nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒11‒23
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Dog Eat Dog: Measuring Network Effects Using a Digital Platform Merger By Chiara Farronato; Jessica Fong; Andrey Fradkin
  2. Pricing and Supply Chain Transparency to Conscientious Consumers By Bertini, Marco; Buehler, Stefan; Halbheer, Daniel
  3. Data Sharing and Market Power with Two-Sided Platforms By Rishabh Kirpalani; Thomas Philippon
  4. Import Competition and Firm Productivity: Evidence from German Manufacturing By Slavtchev, Viktor; Bräuer, Richard; Mertens, Matthias

  1. By: Chiara Farronato; Jessica Fong; Andrey Fradkin
    Abstract: Digital platforms are increasingly the subject of regulatory scrutiny. In comparison to multiple competitors, a single platform may increase consumer welfare if network effects are large or may decrease welfare due to higher prices or reduction in platform variety. We study the net effect of this trade-off in the context of the merger between the two largest platforms for pet-sitting services. We exploit variation in pre-merger market shares and a difference-in-differences approach to causally estimate network effects at the platform and market level. We find that consumers are, on average, not substantially better off with a single combined platform than with two separate and competing platforms. On one hand, users of the acquiring platform benefited from the merger because of network effects. On the other hand, users of the acquired platform experienced worse outcomes. Our results highlight the importance of platform differentiation even when platforms enjoy network effects.
    JEL: D22 D43 L12 L41 L81 M21
    Date: 2020–11
  2. By: Bertini, Marco; Buehler, Stefan; Halbheer, Daniel
    Abstract: This paper studies how a firm should make pricing and transparency decisions when consumers care about supply chain characteristics. We first show how preferences that account for price and unit cost constrain the firm’s pricing power and profit. Surprisingly, we find that the firm may be forced to sell at unit cost under markup aversion. Next, we assume that consumers are uncertain about unit cost and show that, in a pooling equilibrium, it is optimal for both the low-cost and high-cost firm to conceal its unit cost if the cost of disclosure exceeds the corresponding gain from demand expansion. Third, we show that in a separating equilibrium it is optimal for the high-cost firm alone to engage in cost transparency when the increase in product market profit exceeds the cost of disclosure. Finally, we establish the conditions under which it is optimal for the firm to disclose other details of the supply chain including provenance, labor policies, and environmental footprint.
    Keywords: Conscientious consumption, cost transparency, operational transparency, pricing, referencedependent preferences
    JEL: D42 L21 M2 M3
    Date: 2020–11
  3. By: Rishabh Kirpalani; Thomas Philippon
    Abstract: We study an economy in which consumers and merchants (sellers) interact on a two-sided platform. Consumers can share data about their tastes for different varieties of a single good with the platform which in turn sells this data to merchants. Data sharing increases gains from trade by improving match quality but gives more market power to the platform relative to the merchants which can reduce entry and consequently consumer welfare. This leads to an externality not internalized by consumers thus leading to more data sharing than is efficient. We highlight two reasons why more precise information increases the market power of the platform. The first is a copycat (private label) externality that increases the outside option for the platform of selling the good directly to consumers. The second is a consumer access externality that reduces the outside option of the merchants when information gets more precise, as more buyers are able to find their desired variety on the platform. Our model explains the qualitative differences between traditional retail platforms (physical stores) and digital online platforms and why the latter are more likely to require regulatory interventions that the former.
    JEL: D2 D4 D42 D43 L11 L12
    Date: 2020–10
  4. By: Slavtchev, Viktor; Bräuer, Richard; Mertens, Matthias
    Abstract: This study analyzes empirically the effects of import competition on firm productivity (TFPQ) using administrative firm-level panel data from German manufacturing. We find that only import competition from high-income countries is associated with positive incentives for firms to invest in productivity improvement, whereas import competition from middle- and low-income countries is not. To rationalize these findings, we further look at the characteristics of imports from the two types of countries and the effects on R&D, employment and sales. We provide evidence that imports from high-income countries are relatively capital-intensive and technologically more sophisticated goods, at which German firms tend to be relatively good. Costly investment in productivity appears feasible reaction to such type of competition and we find no evidence for downscaling. Imports from middle- and low-wage countries are relatively labor-intensive and technologically less sophisticated goods, at which German firms tend to generally be at disadvantage. In this case, there are no incentives to invest in innovation and productivity and firms tend to decline in sales and employment.
    Keywords: productivity,multi-product firms,import competition
    JEL: F14 L25 D22 D24 F61
    Date: 2020

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