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on Industrial Organization |
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Issue of 2020‒08‒17
eleven papers chosen by |
| By: | Volker Nocke; Michael D. Whinston |
| Abstract: | Concentration-based screens for horizontal mergers, such as those employed in the US DOJ and FTC Horizontal Merger Guidelines, play a central role in merger analysis. However, the basis for these screens, in both form and level, remains unclear. We show that there is both a theoretical and an empirical basis for focusing solely on the change in the Herfindahl index, and ignoring its level, in screening mergers for whether their unilateral effects will harm consumers. We also argue, again both theoretically and empirically, that the levels at which the presumptions currently are set may be too lax, especially with regards to safe harbors. |
| Keywords: | Horizontal Merger, Oligopoly, Herfindahl Index, Market Concentration, Market Power |
| JEL: | L40 L13 D43 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_190&r=all |
| By: | Elliott, M.; Talamàs, E. |
| Abstract: | In many markets, heterogenous agents make non-contractible investments before bargaining over both who matches with whom and the terms of trade. In static markets, the holdup problem—that is, inefficient investments caused by agents receiving only a fraction of their returns—is ubiquitous. Markets are often dynamic, however, with agents entering over time. Taking a general non-cooperative investment and bargaining approach, we show that the holdup problem vanishes in markets with dynamic entry as agents become patient: While there is substantial wiggle room for bargaining to determine outcomes, every bargaining outcome gives everyone her marginal product. |
| Date: | 2020–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2070&r=all |
| By: | Amedeo Piolatto (Autonomous University of Barcelona (UAB), Barcelona Graduate School of Economics (BGSE), Barcelona Economics Institute (IEB) and MOVE) |
| Abstract: | Anonymous information platforms (e.g. Airbnb) provide information about experience goods while keeping agents' identity hidden until the transaction is completed. In doing so, they generate heterogeneity in the information levels across consumers. In this paper, I show that such platforms induce a weak increase of offline prices and that only low-valuation goods are cheaper online than offline. Platforms always lead to an increase in profits. In terms of consumer welfare, the platform equilibrium is Pareto superior for low-and high-valuation goods, while for intermediate ranges some buyers benefit while others lose from the presence of the platform. |
| Keywords: | Anonymous information platforms, experience goods, mismatch costs, Spokes model, horizontal competition |
| JEL: | D02 D21 D43 D61 D83 L11 L13 L15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2020-08&r=all |
| By: | Luca Sandrini (DSEA, University of Padova) |
| Abstract: | This article analyses the licensing choices of an outside inventor who owns a patent for a superior cost-saving technology. Moreover, I show that licensing via uniform upfront fees is found to be superior to licensing via royalties, from the inventor perspectives. This is so, regardless of the number of manufacturers in the product market, as downstream competition fosters the inventor's incentives to develop a more effective cost-saving technology, raising his/her revenues from surplus extraction. Moreover, this article investigates the effect of competition on licensing outcomes and ex-post market concentration. |
| Keywords: | Innovation, Licensing, Vertical Relation, Oligopoly, Competition |
| JEL: | L13 L22 L24 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0251&r=all |
| By: | Dudley Cooke (University of Exeter); Ana P. Fernandes (University of Exeter); Priscila Ferreira (NIPE and University of Minho) |
| Abstract: | This paper identifies a causal link between changes in product market competition, firm reorganization and within-firm wage inequality. We exploit a unique episode of comprehensive firm entry deregulation as a quasi-natural experiment and use exceptionally detailed linked employer-employee data for the universe of private sector firms and workers. We find that following deregulation affected firms flatten their hierarchies: the number of layers is reduced and managers´spans of control increased. Dropping a hierarchy layer is accompanied by a significant reduction in wage inequality within the firm, by 10% for the average pay ratio between the top and the bottom layer, showing that there are real changes arising from firm reorganization. Overall dispersion is also reduced. We discuss mechanisms and interpretations for these changes. |
| Keywords: | Firm entry deregulation, Hierarchical layers, Internal organization, Product Market Competition, Span of control, Wage Inequality |
| JEL: | L22 L23 M12 J31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:05/2020&r=all |
| By: | Yannis Kerkemezos (CPB Netherlands Bureau of Economic Policy Analysis); Bas Karreman (Erasmus University Rotterdam) |
| Abstract: | We empirically test the hypothesis that the discounts offered by firms to consumers who purchase tickets in advance increase with the intensity of competition. We develop a new measure of competition for which we use the proximity (in departure time) of a given flight to its competitors to infer the intensity of competition and estimate the impact of competition on advance purchase discounts (APDs) and the dynamic pricing of airlines by exploiting plausibly exogenous changes in the flight schedules of airlines that occur during the booking period. We find strong support for the theoretical prediction that APDs are larger when the intensity of competition is higher using a sample of airline fare quotes. Our results also suggest that airline price dispersion increases with the intensity of competition. |
| Keywords: | Dynamic pricing, advance purchase discounts, price discrimination, oligopoly, airlines |
| JEL: | D43 D22 L1 L9 |
| Date: | 2020–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20200042&r=all |
| By: | Rebolledo, Mayra |
