nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒01‒04
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Welfare of Price Discrimination and Market Segmentation in Duopoly By Xianwen Shi; Jun Zhang
  2. Profiting from big data analytics: The moderating roles of industry concentration and firm size By Elisabetta Raguseo; Claudio Vitari; Federico Pigni
  3. Third-Degree Price Discrimination in Oligopoly When Markets Are Covered By Markus Dertwinkel-Kalt; Christian Wey
  4. Product quality and third-party certification in potential lemons markets By Dong Yan; Christian A. Vossler; Scott M. Gilpatric
  5. Downstream new product development and upstream process innovation By Akio Kawasaki; Tomomichi Mizuno; Kazuhiro Takauchi
  6. Data, Targeted Advertising and Quality of Journalism: The Case of Accelerated Mobile Page (AMP) By Jeon, Doh-Shin; Yan, Jun
  7. How Big is the “Lemons” Problem? Historical Evidence from French Wines By Mérel, Pierre; Ortiz-Bobea, Davis Ariel; Paroissien, Emmanuel
  8. Banning Price Discrimination under Imperfect Competition: Evidence from Colombia's Broadband By Juan Sebastian Vélez-Velásquez

  1. By: Xianwen Shi; Jun Zhang
    Abstract: We study welfare consequences of third-degree price discrimination and market segmentation in a duopoly market with captive and contested consumers. A market segmentation divides the market into segments that contain different proportions of captive and contested consumers. Firm-optimal segmentation divides the market into two segments and in each segment only one firm has captive consumers. In contrast to the existing literature with exogenous segmentation, price discrimination under firm-optimal segmentation unambiguously reduces consumer surplus for all markets. Consumer-optimal segmentation divides the market into a maximal symmetric segment and the remainder, and yields the lowest producer surplus among all segmentations.
    Keywords: Price Discrimination, Market Segmentation, Information Design, Welfare
    JEL: D43 D82
    Date: 2020–12–25
    URL: http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-682&r=all
  2. By: Elisabetta Raguseo (Polito - Politecnico di Torino [Torino]); Claudio Vitari (AMU - Aix Marseille Université); Federico Pigni (GEM - Grenoble Ecole de Management)
    Abstract: Big data has gained momentum as an Information Technology that is capable of supporting organizational efforts to generate new and better business value. We here contribute to the emerging literature on big data analytic (BDA) solutions by investigating the moderating roles of firm size and industry concentration in the relationship between BDA solutions and firm profitability. Using a unique panel data set that covers 13 years, from 2004 to 2016, which contains information about 176 firms, we provide robust econometric empirical evidence of the negative moderating effects of industry concentration and the positive moderating effects of firm size on the relationship between the use of BDA solutions and firm profitability. Our findings provide strong empirical evidence on the business value of BDA as well as the essential role played by contextual conditions that managers should consider.
    Keywords: IT business value,big data analytics,firm profitability,econometric analysis,industry concentration,firm size
    Date: 2020–11
    URL: http://d.repec.org/n?u=RePEc:hal:gemptp:hal-03032504&r=all
  3. By: Markus Dertwinkel-Kalt; Christian Wey
    Abstract: We analyze oligopolistic third-degree price discrimination relative to uniform pricing when markets are always covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm’s Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm’s relative margins under discriminatory pricing. Uniform pricing then decreases average prices and raises consumer surplus. We provide an intriguingly simple approach to calculate the gain in consumer surplus and loss in firms’ profits from uniform pricing only based on market data of the discriminatory equilibrium (prices and quantities).
    Keywords: third-degree price discrimination, oligopolistic competition, market integration
    JEL: D43 L13 L41 K21
    Date: 2020
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_8785&r=all
  4. By: Dong Yan (Department of Environment and Resource Economics, Renmin University of China, Beijing); Christian A. Vossler (Department of Economics, University of Tennessee); Scott M. Gilpatric (Department of Economics, University of Tennessee)
    Abstract: This paper examines a seller’s incentives for investing in product quality when buyers have incomplete information on quality, and either the seller or the buyer can purchase quality certification from a credible third party. When the seller invests in quality before the certifier sets a price, we find that both seller effort and social welfare are higher in a setting where certification is available to the buyer relative to one where it is available to the seller. When the certifier instead moves first in the game, buyer certification continues to incentivize relatively more seller effort, although social welfare is not necessarily higher. In a complementary lab experiment, we find empirical support for some basic implications of the theory: certification improves market outcomes relative to when certification is not available, decreasing the price of certification increases its uptake, and making the certification process error-prone decreases seller effort and social welfare. Comparisons of seller and buyer certification settings suggest that differences are smaller than predicted by theory, which may be explained by behavioral factors that motivate buyers to over- or under-utilize certification. Our results also suggest that seller certification is a more robust tool for improving market efficiency.
