nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒10‒05
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price-setting mixed duopoly, subsidization and the order of firms' moves: the relevance of privatization By Ohnishi, Kazuhiro
  2. Pricing under fairness concerns By Eyster, Erik; Madarász, Kristóf; Michaillat, Pascal
  3. Platform Design when Sellers Use Pricing Algorithms By Johnson, Justin Pappas; Rhodes, Andrew; Wildenbeest, Matthij
  4. Private and Public IPR Protection in a Vertically Differentiated Software Duopoly By Kresimir Zigic; Jiri Strelicky; Michal Kunin
  5. Price Discrimination along Multiple Dimensions: New Evidence from a Regional Airline By Ambarish Chandra
  6. Quality of Goods and Price Setting for CPUs By Yuriy Gorodnichenko; Oleksandr Talavera; Nam Vu
  7. The Enforcement of the Argentine Antitrust Law By Germán Coloma

  1. By: Ohnishi, Kazuhiro
    Abstract: This paper first examines a price-setting mixed duopoly game with production subsidies where a public firm acts as a leader against a private firm. Second, the paper examines a price-setting duopoly game with production subsidies where the public firm remains a leader after privatization. Third, the paper compares the equilibrium values for private leadership with those for public leadership.
    Keywords: Price competition; Subsidy; Privatization; Mixed Stackelberg duopoly; Privatized Stackelberg duopoly
    JEL: C72 D21 L32
    Date: 2020–09–10
  2. By: Eyster, Erik; Madarász, Kristóf; Michaillat, Pascal
    Abstract: This paper proposes a theory of pricing premised upon the assumptions that customers dislike unfair prices—those marked up steeply over cost—and that firms take these concerns into account when setting prices. Since they do not observe firms’ costs, customers must extract costs from prices. The theory assumes that customers infer less than rationally: when a price rises due to a cost increase, customers partially misattribute the higher price to a higher markup—which they find unfair. Firms anticipate this response and trim their price increases, which drives the passthrough of costs into prices below one: prices are somewhat rigid. Embedded in a New Keynesian model as a replacement for the usual pricing frictions, our theory produces monetary nonneutrality: when monetary policy loosens and inflation rises, customers misperceive markups as higher and feel unfairly treated; firms mitigate this perceived unfairness by reducing their markups; in general equilibrium, employment rises. The theory also features a hybrid short-run Phillips curve, realistic impulse responses of output and employment to monetary and technology shocks, and an upward-sloping long-run Phillips curve.
    Keywords: forthcoming
    JEL: L11 E31 D91
    Date: 2020–09–07
  3. By: Johnson, Justin Pappas; Rhodes, Andrew; Wildenbeest, Matthij
    Abstract: Using both economic theory and Artificial Intelligence (AI) pricing algorithms, we investigate the ability of a platform to design its marketplace to promote competition, improve consumer surplus, and even raise its own profits. We allow sellers to use Q-learning algorithms (a common reinforcement-learning technique from the computer-science literature) to devise pricing strategies in a setting with repeated interactions, and consider the effect of steering policies that reward firms that cut prices with additional exposure to consumers. Overall, the evidence from our experiments suggests that platform design decisions can meaningfully benefit consumers even when algorithmic collusion might otherwise emerge but that achieving these gains may require more than the simplest steering policies when algorithms value the future highly. We also find that policies that raise consumer surplus can raise the profits of the platform, depending on the platform’s revenue model. Finally, we document several learning challenges faced by the algorithms.
    Date: 2020–09–08
  4. By: Kresimir Zigic; Jiri Strelicky; Michal Kunin
    Abstract: We study the interaction between public and private intellectual property rights (IPR) protection in a duopoly in which software developers offer a product variety of differing quality and compete for heterogeneous users, who have an option to buy a legal version, possibly use an illegal copy, or not buy a product at all. Illegal usage implies violation of IPR and is punishable. A developer may use private IPR protection for his software if the level of piracy is high. An important intermediate step in our analysis addresses firms’ pricing strategies and the analysis of the impact of both private and public IPR protection on these strategies (with monopoly serving as a benchmark case). Last but not least, we make some comparisons with an analogous model based on horizontal product differentiation.
    Keywords: vertically differentiated duopoly; software piracy; Bertrand competition; copyright protection; private and public intellectual property rights protection;
    JEL: D43 L11 L21 O25 O34
    Date: 2020–09
  5. By: Ambarish Chandra
    Abstract: I examine the case of a firm that practices both second-degree and third-degree price discrimination. I present a model showing conditions under which the premium for higher quality can either rise or fall as the firm implements group pricing. I then use new data from a regional airline to estimate how the two kinds of price discrimination interact, and how each is affected by changes in competition. I establish three key results, all new to the literature. First, in different markets, the two kinds of price discrimination can either offset or reinforce each other, in a manner that fits the model's predictions. Second, inter-temporal differences in prices are purely driven by price discrimination, rather than by scarcity pricing. Third, competition increases the extent of both kinds of price discrimination.
    Keywords: Price Discrimination; Airlines; Advance Purchases; Competition
    JEL: L1 L9
    Date: 2020–09–17
  6. By: Yuriy Gorodnichenko (University of California, Berkeley); Oleksandr Talavera (University of Birmingham); Nam Vu (University of Birmingham)
    Abstract: This paper investigates the link between product quality and price-setting for central processing units (CPUs). Using thousands of price quotes from a large price-comparison website, we find that market fundamentals, such as the number of sellers, median price, share of convenient prices and level of seller stability, are important factors for explaining price stickiness and price dispersion. We demonstrate that calculations of price inflation require conditioning not only on CPU quality but also market fundamentals to ensure that CPU attributes are priced correctly. Failing to do so can result in understatement of CPU price deflation in the sample period.
    Keywords: price setting, e-commerce, product quality, hedonic pricing, inflation
    JEL: E31 L11 L81 L86
    Date: 2020–09
  7. By: Germán Coloma
    Abstract: This paper analyzes the basic characteristics of antitrust law in Argentina, and the way in which it has been enforced in several important cases. We begin with a section that introduces the evolution of the law, followed by another section about the basic economic and legal principles underlying that law. The rest of the paper describes the enforcement of the Argentine competition statutes, in a number of cases that involve collusive practices, exclusionary practices, vertical restraints, abuses of dominance, and mergers.
    Keywords: Antitrust law, competition, Argentina
    JEL: K21 L40
    Date: 2020–09

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