nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒05‒11
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Preferences, confusion and competition By Andreas Hefti; Shuo Liu; Armin Schmutzler
  2. The evolution of EU antitrust policy: 1966-2017 By Ibáñez Colomo, Pablo; Kalintiri, Andriani
  3. Per unit and ad valorem royalties in a patent licensing game By Marta Montinaro; Rupayan Pal; Marcella Scrimitore
  4. R&D Spillovers and Welfare Effect of Privatization with an R&D Subsidy By Lee, Sang-Ho; Muminov, Timur
  5. Modeling R&D spillovers to productivity. The effects of tax policy By Thomas von Brasch; Ådne Cappelen; Håvard Hungnes; Terje Skjerpen
  6. Exclusionary contracts and incentives to innovate By Ulsaker, Simen A.
  7. Horizontal cooperation on investment: Evidence from mobile network sharing By Cojoc, Anca; Ivaldi, Marc; Maier-Rigaud, Frank P.; März, Oliver
  8. The technological contest between China and the United States By Toro Hardy, Alfredo
  9. Vertical Integration and Capacity Investment in the Electricity Sector By Brown, David P.; Sappington, David E.M.
  10. Effects of piracy on the American comic book market and the role of digital formats By Wojciech Hardy

  1. By: Andreas Hefti; Shuo Liu; Armin Schmutzler
    Abstract: Do firms seek to make the market transparent,or do they confuse the consumers in their product perceptions? We show that the answer to this question depends decisively on preference heterogeneity. Contrary to the well-studied case of homogeneous goods, confusion is not necessarily an equilibrium in markets with differentiated goods. In particular, if the taste distribution is polarized, so that indifferent consumers are relatively rare, firms strive to fully educate consumers. By contrast, if the taste distribution features a concentration of indecisive consumers, confusion becomes part of the equilibrium strategies. The adverse welfare consequences of confusion can be more severe than with homogeneous goods, as consumers may not only pay higher prices, but also choose a dominated option, or inefficiently refrain from buying. Qualitatively similar insights obtain for political contests, in which candidates compete for voters with heterogeneous preferences.
    Keywords: Obfuscation, consumerconfusion, differentiated products, price competition, polarized/indecisive preferences, political competition
    JEL: D43 L13 M30
    Date: 2020–04
  2. By: Ibáñez Colomo, Pablo; Kalintiri, Andriani
    Abstract: This article describes, and puts in context, the evolution of the enforcement practice of the European Commission in the area of EU antitrust law (Articles 101 and 102 TFEU). It considers all formal decisions adopted in the period between 1966 – when the European Court of Justice delivered the two seminal rulings that marked the discipline – and the end of 2017. The article classifies Commission decisions in accordance with four enforcement paradigms. The descriptive statistics show that the cases that the Commission chooses to prioritise have changed over the years. First, enforcement has progressively moved towards the core and the outer boundaries of the system. Second, it has become policy-driven rather than law-driven. Third, the nature of the cases chosen by the Commission is consistent with its commitment to a ‘more economics-based approach’ to enforcement. Finally, these cases signal a move towards a more ambitious stage in the process of the integration of Member States’ economies.
    JEL: N0
    Date: 2020–03–01
  3. By: Marta Montinaro (University of Salento); Rupayan Pal (Indira Gandhi Institute of Development Research); Marcella Scrimitore (University of Salento)
    Abstract: In a context of product innovation, we study two-part tariff licensing between a patentee and a potential rival which compete in a differentiated product market characterized by network externalities. The latter are shown to crucially affect the relative profitability of Cournot vs. Bertrand when a per unit royalty is applied. By contrast, we find that Cournot yields higher profits than Bertrand under ad valorem royalties, regardless of the strength of network effects.
    Keywords: Licensing, Product Innovation, Bertrand, Cournot, Network Effects
    JEL: L13 L20 D43
    Date: 2020–04
  4. By: Lee, Sang-Ho; Muminov, Timur
    Abstract: We reexamine the results in Gil Molto et al. (2011) and compare the welfare effect of privatization policy in an R&D competition between a mixed duopoly and a private duopoly with an R&D subsidy. We show that an R&D subsidy with privatization policy is beneficial for society unless the spillovers rate is sufficiently low. Otherwise, public R&D leadership in a mixed market is socially superior.
    Keywords: Privatization; R&D subsidy; R&D spillovers; R&D leadership;
    JEL: H21 L13 L32
    Date: 2020–03
  5. By: Thomas von Brasch; Ådne Cappelen; Håvard Hungnes; Terje Skjerpen (Statistics Norway)
    Abstract: We study the role of R&D spillovers when modelling total factor productivity (TFP) by industry. Using Norwegian industry level data, we find that for many industries there are significant spillovers from both domestic sources and from technological change at the international frontier. International spillovers contributed with 38 per cent to the total growth in TFP from 1982 to 2018 while domestic channels contributed with 44 per cent. The remaining 18 per cent is due to interaction effects. We include these channels into a large-scale econometric model of the Norwegian economy to study how R&D policies can promote economic growth. We find that current R&D policies in the form of generous tax deductions have increased growth in productivity and income in the Norwegian economy. The simulation results lend some support to the view that there are fiscal policy instruments that may have very large multipliers, even in the case of a fully financed policy change.
