nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒10‒12
six papers chosen by

  1. Market share transparency, signaling and welfare: Cournot and Bertrand By David Spector
  2. On the Risk of Using a Firm-Level Approach to Identify Relevant Markets By Timo Autio; Jorge Padilla; Salvatore Piccolo; Pekka Sääskilahti; Lotta Väänänen
  3. Preferential Trade Liberalization with Endogenous Cartel Discipline: Implications for Welfare and Optimal Trade Policies By Agnosteva, Delina; Syropoulos, Constantinos; Yotov, Yoto
  4. Watching Ads for Free Mobile Data: A Game-Theoretic Analysis of Sponsored Data with Reward Task By Subodha Kumar; Xiaowei Mei; Liangfei Qiu; Lai Wei
  5. Consumer switching costs in a market with legal and pirate providers By Wojciech Hardy
  6. Market Power in Norwegian Salmon Industry By Jamali Jaghdani, Tinoush; Čechura, Lukáš; Ólafsdóttir, Guðrún; Thakur, Maitri

  1. By: David Spector (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics)
    Abstract: When demand is noisy and firms' costs are uncertain, the availability of market share data increases the accuracy of each firm's information, and it creates incentives for signaling. Taking both effects into account, we find that under quantity competition with a homogeneous good, the availability of market share data has a positive impact on total surplus and an ambiguous one on consumer surplus. Under price competition with differentiated substitutes, it has a negative impact on consumer surplus and an ambiguous one on total surplus. If the cost difference is small, the effect of first-period signaling dominates the effect of second-period full information. Accordingly, in this case, the availability of market share data causes total and consumer surplus to increase in the case of quantity competition and to decrease in the case of price competition.
    Date: 2020–09
  2. By: Timo Autio (Compass Lexecon); Jorge Padilla (Compass Lexecon); Salvatore Piccolo (Università di Bergamo, Compass Lexecon and CSEF); Pekka Sääskilahti (Compass Lexecon); Lotta Väänänen (Compass Lexecon)
    Abstract: In a recent influential paper Coate et al. (2020) have criticized the standard firm-level approach to market definition in merger review. They argue why a market-level approach to critical loss is more appropriate than a firm-level critical loss analysis. Their conclusion is that under certain plausible demand scenarios - i.e., non-linearity of demand functions - a diversion-based firm-level analysis could easily reach the wrong answer on market definition. We extend their analysis by showing that in standard environments used by the most recent theoretical and empirical academic work on merger analysis (namely CES and logit demand functions), a firm level approach actually leads to an excessively narrow market definition as opposed to a market-level approach, thereby increasing the risk of type I errors.
    Keywords: Critical Loss Analysis, Firm- and Market-level approach, Mergers, Non-linear Demand.
    JEL: D43 G34 L4 L13
    Date: 2020–09–26
  3. By: Agnosteva, Delina (Department of Economics); Syropoulos, Constantinos (School of Economics Drexel University LeBow College of Business); Yotov, Yoto (School of Economics Drexel University LeBow College of Business)
    Abstract: We consider an international cartel whose members interact repeatedly in their own as well as in third-country segmented markets. Cartel discipline--an inverse measure of the degree of competition between firms--is endogenously determined by the cartel's incentive compatibility constraint (ICC), which links strategically markets that are seemingly unrelated. Owing to this linkage, trade cost reductions induce cartel members to adjust their sales, not only due to direct effects, but also due to spillover effects related to cartel discipline. We apply these ideas to preferential trade agreements (PTAs) and show that the indirect effects can give rise to trade diversion. We also characterize the welfare effects of preferential tariff cuts for all countries under various circumstances regarding the determination of external PTA trade policy. A persistent finding is that, in the absence of appropriate regulation, preferential trade liberalization can be welfare-reducing even when external policy is jointly optimal.
    Keywords: multimarket contact; repeated interactions; constrained collusion; intra-industry trade; welfare; optimal trade policies
    JEL: D43 F10 F12 F13 F15 L12 L13
    Date: 2020–08–24
  4. By: Subodha Kumar (Fox School of Business, Temple University); Xiaowei Mei (Department of Management and Marketing, Hong Kong Polytechnic University); Liangfei Qiu (Warrington College of Business, University of Florida); Lai Wei (Antai College of Economics & Management, Shanghai Jiao Tong University)
    Abstract: Sponsored data with reward task is an emerging monetization mechanism in which consumers are subsidized with free megabytes by content providers (CPs, e.g., Netflix) in exchange for engagement with advertisers by performing various forms of reward task. Consumers are endowed with the option of whether or not to participate in reward tasks, which is different from traditional push advertising that consumers have no control of. Although it is an emerging phenomenon, to the best of our knowledge, this has not yet been analyzed rigorously. In order to fill this gap in literature, we provide an economic analysis of this mechanism. Our results show that, interestingly, CP’s optimal subsidization rate increases in its marginal revenue of traditional advertising, but decreases in that of reward task. We also find that the amount of reward tasks performed by consumers actually sometimes decreases with these revenue rates. Further, while the profit of both the CP and the mobile network operator (e.g., AT&T) increases with the marginal revenue of traditional advertising, the effect of the marginal revenue of reward task on their profit is not straightforward. Specifically, when the marginal revenue of reward tasks is relatively high, it affects the CP and the mobile network operator’s profit positively; otherwise, the effect is reversed. We further find that, interestingly, the introduction of sponsored data might not necessarily increase consumer surplus. Similarly, although vertical integration of the mobile network operator and the CP reduces double marginalization by aligning incentives and reducing strategic information asymmetry, we find that it could sometimes hurt consumer surplus. Our results provide important insights for both the mobile network operator and the CP. In addition, we also provide useful guidance to policymakers.
    Keywords: mobile network operator; sponsored data; reward task; vertical integration; game theory
    JEL: C72 D47 L96
    Date: 2020–09
  5. By: Wojciech Hardy
    Abstract: Despite a rich literature on switching costs in traditional markets, little has been said on the context of competition between pirate and legal providers. With a sizeable literature on the effects of piracy and its determinants, it is crucial to understand the specific barriers that may prevent consumers from diverting to unauthorised consumption in the first place. Basing on existing switching cost typologies, literature on piracy and new empirical evidence, I provide a first thorough categorisation of different switching costs in a market with legal and pirate providers. I discuss the implications for consumer retention strategies.
    Keywords: switching costs, piracy, competition, digital goods, file-sharing
    JEL: D4 L1 M2
    Date: 2020–08
  6. By: Jamali Jaghdani, Tinoush; Čechura, Lukáš; Ólafsdóttir, Guðrún; Thakur, Maitri
    Keywords: Industrial Organization, Agribusiness
    Date: 2020–09–18

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