract: This paper introduces a new method which allows to simultaneously estimate price-cost margins and fixed costs in production, using standard production data on expenditures of inputs and revenue at the firm level. In particular, we exploit properties of the primal and dual price based and cost based Solow residual, in which we allow not only for the flexible treatment of capital (either fixed, variable or a combination of both) but also for the flexible treatment of other input factors, such as labor and intermediate inputs. We use a 30 year long firm level panel of Belgian firms to estimate price-cost margins and fixed costs as a share of revenue to show the following key results: Ignoring fixed costs in production, as in most of the literature, underestimates price-cost margins and overestimates excess profit margins. We also find that fixed costs as well as price-cost margins decline in the last three decades, pushing excess profit margins downwards, suggesting highly competitive markets in Belgium.
    Keywords: Price-cost margins, fixed costs, excess profits, market power, firm level data
    JEL: D21 L13 L16
    Date: 2020–04
  2. By: Steve Bond; Arshia Hashemi; Greg Kaplan; Piotr Zoch
    Abstract: The ratio estimator of a firm’s markup is the ratio of the output elasticity ofThe ratio estimator of a firm’s markup is the ratio of the output elasticity ofa variable input to that input’s cost share in revenue. This note raises issues thatconcern identification and estimation of markups using the ratio estimator. Concerningidentification: (i) if the revenue elasticity is used in place of the output elasticity, thenthe estimand underlying the ratio estimator does not contain any information aboutthe markup; (ii) if any part of the input bundle is either used to influence demand, or isneither fully fixed nor fully flexible, then the estimand underlying the ratio estimatoris not equal to the markup. Concerning estimation: (i) even with data on outputquantities, it is challenging to obtain consistent estimates of output elasticities whenfirms have market power; (ii) without data on output quantities, as is typically thecase, it is not possible to obtain consistent estimates of output elasticities when firmshave market power and markups are heterogeneous. These issues cast doubt overwhether anything useful can be learned about heterogeneity or trends in markups,from recent attempts to apply the ratio estimator in settings without output quantitydata.
    Keywords: Markups, Output Elasticity, Revenue Elasticity, Production Functions
    JEL: D2 D4 L1 L2
    Date: 2020–04–20
  3. By: Marie-Laure ALLAIN (CREST, CNRS, Ecole Polytechnique, Institut Polytechnique de Paris, Palaiseau, France); Claire CHAMBOLLE (Université Paris-Saclay, INRAE, UR ALISS, 94205, Ivry-sur-Seine, France; CREST, Institut Polytechnique de Paris); Patrick REY (Toulouse School of Economics, University Toulouse Capitole, Toulouse, France); Sabrina TEYSSIER (Univ. Grenoble Alpes, INRA, CNRS, Grenoble INP, GAEL, 38000 Grenoble, France)
    Abstract: In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, partial vertical integration may create hold-up problems for the rival. We develop an experiment to test this theoretical prediction in two setups, in which suppliers can either pre-commit ex ante to appropriating part of the joint profit, or degrade ex post the support they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems in both setups. However, we observe more departures from theory in the second one. Bounded rationality and social preferences provide a rationale for these departures.
    Keywords: Vertical Integration, Hold-up, Experimental Economics, Bounded Rationality, Social Preferences.
    JEL: C91 D90 L13 L41 L42
    Date: 2020–03–13
  4. By: Kenney, Martin; Serhan, Hiam; Trystram, Gilles
    Abstract: Abstract Technologies such as digitally-equipped agricultural equipment, drones, image recognition, sensors, robots and artificial intelligence are being rapidly adopted throughout the agrifood system. As a result, actors in the system are generating and using ever more data. While this is already contributing to greater productivity, efficiency, and resilience, for the most part, this data has been siloed at its production sites whether on the farm or at the other nodes in the system. Sharing this data can be used to create value at other nodes in the system by increasing transparency, traceability, and productivity. Ever greater connectivity allows the sharing of this data with actors, at the same node in the value chain, e.g., farmer-to-farmer, or between different nodes in the value chain, e.g., farmer-to-equipment producer. The benefits of data sharing for efficiency, productivity and sustainability are predicated upon the adoption of an online digital platform. The conundrum is that, as the intermediary, the owner of a successful platform acquires significant power in relationship to the platform sides. This paper identifies five types of platform business models/ownership arrangements and their benefits and drawbacks for the various actors in the agri-food system and, in particular farmers. The types discussed are: 1) venture capital financed startups; 2) existing agro-food industry firms including equipment makers such as John Deere, agrochemical/seed conglomerates such as Bayer/Monsanto, and agricultural commodity traders such as ADM and Cargill; 3) agricultural cooperative such as InVivo in France; 4) various specially formed consortia of diverse sets of agri-food system actors including farmers, and 5) the internet giants such as Amazon, Microsoft and Google. The paper assesses the business models for each of these organizational forms. Finally, we describe the drawbacks each of these organizational forms have experienced as they attempt to secure adoption of their particular platform solution.
