nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒09‒28
nine papers chosen by

  1. Patterns of competitive interaction By armstrong, Mark; Vickers, John
  2. Innovation, Firm Survival and Productivity: The State of the Art By Ugur, Mehmet; Vivarelli, Marco
  3. Removal of Potential Competitors – A Blind Spot of Merger Policy? By Massimo Motta; Martin Peitz
  4. Firm profits and government activity: An empirical investigation By Tevdovski, Dragan; Madjoska, Joana; Jolakoski, Petar; Jovanovic, Branimir; Stojkoski, Viktor
  5. Price-setting mixed duopoly, subsidization and the order of firms’ moves: an irrelevance result By Ohnishi, Kazuhiro
  6. When the Threat Is Stronger Than the Execution: Trade and Welfare under Oligopoly By Dermot Leahy; J. Peter Neary
  7. Quadratic Costs, Innovation and Welfare: The Role of Technology By Sugata Marjit; Suryaprakash Mishra
  8. Collusion between two-sided platforms By Yassine Lefouili; Joana Pinho
  9. Mergers, Acquisition and Market Power: The Case of the U.S. Agribusiness By Choi, Yejun; Lambert, Dayton M.; Trejo-Pech, Carlos O.

  1. By: armstrong, Mark; Vickers, John
    Abstract: We explore patterns of price competition in an oligopoly where consumers vary in the set of firms they consider for their purchase and buy from the lowest-priced firm they consider. We study a pattern of consideration, termed "symmetric interactions", that generalises models used in existing work (duopoly, symmetric firms, and firms with independent reach). Within this class, equilibrium profits are proportional to a firm's reach, firms with a larger reach set higher average prices, and a reduction in the number of firms (either by exit or by merger) harms consumers. We go on to study patterns of consideration with asymmetric interactions. In situations with disjoint reach and with nested reach we find equilibria in which price competition is "duopolistic": only two firms compete within each price range. We characterize equilibria in the three-firm case, and show how entry and merger can affect patterns of price competition in novel ways.
    Keywords: Price competition, Consideration sets, Mixed strategies, Entry and mergers
    JEL: D43 D83 L13 L4
    Date: 2020–09
  2. By: Ugur, Mehmet (University of Greenwich); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: We review the theoretical underpinnings and the empirical findings of the literature that investigates the effects of innovation on firm survival and firm productivity, which constitute the two main channels through which innovation drives growth. We aim to contribute to the ongoing debate along three paths. First, we discuss the extent to which the theoretical perspectives that inform the empirical models allow for heterogeneity in the effects of R&D/innovation on firm survival and productivity. Secondly, we draw attention to recent modeling and estimation effort that reveals novel sources of heterogeneity, non-linearity and volatility in the gains from R&D/innovation, particularly in terms of its effects on firm survival and productivity. Our third contribution is to link our findings with those from prior reviews to demonstrate how the state of the art is evolving and with what implications for future research.
    Keywords: innovation, R&D, survival, productivity
    JEL: O30 O33
    Date: 2020–09
  3. By: Massimo Motta; Martin Peitz
    Abstract: In dynamic industries, firms often face new competitive threats. If firms are able to identify those threats early on, they may simply acquire potential competitors under the radar of competition authorities. Merger policy thus has to deal with two issues: (1) how to make sure that potentially problematic mergers are notified and investigated; and (2) how to assess the social costs and benefits of such mergers. The latter requires to take a stance regarding the standard and burden of proof. We argue for a reversal of burden of proof, at least if one of the merging firms is considered to be a “systemic firm”.
    Keywords: Merger policy, potential competitor, notification, standard of proof, burden of proof, killer acquisition
    JEL: K21 L41
    Date: 2020–08
  4. By: Tevdovski, Dragan; Madjoska, Joana; Jolakoski, Petar; Jovanovic, Branimir; Stojkoski, Viktor
