nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒11‒16
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Digital Revolution and COVID-19 By Paolo E. Giordani; Francesco Rullani
  2. Post-Merger Product Repositioning: An Empirical Analysis By Enghin Atalay; Alan Sorensen; Christopher Sullivan; Wanjia Zhu
  3. Cartel deterrence and manager labor market in US and EU antitrust jurisdictions: theory and experimental data By Miguel A. Fonseca; Ricardo Gonçalves; Joana Pinho; Giovanni Tabacco
  4. Entry Decision, the Option to Delay Entry, and Business Cycles By Ia Vardishvili
  5. `You Will:' A Macroeconomic Analysis of Digital Advertising By Jeremy Greenwood; Yueyuan Ma; Mehmet Yorukoglu
  6. World market for professional appliances By Mauro Spinelli; Donatella Cheri

  1. By: Paolo E. Giordani (Dept. of Economics and Finance, LUISS University); Francesco Rullani (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: We develop a simple model of digital markets to analyze the impact of Covid-19 on the digital transformation of sectors. The lockdown due to Covid-19 is modeled as a shock that wipes out the physical market, temporarily leaving digital consumption as the only option. Under plausible assumptions on digital demand and supply, the model predicts that such temporary shock produces an irreversible rise of the digital markets. This happens for three distinct reasons. First, by temporarily eliminating the physical market, Covid-19 provides a strong incentive for firms to carry out the fixed investments necessary to venture into the digital market (supply channel). Secondly, by forcing even the most reluctant consumers into the digital market, Covid-19 pushes them to familiarize with digital platforms, and this confidence endures in the post-Covid era (demand channel). Finally, if consumers' taste for digitalization is affected by the size of the digital market, a market may be entrapped into a low-digital equilibrium indefinitely. In such context, the lockdown due to the pandemic is the shock that may unleash the forces of digitalization and tilt the entire sector towards a high-digital equilibrium (network externalities channel).
    Keywords: digital transformation, digitalization, Covid-19, pandemic, disruptive technologies
    JEL: O3 L8 D8
    Date: 2020–11
  2. By: Enghin Atalay; Alan Sorensen; Christopher Sullivan; Wanjia Zhu
    Abstract: This paper investigates firms’ post-merger product repositioning. We compile information on conglomerate firms’ additions and removals of products for a sample of 61 mergers and acquisitions across a wide variety of consumer packaged goods markets. We find that mergers lead to a net reduction in the number of products offered by the merging firms, and the products that are dropped tend to be particularly dissimilar to the firms’ existing products. These results are consistent with theories of the firm that emphasize core competencies linked to particular segments of the product market.
    Date: 2020–09–16
  3. By: Miguel A. Fonseca (Department of Economics, University of Exeter and NIPE, Universidade do Minho); Ricardo Gonçalves (Universidade Católica Portuguesa, Católica Porto Business School and CEGE); Joana Pinho (Universidade Católica Portuguesa, Católica Porto Business School and CEGE); Giovanni Tabacco
    Abstract: We explore the consequences to contract design if firm shareholders are intent on their managers engaging in price exing activities under different legal regimes. We show that in fine-only legal regimes, optimal contracts must have a fixed wage. In contrast,in fine-plus-prosecution legal regimes optimal contracts must be high-powered,involving a variable component. We test these predictions in a laboratory experiment. We observe contract choices of firm owners, for a given legal regime, as well as the likelihood of managers forming explicit cartels and coordinating on prices in an indefinitely repeated Bertrand oligopoly, taking contract and legal regime as given. The data show that prosecuting managers leads to lower collusion, but high-powered contracts do not incentivize cartel formation or price coordination effectively, irrespective of legal regime. Nevertheless, high-powered contracts were most frequently chosen by firm owners, often with collusive intents.
    Keywords: Straight Bonds; cartel formation, antitrust, managerial compensation, experiment.
    JEL: L44 C90 L13 C70
    Date: 2020–10
  4. By: Ia Vardishvili
    Abstract: I show that firms' ability to delay entry generates a countercyclical opportunity cost of entry and significantly amplifies the effect of the initial aggregate conditions on the selection of entrants. This mechanism enables existing firm dynamics models to reconcile the documented business cycle dynamics of US entrant establishments without leading to an excessive variation in economic aggregates. I find the observed variation of firms at entry is responsible for around three-fourths of the business cycle fluctuations. Finally, I argue that not accounting for the option to delay entry may result in misleading predictions about entrants' responses to different shocks or policies.
    Keywords: Option value, entry, firm dynamics, business cycles, propagation, Great Recession
    JEL: E22 E23 E32 E37 L25
    Date: 2020–10
  5. By: Jeremy Greenwood (University of Pennsylvania); Yueyuan Ma (University of Pennsylvania); Mehmet Yorukoglu (Koc University)
    Abstract: A model is developed where traditional and digital advertising finance the provision of free media goods and affect price competition. The economy is not efficient. Media goods are under provided. Additionally, there is too much advertising when ads cannot be perfectly directed toward potential buyers. The tax-cum-subsidy policy that overcomes these inefficiencies is characterized. The model is calibrated to the U.S. economy. The movement toward digital advertising increases consumer welfare significantly and is disproportionately financed by better-off consumers. The welfare gain from the optimal tax-cum-subsidy policy is much smaller than the one realized by the introduction of digital advertising. This is a report on research in progress.
    Keywords: advertising, consumer welfare, free media goods, directed and undirected advertising, leisure, price competition, public policy
    Date: 2020–10
  6. By: Mauro Spinelli (CSIL Centre for Industrial Studies); Donatella Cheri (CSIL Centre for Industrial Studies)
    Abstract: This Report provides information on the world market for professional appliances including the following products: cooking appliances for the foodservice industry (ovens, hoods, professional coffee machines and ice-makers); refrigeration products (freezers and vending machines); washing and dishwashing machines commercial air conditioning. The analysis ranks 80 professional appliance manufacturers selected according to their volume of sales. From the point of view of the ownership, 68% of these companies are public listed while 32% are private owned. Considering the country of the headquarters, 20% of companies are located in Asia Pacific, 27% in America and 53% in EMEA Area. Company profiles are available for the top 50 appliance manufacturers, with information on products manufactured, recent facts, basic data (including total turnover of the last two years, professional appliances turnover, professional appliances share on total production, number of employees), sales breakdown by business, product and geographical area, production sites and brands. The report is divided as follows: PART I: SCENARIO. Basic data on the professional appliances sector, including ranking by sales and estimated market shares of the top manufacturers; World trade of professional appliances: basic data and overview of world trade of professional appliances: refrigeration, commercial cooking (including hoods), commercial dishwashing machines, washing (laundry), air conditioners, automatic vending machines; World trade of professional appliances by segment. PART II: TOP 50 MAJOR APPLIANCES MANUFACTURERS. Profiles of 50 major appliances manufacturers worldwide with information on company background, basic data, manufacturing presence and recent facts. PART III: EXCEL DIRECTORY. A detailed and customizable Excel Database with all the market figures and international trade by single product code is delivered together with this report. Data are reported both in values (US$) and in quantities (Units).
    JEL: L11 L22 L68 L81
    Date: 2020–07

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