    Keywords: R&D spillovers; total factor productivity; innovation policies
    JEL: C32 C51 D24 E17 O32
    Date: 2020–04
  6. By: Ulsaker, Simen A. (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: The article considers a situation where several firms have the opportunity to sell an identical product to a set of buyers, and where each seller can invest in R&D to develop a higher quality version of the product in question. I consider the possibility of allowing the sellers to offer exclusionary contracts, prior to deciding how much to invest in R&D. In equilibrium every buyer will sign an exclusionary contract with the same seller. Since all buyers are locked to one seller, only this seller will have an incentive to invest in R&D. Whether or not banning exclusionary contracts increases the aggregate probability of successful innovation depends on the R&D technology. More specifically, banning exclusionary contracts will increase the aggregate probability of innovation and joint surplus of buyers and sellers only when the R&D technology exhibits sufficient diseconomies of scale.
    Keywords: Vertical relations; Exclusive contracts; Innovation
    JEL: L22 L42
    Date: 2020–04–27
  7. By: Cojoc, Anca; Ivaldi, Marc; Maier-Rigaud, Frank P.; März, Oliver
    Abstract: We present a structural model to investigate the effects of horizontal cooperation on investment in the context of telecommunication networks. More specifically, we estimate the effect of network sharing in the mobile telecommunications industry on prices, network quality and consumer welfare. The presented framework allows estimating the effects of different types of sharing agreements including common ownership of shared assets in a joint venture company or collaboration via geographical separation (geo-split principle). The proposed identification strategy relies on differences in the costs of network deployment of shared versus non-shared network infrastructure, with different costs affecting operators’ optimal choice of price and network quality. We apply the structural model to estimate the effects of a network sharing agreement in the Czech Republic, using a combination of unique datasets on prices, network quality measured as average download speed and operator’s costs of network deployment. The results of our model indicate that horizontal cooperation on investments may be beneficial for consumers. Specifically, the network sharing agreement under study generated cost savings for the sharing parties, which were passed-on to consumers in the form of lower prices and higher average download speed. Our findings are of relevance to the assessment of network sharing agreements, which, considering the substantial investment cost associated with the 5G technology, are likely to play an even greater role in the telecommunications industry in the future. The findings are also of relevance to the general literature on horizontal cooperation on investments.
    Keywords: mobile telecommunication networks; network sharing; cooperation on investment; 4G; 5G; horizontal cooperation; empirical industrial organization
    JEL: L11 L40 L96
    Date: 2020–05
  8. By: Toro Hardy, Alfredo
    Abstract: China’s proclaimed aim of becoming the world’s leader in science, technology and innovation by the mid twenty first century has triggered an intense competition with the United States. The latter, feeling threatened in its supremacy in this field, has reacted forcefully. This GLO Discussion Paper examines the nature of this contest, the comparative technological standing of both countries, the pros and cons in this area derived from their respective development models and the plausible outcomes of this competition.
    Keywords: Artificial Intelligence,China, Market economy,Research & Development,Science & Technology,State led model,Silicon Valley, United States
    JEL: D78 F01 F52 H52 I25
    Date: 2020
  9. By: Brown, David P. (University of Alberta, Department of Economics); Sappington, David E.M. (University of Florida)
    Abstract: We examine the incentives for and the effects of vertical integration in the electricity sector. We find that vertical integration generally reduces retail prices and increases industry capacity investment, consumer surplus, and total welfare. Unilateral vertical integration is pro table, so it arises in equilibrium. However, ubiquitous vertical integration can reduce aggregate industry pro fit.
    Keywords: Vertical Integration; Capacity Investment; Electricity Sector
    JEL: L51 L94 Q28 Q40
    Date: 2020–04–27
  10. By: Wojciech Hardy
    Abstract: Much like the music and movie industries before, the comic book industry has entered the digital markets and faces the unfair competition of unauthorized sources. I conduct a survey among comic book readers to infer whether the unpaid channels harm the sales of comic books from the top American publishers. My data allows me to construct a time panel of comics readers and calculate the substitution rate between the paid and unpaid channels of comics acquisition. Moreover, I show that the digital comics – both paid and unpaid – are typically considered as inferior by the readers. With the price of digitally released new comics set at the same level as their print versions, this suggests that readers who do not want to pay the full price for print copies are more likely to use pirate sources than to switch to legal digital channels. Indeed, among the surveyed sample, lowering the price of digital comics could help convert some of the unpaid acquisitions into paid digital ones.
    Keywords: comic books, media, digital formats, piracy, file-sharing
    JEL: C83 K42 O34 Z11
    Date: 2020–03

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