    Abstract: Recent studies suggest that firm profits have risen to a level far above than what would have been earned in a competitive economy. It has been hypothesized that these profits, generated by market power, allow firms to influence the activity of the government. However, despite an abundance of theoretical investigations, the empirical examinations for the validity of this hypothesis have been largely neglected. Against this background, here we perform a detailed empirical study on the potential effects of firm profits and markups on government size and effectiveness. Using data on 30 European countries for a period of 17 years and an Instrumental Variables approach, we find that there exists a robust and stable negative relationship between firm gains and the activity of the state. Our results indicate that, even in such a homogeneous group of countries, firm power may dictate the decline in state activity and, successively, lead to emergence and persistence of inefficient states.
    Keywords: government activity; europe; public economics
    JEL: H10
    Date: 2020–09–05
  5. By: Ohnishi, Kazuhiro
    Abstract: This paper examines price-setting duopoly games with production subsidies and shows that the optimal production subsidy, profits and economic welfare are identical irrespective of whether (i) a public firm and a private firm simultaneously and independently set prices, (ii) the public firm acts as a Stackelberg leader, or (iii) both firms behave as profit-maximizers.
    Keywords: Mixed duopoly model; Price competition; Subsidization
    JEL: C72 D21 L32
    Date: 2020–08
  6. By: Dermot Leahy; J. Peter Neary
    Abstract: We compare trade liberalization under Cournot and Bertrand competition in reciprocal markets. In both cases, the critical level of trade costs below which the possibility of trade affects the domestic firm’s behavior is the same; trade liberalization increases trade volume monotonically; and welfare is U-shaped under reasonable conditions. However, welfare is typically greater under Bertrand competition; for higher trade costs the volume of trade is greater under Cournot competition, implying a “van-der-Rohe Region” in parameter space; and, for even higher trade costs, there exists a “Nimzowitsch Region”, where welfare is higher under Bertrand competition even though no trade takes place.
    Keywords: Cournot and Bertrand Competition, Nimzowitsch Region, oligopoly and trade, trade liberalization, van-der-Rohe Region
    JEL: L13 F12
    Date: 2020
  7. By: Sugata Marjit; Suryaprakash Mishra
    Abstract: In a Cournot oligopoly set up with constant marginal cost and linear demand, innovation is rewarding. In this paper we work with a Cournot oligopoly framework with increasing marginal cost and linear demand and show that innovation may not be rewarding. We endogenize the success probability of R&D and its response to the intensity of competition and specifically show that if the technology is already advanced and competition intensifies then firms wouldn’t innovate. The dynamic interaction we attempt to capture and explain is the one of technology with the possibility of innovation via the intensity of competition. We finally conclude that the intensity of competition and welfare may not have the usual (direct) relationship and suggest ‘monitored competition’, wherein initially (at initial stages of innovation) competition is encouraged and then (at later stages of innovation) curtailed, to encourage innovation and thus welfare, as a suitable policy measure. Thus, entry should be restricted in order to foster innovation while innovation itself encourages entry.
    Keywords: quadratic costs, innovation, welfare, technology
    JEL: L11 L13 L21
    Date: 2020
  8. By: Yassine Lefouili (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); Joana Pinho (Universidade Católica Portuguesa [Porto])
    Abstract: We study the price and welfare effects of collusion between two-sided platforms and show that they depend on whether collusion occurs on both sides or a single side of the market, and whether users single-home or multi-home. Our most striking result is that one-sided collusion leads to lower (resp. higher) prices on the collusive (resp. competitive) side if the cross-group externalities exerted on the collusive side are positive and sufficiently strong. One-sided collusion may, therefore, benefit the users on the collusive side and harm the users on the competitive side. Our findings have implications regarding cartel detection and damages actions.
    Keywords: Collusion,Two-sided markets,Cross-group externalities
    Date: 2020–09
  9. By: Choi, Yejun; Lambert, Dayton M.; Trejo-Pech, Carlos O.
    Keywords: Industrial Organization, Agribusiness, Marketing
    Date: 2020–07

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