nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒09‒14
ten papers chosen by

  1. Concentration Screens for Horizontal Mergers By Volker Nocke; Michael D. Whinston
  2. Price Advertising, Double Marginalisation and Vertical Restraints By Garrod, Luke; Olczak, Matthew; Wilson, Chris M
  3. Dynamic Oligopoly and Price Stickiness By Olivier Wang; Iván Werning
  4. Network goods, price discrimination, and two-sided platforms By BELLEFLAMME, Paul,; PEITZ, Martin,
  5. Licensing with capacity constraint By Colombo, Stefano; Filippini, Luigi; Sen, Debapriya
  6. The tension between market shares and profi t under platform competition By Paul Belleflamme; Martin Peitz; Eric Toulemonde
  7. Platform Competition: Market Structure and Pricing By Claire Borsenberger; Helmuth Cremer; Denis Joram; Jean-Marie Lozachmeur; Estelle Malavolti
  8. Patenting Inventions or Inventing Patents? Strategic Use of Continuations at the USPTO By Cesare Righi; Timothy Simcoe
  9. Competition and Quality: Evidence from High-Speed Railways and Airlines By Hanming Fang; Long Wang; Yang Yang
  10. Market transparency and consumer search - Evidence from the German retail gasoline market By Martin, Simon

  1. 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 allow mergers to proceed that cause consumer harm.
    JEL: L0 L4
    Date: 2020–07
  2. By: Garrod, Luke; Olczak, Matthew; Wilson, Chris M
    Abstract: Abstract The developing literature on consumer information and vertical relations has yet to consider information provision via costly retail price advertising. By exploring this, we show that the double marginalisation problem exists in equilibrium despite an upstream supplier offering a two-part tariff that is common knowledge to consumers. Intuitively, the supplier elicits higher retail prices to strategically reduce retailers' advertising expenditure in order to extract additional rents. We then demonstrate how vertical restraints, such as resale price maintenance, can increase supply-chain profits and consumer welfare by lowering retail prices despite paradoxically discouraging price advertising.
    Keywords: Price Advertising; Consumer Search; Double Marginalisation; Vertical Restraints; Clearinghouse
    JEL: D40 D83 L42
    Date: 2020–08–26
  3. By: Olivier Wang; Iván Werning
    Abstract: How does market concentration affect the potency of monetary policy? The ubiquitous monopolistic-competition framework is silent on this issue. To tackle this question we build a model with heterogeneous oligopolistic sectors. In each sector, a finite number of firms play a Bertrand dynamic game with staggered price rigidity. Following an extensive Industrial Organization literature, we focus on Markov equilibria within each sector. Aggregating up, we study monetary shocks and provide a closed-form formula for the response of aggregate output, highlighting three measurable sufficient statistics: demand elasticities, market concentration, and markups. We calibrate our model to the empirical evidence on pass-through, and find that higher market concentration significantly amplifies the real effects of monetary policy. To separate the strategic effects of oligopoly from the effects this has on residual demand, we compare our model to one with monopolistic firms after modifying consumer preferences to ensure firms face comparable residual demands. Finally, the Phillips curve for our model displays inflation persistence and endogenous cost-push shocks.
    JEL: E0 E3 E5
    Date: 2020–07
  4. By: BELLEFLAMME, Paul, (CORE, Université catholique de Louvain); PEITZ, Martin, (Universität Mannheim)
    Abstract: A monopolist sells a network good to a set of heterogeneous users who all care about total participation. We show that the provider of the network good effectively becomes a two-sided platform if it can condition prices on some user characteristics. This still holds true if the network operator cannot obsoerve consumer characteristics but induces user self-selection when it offers screening contracts. In our setting, all incentive constraints are slack The use of freemium strategies emerges as a special case of versioning. Here, a base version is offered at zero price and a premium version at a positive price. Overall, the paper illustrates the close link between price discrimination in the presence of a network good and pricing by a two-sided platform.
    Keywords: network goods, two-sided markets, platform pricing, group pricing, menu pricing
    JEL: D62 L12 L82 L86
    Date: 2020–07–01
  5. By: Colombo, Stefano; Filippini, Luigi; Sen, Debapriya
