nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒06‒15
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Towards digital globalization and the covid-19 challenge By Schilirò, Daniele
  2. National brands in hard discounters: Market expansion and bargaining power effects By Bonnet, Céline; Bouamra-Mechemache, Zohra; Klein, Gordon
  3. Poisson-Cournot Games By Francesco De Sinopoli; Christopher Kunstler; Claudia Meroni; Carlos Pimienta
  4. Preemption with a Second-Mover Advantage By Smirnov, Vladimir; Wait, Andrew
  5. Vertical Price Restraints and Free Entry Under Asymmetric Information By Leda Maria Bonazzi; Raffaele Fiocco; Salvatore Piccolo
  6. Multi-product Firms and Product Quality Expansion By Van Pham; Alan Woodland
  7. Innovation and Entrepreneurship in the Energy Sector By David Popp; Jacquelyn Pless; Ivan Haščič; Nick Johnstone
  8. Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry By Kory Kroft; Yao Luo; Magne Mogstad; Bradley Setzler
  9. Price Parity Clauses for Hotel Room Booking: Empirical Evidence from Regulatory Change By Ennis, Sean; Ivaldi, Marc; Lagos, Vicente

  1. By: Schilirò, Daniele
    Abstract: Digital globalization is a new form of globalization. It brings about relevant changes regarding how business is conducted across borders, the flow of economic benefits, and broadening participation. The growth of data and information related to digital globalization determines that global economic, financial, and social connections increase through digital platforms. Covid-19 is causing a shock to the global economy that is proving to be both faster and more severe than the 2008 global financial crisis. If the current crisis is pushing towards deglobalization, at the same time, Covid-19 represents a challenge for digital globalization and the digital transformation of economies. This research contribution examines the process towards digital globalization that is characterizing the world economy, its impact on businesses, consumers, and governments. It also discusses the challenge that the crisis caused by the coronavirus pandemic is posing to the globalization and digital transformation of economies.
    Keywords: digital globalization; fourth industrial revolution; artificial intelligence; Covid-19; deglobalization; digital innovation policy
    JEL: D20 D78 F60 L86 O31
    Date: 2020–04
  2. By: Bonnet, Céline; Bouamra-Mechemache, Zohra; Klein, Gordon
    Abstract: In this paper, we analyze the strategic role of the recent introduction of national brand products by hard discounters in the French market and its impact both at the retail and manufacturer levels. We use a structural econometric model of vertical relationships that takes into account the competition between both mainstream retailers and hard discounters, and between national brands and private labels. We apply this model to the French dairy dessert market, which is characterized by a high penetration of private labels and a high concentration at the manufacturer and retail levels. Using a counterfactual analysis, we show that the introduction of national brands by hard discounters does not only act as means to attract different consumer groups and extend their market share. In addition and even maybe more important, we also show that the introduction of national brands by hard discounters serves as a means to improve their bargaining positioning with respect to their private label providers.
    Keywords: Structural Model,Counterfactual Analysis,Hard Discount,The Role of Private Labels and National Brands
    JEL: L11 L25 L81 M31
    Date: 2020
  3. By: Francesco De Sinopoli (Department of Economics, University of Verona); Christopher Kunstler (Institute of Energy and Climate Research, FZ Julich); Claudia Meroni (Department of Economics, University of Verona); Carlos Pimienta (School of Economics, UNSW Business School, UNSW)
    Abstract: We construct a Cournot model in which firms have uncertainty about the total number of firms in the industry. We model such an uncertainty as a Poisson game and we characterize the set of equilibria after deriving some novel properties of the Poisson distribution. When the marginal cost is zero, the number of equilibria increases with the expected number of firms ( n) and for n ≥ 3 every equilibrium exhibits overproduction relative to the model with deterministic population size. Overproduction is robust to sufficiently small marginal costs, however, for a fixed marginal cost, the set of equilibria approaches the equilibrium quantity of the deterministic model as n goes to infinity.
    Keywords: Cournot competition, Population uncertainty, Poisson games, Poisson distribution
    JEL: C72 D43 L13
    Date: 2020–05
  4. By: Smirnov, Vladimir; Wait, Andrew
    Abstract: We examine innovation in a market-entry timing game with complete information and observable actions when there is a second-mover advantage. Allowing for heterogenous payoffs between players, and for both leader's and follower's payoff functions to be multi-peaked and non-monotonic, we find that there are at most two pure-strategy subgame perfect equilibria. Sometimes these resemble familiar second-mover advantage equilibria from the literature. However, we show that despite there being a follower advantage at all times, there can be a preemption equilibrium with inefficient early entry. In fact, immediate entry is possible in a continuous analogue of the centipede game. These results are related to the observed premature entry and product launches in various markets.
    Keywords: timing games, second-mover advantage, preemption.
    Date: 2020–05
  5. By: Leda Maria Bonazzi (University of Essex); Raffaele Fiocco (Università di Bergamo); Salvatore Piccolo (Università di Bergamo, Compass Lexecon and CSEF)
    Abstract: We investigate the impact of vertical price restraints on the free-entry equilibrium and its welfare properties in a vertically related market where manufacturer-retailer hierarchies compete under asymmetric information. We compare the legal regimes of laissez-faire and ban on resale price maintenance (RPM) under different entry decision modes. When the entry decision is taken upstream, laissez-faire generates higher entry and increases consumer surplus, but a ban on RPM enhances total welfare. Socially excessive entry occurs under both legal regimes, and the entry bias declines with the spread of demand uncertainty. Conversely, when the entry decision is taken downstream, a ban on RPM stimulates entry and consumer surplus, but laissez-faire can be total welfare superior. Our results provide antitrust policy implications about vertical price control.
