nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒12‒14
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Collusion in Quality-Segmented Markets By Iwan Bos; Marco A. Marini
  2. Advertising and Content Differentiation: Evidence from YouTube By Anna Kerkhof
  3. Product liability and reasonable product use By Baumann, Florian; Rasch, Alexander
  4. Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry By Georges Siotis; Carmine Ornaghi; Micael Castanheira De Moura
  5. Vertical Relations, Pass-through, and Market Definition: Evidence from Grocery Retailing By Justus Haucap; Ulrich Heimeshoff; Gordon J. Klein; Dennis Rickert; Christian Wey
  6. Daewoo Motors (1992-1999)A dragon multinational in the car industry By Sardor Tadjiev; Pierre-Yves Donze

  1. By: Iwan Bos (Department of Organisation, Strategy and Entrepreneurship, Maastricht University); Marco A. Marini (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: This paper analyzes price collusion in a repeated game with two submarkets; a standard and a premium quality segment. Within this setting, we study four types of price-?xing agreement: (i) a segment-wide cartel in the premium submarket only, (ii) a segment-wide cartel in the standard submarket only, (iii) two segment-wide cartels, and (iv) an industry-wide cartel. We present a complete characterization of the collusive pricing equilibrium and examine the corresponding e¤ect on market shares and welfare. Partial cartels operating in a su¢ ciently large segment lose market share and the industry-wide cartel prefers to maintain market shares at pre-collusive levels. The impact on consumer and social welfare critically depends on the cost of producing quality. Moreover, given that there is a cartel, more collusion can be bene?cial for society as a whole.
    Keywords: Partial Cartels, Price Collusion, Market Segmentation, Vertical Di¤erentiation.
    JEL: D4 L1
    Date: 2020–11
  2. By: Anna Kerkhof
    Abstract: This paper studies the effect of advertising on content differentiation on YouTube, the second-most visited website in the world. I demonstrate that an exogenous increase in the feasible advertising quantity leads to a considerable decrease in the YouTubers’ probability to duplicate mainstream content, i.e., the type of content that attracts the largest number of views. The result is driven by an intuitive mechanism: Mainstream content is provided by many competing YouTubers; thus, viewers who perceive advertising as a nuisance – and therefore as an implicit price they have to pay – could easily switch to a competitor if a YouTuber increased her advertising quantity. Switching is less likely, however, if the YouTuber differentiates her content from the mainstream, gains market power in a niche, and thereby softens competition in the ad “price."
    Keywords: advertising, content differentiation, economics of digitization, horizontal product differentiation, long tail, media diversity, user-generated content, YouTube
    JEL: D22 L15 L82 L86
    Date: 2020
  3. By: Baumann, Florian; Rasch, Alexander
    Abstract: We analyze a monopolist who offers different variants of a possibly dangerous product to heterogeneous customers. Product variants are distinguished by different safety attributes. Customers choose product usage which co- determines expected harm. We find that, even with customers being perfectly informed about product variants' safety, product liability can further welfare by limiting the firm's incentives to distort product safety in pursuance of profit- maximizing price discrimination. In this context, strict liability has to be accompanied by a defense of product misuse, but reasonable use of the base product variant should be defined more leniently than what an application of the Hand rule or instructions in user manuals might prescribe.
    Keywords: Comparative negligence,Price discrimination,Product liability,Product use
    JEL: D82 K13 L11
    Date: 2020
  4. By: Georges Siotis; Carmine Ornaghi; Micael Castanheira De Moura
    Abstract: We focus on market definition in the pharmaceutical industry, where the introduction of generics in different markets provide a sequence of quasi natural experiments involving a significant competitive shock for the molecule experiencing Loss of Exclusivity. We show that generic entry alters competitive constraints and generates market-wide effects. Paradoxically, entry may soften competitive pressure for some originators. We obtain these results by econometrically estimating time-varying price elasticities and apply the logic of the Hypothetical Monopolist Test to delineate antitrust markets. They provide strong empirical support to the approach consisting in defining relevant markets contingent on the theory of harm. We discuss the relevance of these findings in the context of ongoing cases.
    Keywords: market definition; competition policy; antitrust; pharmaceutical industry
    JEL: D22 I11 L13
    Date: 2020–12
  5. By: Justus Haucap; Ulrich Heimeshoff; Gordon J. Klein; Dennis Rickert; Christian Wey
    Abstract: We examine how different pass-through rates, from input- to final consumer prices, and different vertical contracts affect upstream market definition. Our theory model predicts that, under reasonable conditions, higher pass-through rates lead to definitions of larger upstream markets. Data from grocery retailing is used to quantify the empirical implications of our theoretical result. We find that resale price maintenance leads to larger upstream market definitions than linear pricing models. The reason is that linear pricing contracts are associated with lower pass-through rates under imperfect competition. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.
    Keywords: market definition, vertical relations, pass-through, structural models
    JEL: L10 L40 L80 C50
    Date: 2020
  6. By: Sardor Tadjiev (Osaka University, Graduate School of Economics); Pierre-Yves Donze (Osaka University, Graduate School of Economics)
    Abstract: Multinational enterprises (MNEs) from emerging countries have shown their ability to compete as latecomers against established enterprises in various industries. Such latecomers are known as gdragon multinationals h and much research has been conducted to analyze their behavior and competitive advantages. This paper focuses on the strategy implemented by the Korean automobile company Daewoo Motors to expand into the global market. Based on the international business literature on the emergence of multinational enterprises in emerging countries, this paper examines why Daewoo Motors invested first in developing economies such as Uzbekistan and Eastern Europe upon expanding into the global market. It discusses both the growth of foreign sales and the organization of overseas assembly plants. In addition, this paper explores the impact of investing in other emerging countries on the competitiveness of the firm and evaluates the potential risks of this approach.
    Keywords: Daewoo Motors, globalization, dragon multinationals, automobile industry
    JEL: D22 F23 L62 N85
    Date: 2020–11

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