    Keywords: Market transparency, Certification, Information and product quality, Asymmetric information, Endogenous quality, Experiments
    JEL: C91 D82 D83 L15
    Date: 2020–12
    URL: http://d.repec.org/n?u=RePEc:ten:wpaper:2020-04&r=all
  5. By: Akio Kawasaki (Faculty of Economics, Oita University); Tomomichi Mizuno (Graduate School of Economics, Kobe University); Kazuhiro Takauchi (Faculty of Business and Commerce,Kansai University)
    Abstract: This study considers the role of the upstream process research and development (R&D) when downstream develops new products. We build a model in which an upstream firm conducts cost-reducing investment and two downstream firms develop new products. We assume that all products are differentiated. We show that downstream product development promotes upstream investment. We also demonstrate that downstream product development is a strategic complement if upstream R&D efficiency is high, while it is a strategic substitute if it is low. This implies that the occurrence of complementary equilibrium does not need asymmetry in the differentiated final-product markets and is in sharp contrast to the previous study.
    Date: 2020–12
    URL: http://d.repec.org/n?u=RePEc:koe:wpaper:2022&r=all
  6. By: Jeon, Doh-Shin; Yan, Jun
    Abstract: This paper studies how newspapers’ adoption of Google’s Accelerated Mobile Page (AMP), a publishing format for mobile devices enabling instant loading of web pages, changes data allocation and thereby newspapers’ incentive to invest in quality of journalism when consumer data is used for targeted advertising. The adoption of AMP allows Google to obtain consumer data from AMP articles and to combine it with other sources of consumer data to improve targeting of the advertisements served by Google on other websites. Even if such data combination increases static efficiency, it can reduce dynamic efficiency when it lowers the ad revenue per newspaper traffic and thereby reduces the quality of journalism. Newspapers face a collective action problem as a newspaper’s adoption of AMP generates negative externalities to other newspapers through data leakage. In addition to leveraging its search monopoly power, Google can use a divide-and-conquer strategy to induce newspapers to adopt AMP. We provide policy remedies.
    Keywords: Targeted Advertising; Data Combination; Data Leakage; Quality; of Journalism; Search Engine
    JEL: D21 L12 L15 L82 M37
    Date: 2020–12–14
    URL: http://d.repec.org/n?u=RePEc:tse:wpaper:125021&r=all
  7. By: Mérel, Pierre; Ortiz-Bobea, Davis Ariel; Paroissien, Emmanuel
    Abstract: This paper provides empirical evidence on the welfare losses associated with asymmetric information about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses amount to more than 7% of total market value, suggesting an important role for credible certification schemes.
    Keywords: Institutional and Behavioral Economics, Marketing
    Date: 2021–01
    URL: http://d.repec.org/n?u=RePEc:ags:assa21:308045&r=all
  8. By: Juan Sebastian Vélez-Velásquez
    Abstract: Economic theory is inconclusive regarding the effects of banning third-degree price discrimination under imperfect competition because they depend on how the competing firms rank their market segments. When, relative to uniform pricing, all competitors want higher prices in the same market segments, a ban on price discrimination will reduce profits and benefit some consumers at the expense of others. If, instead, some firms want to charge higher prices in segments where their competitors want to charge lower prices, price discrimination increases competition driving all prices down. In this case, forcing the firms to charge uniform prices can increase their profits and reduce consumer surplus. We use data on Colombian broadband subscriptions to estimate the demand for internet services. Estimated preferences and assumptions about competition are used to simulate a scenario in which firms lose their ability to price discriminate. Our results show large effects on consumer surplus and large effects on firms’ profits. Aggregate profits increase but the effects for individual firms are heterogeneous. The effects on consumer welfare vary by city. In most cities, a uniform price regime causes large welfare transfers from low-income households towards high-income households and in a few cities, prices in all segments rise. Poorer households respond to the increase in prices by subscribing to internet plans with slower download speed. **** La teoría económica no es muy concluyente con respecto a los efectos de pasar de un régimen de discriminación de precios de tercer grado a un régimen de precio uniforme en un ambiente de competencia imperfecta, porque dichos efectos dependen de como las firmas que compiten ranquean los segmentos de mercado. Si las firmas coinciden en el ranking que hacen de los segmentos de mercado, un régimen de precio uniforme reduce los beneficios de la firma comparado con los beneficios que harían bajo discriminación. Si en cambio, las firmas tienen diferentes rankings para los segmentos de mercado, el precio uniforme puede ser más alto que los precios bajo discriminación, incrementando los beneficios de las firmas a expensas de los consumidores. En este articulo, usamos datos sobre suscripciones a servicios de internet en Colombia para estimar la demanda por dichos servicios. Además hacemos supuestos sobre la forma en que compiten las firmas lo que nos perimte simular equilibrios en los que las firmas cobran precios uniformes. Los resultados muestra grandes transferencias entre grupos de consumidores y moderados efectos sobre los beneficios de las firmas. Los beneficios agregados de las firmas aumentan ligeramente, pero los cambios en beneficios individuales son heterogéneos. Los efectos sobre el bienestar de los consumidores varían por ciudad. En la mayoría de las ciudades el precio uniforme causa transferencias desde hogares de bajos ingresos a hogares más ricos. Pero en unas cuantas ciudades los precios aumentan en todos los segmentos. Los hogares más pobres responden al aumento de precios sustituyendo por planes de menor calidad.
    Keywords: Price discrimination, Regulation, Market structure, Discriminación de precios, Regulación, Estructura de mercado
    JEL: L10 L20 L50
    Date: 2020–12
    URL: http://d.repec.org/n?u=RePEc:bdr:borrec:1148&r=all

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