    Keywords: asymmetric information, free entry, quantity forcing, resale price maintenance, vertical restraints
    JEL: D82 L13 L42
    Date: 2020–05–27
  6. By: Van Pham (School of Economics, UNSW Business School); Alan Woodland (School of Economics, UNSW Business School)
    Abstract: This paper develops and analyzes a model of international trade comprising multiproduct firms that can produce a range of product varieties distinguished by quality. First, it analyses the within-firm distribution of product quality and argues that firms’ export decisions are sensitive to their sizes and their product quality level. Specifically, a firm successfully exports both its high-end products and low-end products. Also, the sales of its top-end products relative to sales of its lower-end products is sensitive to the extent to which effective labour costs rise with quality. Second, the paper explores the heterogeneous effects of trade liberalization on multi-product firm behaviour and quality range choices. Under trade liberalization, small domestic firms experience a shrinkage of their product quality range, while even the new small-sized exporters narrow their product quality range to focus on an export variety. In contrast, existing exporters (large firms) can compete on both price and quality under trade liberalization by expanding their export product range toward both the low-end and high-end varieties. There is a greater expansion toward the lower-end varieties relative to the higher-end varieties under trade liberalization, this relative expansion decreasing as the variable trade cost decreases.
    Keywords: Firm heterogeneity, Multiproduct firms, Quality range of varieties, Exports, Productivity
    Date: 2020–03
  7. By: David Popp; Jacquelyn Pless; Ivan Haščič; Nick Johnstone
    Abstract: Historically, innovation in the energy sector proceeded slowly and entrepreneurial start-up firms played a relatively minor role. We argue that this may be changing. Energy markets are going through a period of profound structural change. The rise of hydrofracturing lowered fossil fuel prices so much that natural gas is now the primary fuel for electricity generation in the US. Renewable energy technologies also experienced significant cost and performance improvements. However, integrating intermittent resources creates additional grid management challenges, requiring further innovation. This chapter documents the evolving roles of innovation and entrepreneurship in the energy sector. First, we provide an overview of the energy industry, highlighting that many new energy technologies are smaller, modular, and increasingly rely on innovation in other fast-moving high-tech sectors. We then conduct two descriptive data analyses that document a sharp decline in both clean energy patenting and start-up activity from about 2010 onwards. We discuss potential explanations and provide some evidence that while innovation in existing technologies may simply have been successful, continued innovation will be needed in enabling technologies that are more likely to depend on progress in other sectors.
    JEL: O31 Q4 Q42 Q55
    Date: 2020–05
  8. By: Kory Kroft; Yao Luo; Magne Mogstad; Bradley Setzler
    Abstract: The primary goal of our paper is to quantify the importance of imperfect competition in the U.S. construction industry by estimating the size of rents earned by American firms and workers. To obtain a comprehensive measure of the total rents and to understand its sources, we take into account that rents may arise both due to markdown of wages and markup of prices. Our analyses combine the universe of U.S. business and worker tax records with newly collected records from U.S. procurement auctions. We first examine how firms respond to a plausibly exogenous shift in product demand through a difference-in-differences design that compares first-time procurement auction winners to the firms that lose, both before and after the auction. Motivated and guided by these estimates, we next develop, identify, and estimate a model where construction firms compete with one another for projects in the product market and for workers in the labor market. The firms may participate both in the private market and in government projects, the latter of which are procured through first-price sealed-bid auctions. We find that American construction firms have significant wage- and price-setting power. This imperfect competition generates a considerable amount of rents, two-thirds of which is captured by the firms. Lastly, we use the estimated model to perform counterfactual analyses which reveal how increases in the market power of firms, in the product market or the labor market, would affect the outcomes and behavior of workers and firms in the construction industry.
    Keywords: imperfect competition; monopsony; market power; rents; rent sharing; auction; procurement
    JEL: J31 J42 D44 L11
    Date: 2020–06–06
  9. By: Ennis, Sean; Ivaldi, Marc; Lagos, Vicente
    Abstract: This paper examines the impact of most favored nation (MFN) clauses on retail prices, taking advantage of two natural experiments that changed vertical contracting between hotels and major digital platforms. The broad E.U. intervention narrowed the breadth of “price parity” obligations between hotels and major Online Travel Agencies (OTAs). Direct sales by hotels to customers subsequently became relatively cheaper. Comparisons with hotel pricing outside the E.U. confirm the reduction in prices for mid-level and luxury hotels. France and Germany went further and eliminated all price-parity agreements. This stronger intervention was associated solely with a significant additional price-reducing effect for mid-level hotels in Germany. Overall, wide MFNs are associated with higher retail prices. Regulating MFNs reduced prices with primary effects coming either from the narrow price-parity intervention or, perhaps, from direct sales becoming cheaper than OTAs in both E.U. and non-E.U. countries, and, interestingly, not from complete elimination of MFNs.
    Keywords: Price Parity Clause (PPC); Most favored nation (MFN); Most favored customer (MFC); Hotel Industry; Impact Evaluation; Online Travel Agency (OTA); digital platforms
    JEL: K21 L14 L42 L81
    Date: 2020–05

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