nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒01‒18
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. E?cient policy with ?rm heterogeneity and variable markups By Atsushi Tadokoro
  2. Ramsey pricing: a simple example of a subordinate commodity By Paolo Bertoletti
  3. Collusion in Quality-Segmented Markets By Bos, Iwan; Marini, Marco A.
  4. Scale, market power and competition in a digital world: Is bigger better? By Michael McMahon; Sara Calligaris; Eleanor Doyle; Stephen Kinsella
  5. Markups on Drop-Downs: Prominence in Pharmaceutical Markets∗ By Hauschultz, Frederik Plum; Munk-Nielsen, Anders
  6. Vertical Integration of Healthcare Providers Increases Self-Referrals and Can Reduce Downstream Competition: The Case of Hospital-Owned Skilled Nursing Facilities By David M. Cutler; Leemore Dafny; David C. Grabowski; Steven Lee; Christopher Ody
  7. A Note on Antitrust, Labor, and “No Cold Call” Agreements in Silicon Valley By Pittman, Russell
  8. Entry Threat, Entry Delay, and Internet Speed: The Timing of the U.S. Broadband Rollout By Wilson, Kyle; Xiao, Mo; Orazem, Peter F.
  9. Post-Cartel Behavior: ssessing the effects of antitrustpolicy on Brazilian fuel market By Pedro Cavalcanti G. Ferreira
  10. A Dynamic Analysis of Collusive Action: The Case of the World Copper Market, 1882-2016 By Rausser, Gordon; Stuermer, Martin
  11. Competition and Coordination in the Mexican Retail Market for Gasoline By Benjamín Contreras Astiazarán; René Leal Vizcaíno; Jordán Mosqueda; Alejandrina Sacelcedo

  1. By: Atsushi Tadokoro (Graduate School of Economics, Osaka University)
    Abstract: This study analyzes policy instruments to make the market outcome achieve the e?cient outcome in a model of monopolistic competition with ?rm heterogeneity and variable markups. In this model, ?rm heterogeneity and the markup pricing create distortions in the market equilibrium. Ad valorem and per-unit production taxes/subsidies work di?erently to improve these distortions. I show that by combining an ad valorem production tax and a per-unit production subsidy, these distortions are removed without adopting a ?rm-speci?c tax/subsidy.
    Keywords: Variable markups, Misallocation, Firm heterogeneity, Monopolistic competition
    JEL: D4 D6 F1 L0 L1
    Date: 2021–01
  2. By: Paolo Bertoletti
    Abstract: We present preferences exhibiting a so-called subordinate good, namely a commodity that receives a negative price-cost margin according to Ramsey pricing. We also show that they deliver Ramsey quantities proportional to the efficient ones.
    Keywords: Subordinate Commodity; Negative Price-Cost Margin; Ramsey Pricing
    JEL: D11 D43 D61
    Date: 2021–01
  3. By: Bos, Iwan; Marini, Marco A.
    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-fixing 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 effect on market shares and welfare. Partial cartels operating in a sufficiently 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 beneficial for society as a whole.
    Keywords: Demand and Price Analysis
    Date: 2020–12–16
  4. By: Michael McMahon (OECD); Sara Calligaris (OECD); Eleanor Doyle (Cork University Business School); Stephen Kinsella (University of Limerick)
    Abstract: This report assesses the impact of digitalisation on competition by examining the evolution of mark-ups and multifactor productivity (MFP) across firms of different sizes. It finds that size is positively related to mark-ups and that this relationship has strengthened over time. This trend has been accompanied by an increase in the relative productivity advantage of larger firms and both changes are more pronounced in digital-intensive sectors, suggesting that digitalisation may be an underlying driver. Policy makers may need to consider appropriate responses if digital technologies affect larger and smaller firms in a heterogeneous manner.
    Keywords: Digitalisation, Intangible Assets, Mark-ups, Market Power, Multifactor Productivity, Scale
    JEL: D2 D24 L1 L2 O33
    Date: 2021–01–18
  5. By: Hauschultz, Frederik Plum; Munk-Nielsen, Anders
    Abstract: We study the effect of product prominence in consumer search on demand and equilibrium prices using data from Danish pharmaceutical markets. Variation in prominence comes from alphabetical ordering in physician IT-systems. We find that both prescriptions, prices, market shares and revenue decrease in alphabetical rank. We estimate a structural ordered search model which confirms that physicians actively search. They react to patient expenditures, albeit less than patients, and increase search effort for low-income and female patients. Sorting products by price would reduce equilibrium expenditures by 5%, which is more than a removal of search frictions would achieve.
    Keywords: Ordered search, pharmaceuticals, market power, prominence.