    Keywords: Digitization, Platform Economy, Agriculture, Agri-food systems, Cooperatives, Platforms
    JEL: Q1 Q13 L6 L66
    Date: 2020–04–23
  5. By: Drivas, Kyriakos; Kaplanis, Ioannis
    Abstract: Our study examines whether patent applications with international collaborations are more likely to be awarded a US patent than applications without. It contributes significantly to the growing literature that examines from the innovator’s viewpoint the likelihood of securing the patent grant. The analysis focuses on the full sample (almost half a million) of patent applications over the period 2001-2009 at the USPTO, that disclosed at least one EU located inventor, and furthermore, explicitly distinguishes between countries with high and low number of patent applications. Firstly, we find that applications from teams rather than individual inventors are more successful in obtaining a patent grant, and that results are even better for international teams. Our key finding is that the presence of a US entity, either as inventor or owner, plays an important role in securing the grant. For low innovative countries, other types of international collaborations also matter significantly pointing to the benefits for these countries to become more extrovert. We further find that a large part of the US ‘effect’ can be attributed to additional prosecution efforts, as it is evident by continuing patent applications.
    Keywords: International collaborations, likelihood of patent grant, USPTO, continuing patent applications, patent assignments
    JEL: O31 O32 O34
    Date: 2020–04
  6. By: James Driver; Adam Kolasinski; Jared Stanfield
    Abstract: We analyze a unique dataset that separately reports research and development expenditures for a large panel of public and private firms. Definitions of “research” and “development” in this dataset, respectively, correspond to definitions of knowledge “exploration” and “exploitation” in the innovation theory literature. We can thus test theories of how equity ownership status relates to innovation strategy. We find that public firms have greater research intensity than private firms, inconsistent with theories asserting private ownership is more conducive to exploration. We also find public firms invest more intensely in innovation of all sorts. These results suggest relaxed financing constraints enjoyed by public firms, as well as their diversified shareholder bases, make them more conducive to investing in all types of innovation. Reconciling several seemingly conflicting results in prior research, we find private-equity-owned firms, though not less innovative overall than other private firms, skew their innovation strategies toward development and away from research.
    Date: 2020–04
  7. By: Amelung, Torsten
    Abstract: In Europe and especially in Germany short-term price adjustments by retail companies are led by behavioral patterns that follow the logic of the prisoner’s dilemma. In order to escape this short-term competitive pressure, an increasing number of retail companies focus on the diversification of their activities by offering new product lines such as distributed energy solutions. Moreover, there is a trend towards investing in the development of a brand to increase customer loyalty.
    Keywords: short term price competition,second-mover-advantage,product versioning,diversification,distributed energy solutions,brand strategy,digitalization,affiliate marketing
    Date: 2020
  8. By: Giao, Ha Nam Khanh
    Abstract: This study has four objectives: (1) Identifying factors that affect customer satisfaction on online service quality of, (2) Measuring the level of impact of the factors, (3) Testing the difference in satisfaction among groups of customers with different characteristics in terms of gender, age, income, academic level, and occupation, and (4) Proposing some managerial implications to improve the quality of online services by interviewing directly and online 200 individual customers who have shopped at E-commerce platform for at least the last six months, using the convenient sampling method. This study analyzes the reliability of the scale through the Cronbach's alpha coefficient, Exploratory factor analysis, and Linear regression analysis. The findings identified four factors that influence positively customer satisfaction regarding the quality of online services in E-commerce platform in the order of descending strength: (1) Trust, (2) Customer service, (3) Web design and (4) Safety. In addition, the results show no difference in customer satisfaction according to different academic levels, but in terms of occupation and income, gender, and age. The results show that the factors influencing most customer satisfaction are Reliability and Customer Service. Some managerial implications are then proposed to improve the quality of online shopping services at
    Date: 2020–04–11
  9. By: Losey, Robert; Lambert, Thomas
    Abstract: This paper is an academic treatment of the pricing of stallion seasons (a “season ” confers the right to breed a mare to a stallion) The commercial stallion seasons market can be represented schematically as a triangle that normally has a single-digit number of stallions offering high-priced seasons in the narrow apex, a moderate number of stallions composing the middle section, and over 150 in the $5,000-$10,000 range. We argue that it is logical for profit-maximizing stallion managers, most especially those in the apex of the stallion seasons triangle, to charge different prices for different groups of buyers of the same stallion seasons. Some of the reasons are straightforward: seasons are worth less as the breeding season progresses because foals produced later in year from those seasons are worth less. Other reasons have more to do with the somewhat monopolistic nature of the market for stallion seasons as explained in this paper. This market power, in turn, creates multiple demand curves for different market segments. As for artificial insemination (AI), the economics of this analysis suggests that breeders significantly benefit from the introduction of AI because costs tend to fall and the choices of potential stallions available to mares would be expanded as better stallions breed more mares. Though the average breeder would benefit, there would be losers from a change in the status quo. Not surprisingly, those who stand to would lose from a move to AI argue against such a move.
    Keywords: artificial insemination, breeding, competition, monopolistic competition, monopoly, oligopoly, seasons contracts.
    JEL: L1 L8 Q12 Q19
    Date: 2020–04–17

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