nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒10‒26
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competition in a spatially-differentiated product market with negotiated prices By Howard Smith; Walter Beckert; Yuya Takahashi
  2. On excess capacity in a monopoly market with network externalities By Tsuyoshi Toshimitsu
  3. Upstream competition, exclusive content provision, and vertical integration in media markets By Kiho Yoon
  4. The Limits of Marketplace Fee Discrimination By Mark J. Tremblay
  5. Competition and Public Policy in Sharing Economy: A Survey By Noriyuki Doi
  6. Income Inequality and Product Variety: Empirical Evidence By Dieter Pennerstorfer; Nora Schindler; Christoph Weiss; Biliana Yontcheva
  7. Barriers to exit in the steel sector By Michele Rimini; Anthony de Carvalho; Fabien Mercier; Valentina Burrai; Benjamin Liebman; Timothy de Stefano
  8. Competition Effects of Airport Slot-Swap: An Analysis of the Delta/US Airways Deal By Yongjoon Park
  9. Mobile market performance and market structure in Europe during the 4G era By Abate, Serafino; Bahia, Kalvin; Castells, Pau
  10. Quality and Efficiency Between Public and Private Firms: Evidence From the Ambulance Services By Knutsson, Daniel; Tyrefors, Björn

  1. By: Howard Smith; Walter Beckert; Yuya Takahashi
    Abstract: In many markets the buyer pays an individually-negotiated price. Theo­retically, relative to uniform-pricing, this has an ambiguous impact on market power and the effects of merger. To analyze competition in the UK brick indus-try—where individually-negotiated pricing is used, and the market is highly con-centrated—we develop a model of negotiated pricing and discrete-choice demand which permits alternative specifications for how the buyer's runner-up product affects price negotiations. We derive a likelihood for observed choices and prices and estimate the model using transaction-level data. We use the model to re­ject the hypothesis of price-taking buyers, calculate the distribution of markups, and measure the effect on markups of multi-product ownership and buyer loca­tion. A counterfactual policy of uniform pricing increases average markups by about one-third, harms most buyers, and magnifies the price-increasing effect of merger. Average markups increase because uniform pricing is intrinsically less competitive and because it imposes buyer price-taking.
    Keywords: individualized pricing, bargaining, price discrimination, spatial dif¬ferentiation, merger analysis, construction supplies
    Date: 2020–10–16
  2. By: Tsuyoshi Toshimitsu (School of Economics,Kwansei Gakuin University)
    Abstract: Using a capacity-then-production choice model, we consider whether excess capacity results hold in a monopoly market with network externalities. We demonstrate that if consumers form expectations of network sizes after (before) the capacity-scale decision, the capacity scale is larger than (equal to) the production quantity. Furthermore, we examine the first-best and second-best policies and find that excess capacity results hold (do not hold) in the second-best (first-best) policy, irrespective of the timing of consumer expectations.
    Keywords: consumer expectation; capacity-then-production choice; network externality; monopoly
    JEL: D42 L12 L15
    Date: 2020–10
  3. By: Kiho Yoon (Department of Economics, Korea University 145 Anam-ro, Seongbuk-gu, Seoul, Korea 02841)
    Abstract: With a multilateral vertical contracting model, we examine the contractual form and the vertical structure in media markets. We analyze the trade of content by the Nash bargaining solution and the downstream competition by the Hotelling location model. We show that the possibility of exclusive contracts rises when the value of the premium content increases, the degree of horizontal differentiation in the downstream market decreases, the importance of advertising revenue decreases, and the relative bargaining power of upstream firm decreases. We also show that vertical separation (full vertical integration, respectively) is plausible when the relative bargaining power of upstream firm is strong (weak, respectively).
    Keywords: content provision, exclusive contract, vertical integration, media market, video programming.
    JEL: D43 L42 L82
    Date: 2020
  4. By: Mark J. Tremblay (Miami University, Farmer School of Business, Department of Economics, 800 E. High St., Oxford, OH 45056)
    Abstract: Platforms often use fee discrimination within their marketplace (e.g., Amazon, eBay, and Airbnb specify a variety of merchant fees). To better understand the impact of marketplace fee discrimination, we develop a model that allows us to determine platform equilibrium fee, category, and retail entry decisions that depend on the extent of fee discrimination available to the platform. Isolating the effects of fee discrimination (by not allowing the platform to enter into commerce), we find that greater fee discrimination allows the platform to serve more markets in its marketplace but also worsens double marginalization in the high surplus markets. However, if the platform enters into retail, then the platform reduces its fees and generates greater retail competition. These effects mitigate distortions from fee discrimination and improve welfare. In terms of policy, we show that (1) banning fee discrimination and platform entry is detrimental to welfare, (2) a vertical merger within a retail market mitigates double marginalization but is often worse than an equilibrium with platform entry into retail, and (3) taxing the platform in retail (not merchants) levels the retail playing field and can generate a Pareto improvement upon a policy that bans platform retail entry.