    JEL: D12 D83 L13
    Date: 2020–12–01
  6. By: David M. Cutler; Leemore Dafny; David C. Grabowski; Steven Lee; Christopher Ody
    Abstract: The landscape of the U.S. healthcare industry is changing dramatically as healthcare providers expand both within and across markets. While federal antitrust agencies have mounted several challenges to same-market combinations, they have not challenged any non-horizontal affiliations – including vertical integration of providers along the value chain of production. The Clayton Act prohibits combinations that “substantially lessen” competition; few empirical studies have focused on whether this is the source of harm from vertical combinations. We examine whether hospitals that are vertically integrated with skilled nursing facilities (SNFs) lessen competition among SNFs by foreclosing rival SNFs from access to the most lucrative referrals. Exploiting a plausibly exogenous shock to Medicare reimbursement for SNFs, we find that a 1 percent increase in a patient’s expected profitability to a SNF increases the probability that a hospital self-refers that patient (i.e., to a co-owned SNF) by 2.5 percent. We find no evidence that increased self-referrals improve patient outcomes or change post-discharge Medicare spending. Additional analyses show that when integrated SNFs are divested by their parent hospitals, independent rivals are less likely to exit. Together, the results suggest vertical integration in this setting may reduce downstream competition without offsetting benefits to patients or payers.
    JEL: I18 L22 L40
    Date: 2020–12
  7. By: Pittman, Russell
    Abstract: Firms that provide training to their labor force may risk ex post opportunistic behavior on the part of their workers or of competing firms. Some arguably restrictive firm practices that have been justified by this concern include employment contracts restricting the freedom of workers to seek employment from the firm’s competitors and agreements among competing firms not to solicit or hire certain of each other’s workers – sometimes termed “non-compete” and “no poach” agreements, respectively. This Note considers these two categories of practices in the context of recent public discussions and enforcement actions by the US competition law enforcement agencies.
    Keywords: antitrust, competition, labor markets, non-compete agreements, no-poach agreements
    JEL: J2 J24 L4 L41 L86
    Date: 2020–11–24
  8. By: Wilson, Kyle; Xiao, Mo; Orazem, Peter F.
    Abstract: In a rapidly growing industry, potential entrants strategically choose which local markets to enter. Facing the threat of additional entrants, a potential entrant may lower its expectation of future profits and delay entry into a local market, or it may accelerate entry due to preemptive motives. Using the evolution of local market structures of broadband Internet service providers from 1999 to 2007, we find that the former effect dominates the latter after allowing for spatial correlation across markets and accounting for endogenenous market structure. On average, it takes two years longer for threatened markets to receive their first broadband entrant. Moreover, this entry delay has long-run negative implications for the divergence of the U.S. broadband infrastructure: one year of entry delay translates into an 11% decrease in average present-day download speeds.
    Date: 2020–10–27
  9. By: Pedro Cavalcanti G. Ferreira
    Abstract: Papers assessing the antitrust effect on cartel cases usually take the form of a quantifying approach, measuring the impact on prices with methods like before-and-after dummyregressions, difference-in-difference, or synthetic controls designs. However, these approaches have some downsides (notably, the requirement of establishing an exogenous date or breakthrough event, based on assumptions that may not be accurate). To over-come this weakness, we applied Structural Break Analysis (Bai and Perron Test) and Markov Switching Regressions to four cases in the Brazilian fuel market (Brasilia, Belo Horizonte, São Luís and Londrina) to analyze the effectiveness of competition policies. As a comparative test between MSR and Bai Perron procedures, our paper shows that the former was more sensible to transitions between regimes, without missing breaks,and exhibited precise results. From the point of view of the antitrust policy evaluation, our findings indicate a low capacity of the antitrust authorities to extinguish price-fixing practices in targeted markets.
    Keywords: collusion, antitrust policy, Brazil, fuel market, structural breaks, markov switch, policy evaluation.
    Date: 2020–12
  10. By: Rausser, Gordon; Stuermer, Martin
    Abstract: We advance a new framework for investigating the dynamic effects of collusion. In contrast to the standard reduced-form workhorse model, a structural vector auto-regressive model with sign restrictions allows us to endogenize cartel action and to distinguish unexpected market manipulations from other types of shocks. Utilizing a newly constructed monthly data set for the copper market from 1882 to 2016, we find that cartel action shocks have strong effects on price and output during collusive periods. More notably, these shocks have lessening, yet quite persistent impacts over the subsequent unwinding periods in which output damages dominate price damages.
    Keywords: Collusion, market distortions, economic damages, structural time series, commodity markets
    JEL: K2 L1 N5 Q02
    Date: 2020–12
  11. By: Benjamín Contreras Astiazarán; René Leal Vizcaíno; Jordán Mosqueda; Alejandrina Sacelcedo
    Abstract: We document the following stylized facts for the Mexican retail market for gasoline using data for 2018-2019: (1) consumer prices adjust slower than wholesale prices; (2) more competition, in the form of a higher density of stations, implies lower markups and lower prices; and (3) more competition implies faster pass-through. However, we find geographical differences in the speed of pass-through that cannot be explained by differences in station density. We conjecture that coordination on high prices could be offsetting competitive pressure in some locations. We build a classifier that separates municipalities into two categories depending on whether the relative price concentration is on “high” prices or “low” prices. In the first type of municipalities, the price concentration is correlated positively with the price level and negatively with pass-through. For concentration in "low" prices the signs of the correlations are reversed.
    JEL: L4 L5 L13 D4 H25
    Date: 2020–12

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