    Abstract: We consider a patent licensing game with a capacity constrained innovator. We show that when the constraint is strong (weak), the patentee prefers licensing by means of a fixed fee (unit royalty). In the case of a two-part tariff, the innovator charges a positive fixed fee if and only if the constraint is strong enough.
    Keywords: Patent licensing; capacity constraint; Cournot duopoly
    JEL: D43 D45 L24
    Date: 2020–08–28
  6. By: Paul Belleflamme; Martin Peitz; Eric Toulemonde
    Abstract: We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets.
    Keywords: Two-sided platforms, market share, market power, oligopoly, network effects, antitrust
    JEL: D43 L13 L86
    Date: 2020–08
  7. By: Claire Borsenberger (Groupe La Poste); Helmuth Cremer (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique); Denis Joram (Groupe La Poste); Jean-Marie Lozachmeur (GREMAQ - Groupe de recherche en économie mathématique et quantitative - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - UT1 - Université Toulouse 1 Capitole); Estelle Malavolti (ENAC - Ecole Nationale de l'Aviation Civile, TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: The significant development of e-commerce and Internet marketplaces has provided numerous benefits to both retailers and customers. In addition, it has been a boon for delivery operators, allowing postal services to compensate at least in part revenue losses due to declining mail volumes. However, increasing concentration in e-commerce and the worry that market power may be extended into adjacent markets has turned into a major concern of policy makers and competition authorities. While many argue that traditional regulatory or competition policy may have to be amended within the context of platforms, there are so far few rigorous studies that can provide guidance.
    Keywords: foreclosure,E-commerce,delivery operators,vertical integration,bundling
    Date: 2020
  8. By: Cesare Righi; Timothy Simcoe
    Abstract: Continuations allow inventors to claim technology developed after the original filing date of their patent, leading to concerns about inadvertent infringement and hold-up. We use the link between patents and standards created by the disclosure of standard essential patents (SEPs) to analyze the relationship between standard publication - a key observable milestone in technology development - and continuations. More than half of the SEPs in our data are filed after standard publication. Consistent with opportunistic behavior by patentees, there is a large increase in continuations immediately after standard publication. Keywords in the claims of SEPs linked to the same standard also become more similar after that standard is published.
    JEL: K11 L15 O34
    Date: 2020–08
  9. By: Hanming Fang; Long Wang; Yang Yang
    Abstract: The entry of High-Speed Railways (HSR) represents a disruptive competition to airlines, particularly for short- to medium-distance journeys. Utilizing a unique dataset that contains the details of all flights departing from Beijing to 113 domestic destinations in China since January 2009, we employ a difference-in-differences approach to examine the effects of HSR entry on the quality of service provided by airlines as proxied by their on-time performance, and to identify the channels through which competition leads to quality improvement. We document two main findings. First, the competition from the entry of HSR leads to significant reductions in the mean and variance of travel delays on the affected airline routes. Second, the reductions in departure delays--which are controlled mostly by airlines, and the duration of taxi-in time--which are controlled mostly by destination airports, are identified as the main sources of the improvement in the airlines' on-time performance.
    JEL: L1 L91 O18 R4
    Date: 2020–07
  10. By: Martin, Simon
    Abstract: We study a novel trade-off in market transparency regulation by estimating a structural model of the German retail gasoline market. Transparent environments enable easy price comparisons and match findings. Restricting transparency such that only the cheapest offers are shown induces firms to compete for attention, but matching is inefficient. We find that there is an inverse u-shaped relationship between consumer welfare and market transparency. Consumer welfare is maximal when only the first 20% of prices are shown, which decreases consumer expenditures by 1.2%. Our framework allows estimating games of incomplete information with very lax data requirement.
    Keywords: market transparency,consumer search,awareness,consideration sets,retail gasoline prices
    JEL: D22 D43 D83 L13 L50
    Date: 2020

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