| Abstract: | Market concentration has been suggested as an enhancer of bargaining power imbalances for vertical commercial relationships. However, the empirical literature has not yet explored in which way this market concentration, as a result of -for instance- a M&A operations, could affect the negotiations with agents in vertical related markets; in particular, in frictional multiproduct commercial relationships, in which uncertainty may play a role of such negotiations. The present work proposes an explanation to this matter, by analyzing the strategic incentives and uncertainties that arise in this kind of commercial relationships from the announcement of an horizontal M&A operation, and the way these expectations could influence the bargaining power redistribution among players after the operation; opening the discussion on a dynamic analysis of bargaining outcomes. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cawmdp:116&r=all |
| By: | Alfaro, Martin (University of Alberta, Department of Economics); Lander, David (Peking University) |
| Abstract: | When should we expect a trade shock to create pro competitive effects? In this paper, we investigate this in setups with firm heterogeneity and a linear demand with horizontal product differentiation. Our main finding is that the characterization of marginal entrants completely determines whether pro-competitive effects arise across standard settings of monopolistic competition (i.e., a la Krugman, Melitz, and Chaney/short-run Melitz) and Cournot (with free and restricted entry). This result holds independently of the assumptions on the rest of the firms, and is particularly stark in Cournot, where marginal entrants comprise merely one firm (the last entrant). We also provide conditions on marginal entrants across market structures that lead to pro-competitive, anti competitive, or null effects following a unilateral trade liberalization. |
| Keywords: | marginal entrants; imperfect competition; import competition; export opportunities |
| JEL: | D43 F10 F12 L13 |
| Date: | 2020–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2020_011&r=all |
| By: | Alfaro, Martin (University of Alberta, Department of Economics); Warzynski, Frederic (Aarhus University) |
| Abstract: | This paper studies the impact of better export access on the domestic economy of small countries, where firms of all sizes commonly export due to the limited size of the home market. We propose and estimate a model where small firms, characterized as in monopolistic competition, coexist with large granular firms making quality investments. In our framework, better export access benefits large firms by expanding their sales volume and, hence, reducing their average quality costs. Simultaneously, they are adversely affected by increased domestic competition following entry by small firms. Estimating the model for several Danish industries shows that, while some large firms benefit from better export access, others are severely hurt by the tougher competition at home. In some cases, the latter effect is so pronounced that domestic market share is reallocated towards small firms and total industry profits decrease. |
| Keywords: | large firms; small firms; quality; export access; small economy; Denmark |
| JEL: | F12 F14 L11 |
| Date: | 2020–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2020_010&r=all |
| By: | Andersson, Martin (Department of Industrial Economics Blekinge Institute of Technology (BTH)); Kusetogullari, Anna (Department of Industrial Economics Blekinge Institute of Technology (BTH)); Wernberg, Joakim (Swedish Entrepreneurship Forum) |
| Abstract: | Several scholars as well as industry professionals have claimed that there is a “software-biased shift” in the nature and direction of innovation in that software development is a core part of innovation activities in firms across a wide array of industries. Empirical firm-level evidence of such a shift is still scant. We employ new and unique firm-level survey data on the frequency and nature of software development among firms in Sweden, matched with the Community Innovation Survey (CIS). We find robust evidence supporting a software-bias in innovation in that software development is associated with a higher likelihood of introducing innovations as well as higher innovation sales among firms in both manufacturing and services industries. Furthermore, this positive relationship is stronger for firms employing in-house software developers than for those that only use external developers, suggesting that there is a hierarchy but possibly also a complementarity between internal and external software development. We also find support for complementarity between software-based technology and human capital; the estimated marginal effect of software development on innovation is particularly strong for firms that combine in-house software development with a highly educated workforce in STEM as well as in other disciplines. |
| Keywords: | Innovation; Software; Software development; Digitalization; Human capital; Software bias; Digital technology; Absorptive capacity |
| JEL: | L25 O15 O32 O33 O43 |
| Date: | 2020–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1347&r=all |
| By: | Vidal-Tomás, David; Ruiz-Buforn, Aba; Blanco-Arroyo, Omar; Alfarano, Simone |
| Abstract: | We analyse the time evolution of the empirical cross-sectional distribution of firms profit and growth rates. In particular, we analyse the conditional properties of the empirical distributions depending on the size of the firms and business cycle phase. In order to do so, we employ the Laplace distribution as a benchmark, further considering the Subbotin and Asymmetric Exponential Power (AEP hereafter) distributions, to capture the potential asymmetry and leptokurtosis of the empirical distribution. Our results show that the profit rates of large firms are characterised by an asymmetric Laplace distribution with parameters largely independent of the business cycle phase. Small firms, instead, are characterised by the AEP distribution, which accounts for the conditional dependence of distribution on the phase of the business cycle. We observe that the largest firms are more robust to downturns compared to the small firms, given their invariant distributional characteristics during crisis periods. |
| Keywords: | Profit rates ; Growth rates ; Firm size ; Business cycle ; Laplace distribution ; Asymmetric Exponential Power distribution |
| JEL: | C10 D21 E10 L10 |
| Date: | 2020–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102065&r=all |