nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒07‒27
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Impact of Prices on Firm Reputation By Michael Luca; Oren Reshef
  2. Why Do Buyers Pay Different Prices for Comparable Products? Evidence from the Housing Market By Ralph Siebert; Michael J. Seiler
  3. Purchasing Alliances and Product Variety By Marie-Laure ALLAIN; Rémi AVIGNON; Claire CHAMBOLLE
  4. Decentralizing Cooperation through Upstream Bilateral Agreements By Jeon, Doh-Shin; Lefouili, Yassine
  5. Rebating Antitrust Fines to Encourage Private Damages Actions By Emons, Winand; Lehnhard, Severin
  6. Earnings Management and Stock Market Listing By Kim, Hyonok; Yasuda, Yukihiro
  7. Quality provision in hospital markets with demand inertia:The role of patient expectations By Luís Sá; Odd Rune Straume

  1. By: Michael Luca; Oren Reshef
    Abstract: While a business's reputation can impact its pricing, prices can also impact its reputation. To explore the impact of prices on reputation, we investigate daily data on menu prices and online ratings from a large rating and ordering platform. We find that a price increase of 1% leads to a decrease of 3%-5% in the average rating. Consistent with this, the overall distribution of ratings for cheaper restaurants is similar to that of more expensive restaurants. Finally, these effects don't seem to be driven by consumer retaliation against price changes, but by changes in absolute price levels.
    JEL: D4 D8 L0
    Date: 2020–06
  2. By: Ralph Siebert; Michael J. Seiler
    Abstract: We focus on the housing market and examine why nonlocal home buyers (NLBs) pay 15 percent more for houses than local home buyers (LBs). We estimate a housing demand model that returns heterogeneous willingness to pay parameters for housing attributes. Our results show that NLBs are willing to pay more for specific housing attributes, especially for house size and school quality. We also find that gratification and reward arguments, and imperfect price information explain the price differential to a large extent. Search cost and house age arguments have an adverse effect on NLBs’ house spending.
    Keywords: heterogeneous preferences, housing market, imperfect information on price distributions, school quality, search costs
    JEL: L13 L49 L63
    Date: 2020
  3. By: Marie-Laure ALLAIN (CREST, CNRS, Ecole Polytechnique, Institut Polytechnique de Paris); Rémi AVIGNON (CREST, Institut Polytechnique de Paris); Claire CHAMBOLLE (ALISS UR1303, INRA, Université Paris-Saclay, F-94200 Ivry-sur-Seine, France, and CREST)
    Abstract: We analyze the impact of purchasing alliances on product variety and profit sharing in a setting, in which capacity constrained retailers operate in separated markets and select their assortment in a set of differentiated products offered by heterogeneous suppliers (multinationals vs. local SMEs). Retailers may either have independent listing strategies or build a buying group, thereby committing to a joint listing strategy. This alliance may cover the whole product line (full buying group) or only the products of large suppliers (partial buying group). We show that a buying group may enhance the retailers’ buyer power and reduce the overall product variety to the detriment of consumers. Our most striking result is that partial buying groups do not protect the small suppliers from being excluded or from bearing profit losses; they may even be more profitable for retailers than full buying groups.
    Keywords: Vertical relations, buying group, purchasing alliance, buyer power, vertical foreclosure.
    JEL: L13 L42 L81
  4. By: Jeon, Doh-Shin; Lefouili, Yassine
    Abstract: We consider an industry with n≥3 firms owning upstream inputs and interacting noncooperatively in a downstream market. Under general conditions, upstream bilateral agreements giving firms access to one another's input lead to industry profit maximization. This decentralization result applies to various upstream agreements including cross-licensing agreements among patent-holding manufacturers, interconnection agreements among telecommunication companies, interbank payments for ATM networks, and data-sharing agreements among competitors or complementors.
    Keywords: Bilateral oligopoly; upstream agreement; cooperation
    JEL: L13 L41
    Date: 2020–06
  5. By: Emons, Winand; Lehnhard, Severin
    Abstract: To encourage private actions for damages in antitrust cases some jurisdictions subtract a fraction of the redress from the fine. We analyze the effectiveness of this policy. Such a rebate does not encourage settlement negotiations that would otherwise not occur. If, however, the parties settle without the rebate, the introduction of the reduction increases the settlement amount, yet at the price of reduced deterrence for those wrongdoers who are actually fined. Under a leniency program the rebate has no effect on the leniency applicant: she doesn't pay a fine that can be reduced. The overall effect of a fine reduction on deterrence is, therefore, negative.
    Keywords: Antitrust; Damages; deterrence; Leniency
    JEL: D43 K21 K42 L40
    Date: 2020–01
  6. By: Kim, Hyonok; Yasuda, Yukihiro
    Abstract: We provide the first large sample comparison of earnings management by Japanese listed and unlisted firms. Based on the theoretical predictions by Stein (1989), we empirically examine whether managers’ myopic behaviors exist through inflating current earnings at the expense of long-term earnings. We find that listed firms are more likely to engage in earnings management. We also find that firm managers are more likely to manage earnings as the information content of current earnings about future earnings (stock price) increases. More importantly, we note that this manipulation is pronounced only for listed firms. This is the first study that empirically shows the market pressure for raising stock price induces earnings manipulation.
    Keywords: Earnings Management, Myopic, Short-termism, Stock market pressure, Unlisted firms, Private firms
    JEL: D80 G21 G31 G32
    Date: 2020–07–21
  7. By: Luís Sá (NIPE and University of Minho); Odd Rune Straume (NIPE and Department of Economics, University of Minho and Department of Economics, University of Bergen)
    Abstract: The presence of switching costs and persistent patient preferences generates demand inertia and links current and future choices of hospital. Using a model of hospital competition with demand inertia, we investigate the effect of patient expectations (whether and how patients anticipate the future) on quality provision. We consider three types of expectations. Myopic patients choose a hospital based on current variables alone, forward-looking but naïve patients take the future into account but assume that quality remains constant, and forward-looking and rational patients foresee the evolution of quality. We rank equilibrium quality provision and show that it is higher under naïve than myopic expectations, while equilibrium quality under rational expectations may be highest or lowest. This result also holds for patient welfare, suggesting that rationality does not always benefit patients. We also show that only under rational expectations may quality be lower than in a market without inertia and switching cost reductions beneficial.
    Keywords: Hospital competition; myopic behaviour; forward-looking behaviour; rational expectations; switching costs.
    JEL: I11 I18 L13 L51
    Date: 2020

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