    Keywords: Platforms, platform retail entry, price discrimination, vertical integration, intermediary
    JEL: L11 L12 L40 H21 L50
    Date: 2020–10
  5. By: Noriyuki Doi (School of Economics, Research Center for Oligopolistic Competition and Innovation and Inovation System Research Center, Kwansei Gakuin University)
    Abstract: Sharing economy is emerging as one of business model innovation, which is among dominant online business in industrial structure. The economy has been expanded in particular in US, Europe, China and India, and has affected consumption pattern of goods and services, existing business fields, labor markets and others. As a result, the expansion raises various issues such as the definition, effects on competition, and public policies. This paper shows future major problems in research and policy on sharing economy, focusing on definition, business model, economic effects and public policy, through surveying existing studies, available findings of the business, and relevant practical policies.
    Keywords: sharing economy, platform business, P2P business, competition policy, public regulation, private regulation
    JEL: D43 L42 L43 L44 L86
    Date: 2020–10
  6. By: Dieter Pennerstorfer; Nora Schindler (WU Wien); Christoph Weiss; Biliana Yontcheva (WU Wien)
    Abstract: This article investigates the relationship between income inequality and firms’ locations and product choices. Using detailed information on income at a regionally disaggregated level and individual data on Austrian restaurants, we demonstrate that firm conduct crucially depends on the distribution (in addition to the level) of income. Local markets with higher income inequality are characterized by a larger number of firms, offering a broader range of products and product variants that are on average less common. These findings indicate that local demand is substantially influenced by the heterogeneity in consumers’ income endowments, resulting in large differences in product variety.
    Keywords: income inequality, product variety, product differentiation, firm conduct, restaurants
    JEL: L22 D31 R12 L83
    Date: 2020–09
  7. By: Michele Rimini (OECD); Anthony de Carvalho (OECD); Fabien Mercier (OECD); Valentina Burrai (OECD); Benjamin Liebman (Saint Joseph’s University); Timothy de Stefano (Harvard Business School)
    Abstract: This paper explores the nature of exit barriers in the steel industry, their social and economic implications, and policy approaches to deal with exits and steel industry restructuring. Barriers to exit in the steel industry require attention due to their negative impacts on excess capacity. Such barriers mainly stem from government interventions that hinder the closure of inefficient or unviable steel plants, though cost factors specific to the steel industry are important barriers, as well. Exits may also entail important costs associated with redundancy payments to workers, environmental clean-up and operations to dismantle mills. The paper concludes with specific policy recommendations to promote adjustment, including removing subsidies and other government support measures that maintain unviable plants, assisting displaced steel workers into other activities, and other measures to limit the social costs of steel plant closures.
    Keywords: barriers to exit, steel, steel excess capacity, structural adjustment, subsidies and support measures
    Date: 2020–10–13
  8. By: Yongjoon Park (University of Massachusetts Amherst, Department of Resource Economics, Stockbridge Hall, 80 Campus Center Way, Amherst, MA, 01003)
    Abstract: Carriers often exchange airport slots (a so-called slot swap) in order to expand their hub networks, but the exchange is often faced with competition-related concerns. In this study, I estimate an airline entry model that can analyze the effects of a slot swap on market competition, focusing on the deal between Delta and US Airways in 2011 at Ronald Reagan Washington Airport (DCA) and LaGuardia New York Airport (LGA). Counterfactual analysis suggests that a slot swap deal incentivizes carriers to change their network by actively adding/removing routes and hence has distributional effect on passengers in different routes. Also, remedies that force the exchanging party to give up some of their slots to rivals may increase consumer surplus, but excessive remedies may harm consumers.
    Keywords: Airport Slot Swap; Endogenous Entry; Static Games; Airlines; Network Effects
    JEL: C54 L44 L13 L93
    Date: 2020–09
  9. By: Abate, Serafino; Bahia, Kalvin; Castells, Pau
    Abstract: This study evaluates the impact of competition on quality, innovation and price in Europe's mobile communications market during the 4G era (2011-18). Our results indicate that European mobile users in more concentrated markets benefitted the most from higher network quality, particularly with regard to download speeds. We find that dispersion of fixed costs and assets among a greater number of players can result in diseconomies of scale and a less efficient use of resources, which translates into lower network performance, to the detriment of consumers. We also find evidence of investment per operator being greater in markets with higher profit margins, which are also typically more concentrated markets.
    JEL: K20 L10 L40 L96
    Date: 2020
  10. By: Knutsson, Daniel (Research Institute of Industrial Economics (IFN)); Tyrefors, Björn (Research Institute of Industrial Economics (IFN))
    Abstract: Economic theory predicts that outsourcing public services to private firms will reduce costs, but the effect on quality is ambiguous. We explore quality differences between publicly and privately owned ambulances in a setting where patients are as good as randomly assigned to ambulances of different ownership statuses. We find that privately owned ambulances are better at responding to contracted quality measures but perform worse on noncontracted measures, such as mortality. In fact, a randomly allocated patient has a significantly higher risk of death if a private ambulance is dispatched. We also present suggestive evidence on the mechanism, supporting that private firms cost innovate at the expense of ambulance staff quality.
    Keywords: Public outsourcing; Pre-hospital care; Healthcare quality; Health
    JEL: D22 D44 H44 I11 L33 P48
    Date: 2020–10–10

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