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on Industrial Organization |
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Issue of 2021‒02‒01
ten papers chosen by |
| By: | Jidong Zhou (Cowles Foundation, Yale University) |
| Abstract: | This paper proposes a framework for studying competitive mixed bundling with an arbitrary number of ï¬ rms. We examine both a ï¬ rm’s incentive to introduce mixed bundling and equilibrium tariffs when all ï¬ rms adopt the mixed-bundling strategy. In the duopoly case, relative to separate sales, mixed bundling has ambiguous impacts on prices, proï¬ t and consumer surplus; with many ï¬ rms, however, mixed bundling typically lowers all prices, harms ï¬ rms and beneï¬ ts consumers. |
| Keywords: | Bundling, Multiproduct pricing, Price competition, Oligopoly |
| JEL: | D43 L13 L15 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2270&r=all |
| By: | Andrew Sweeting; Dun Jia; Shen Hui; Xinlu Yao |
| Abstract: | We generalize recent models of dynamic price competition where sellers benefit from learning-by-doing by allowing for long-lived strategic buyers, with a single parameter capturing the extent to which each buyer internalizes future buyer surplus. Many of the equilibria that exist when buyers are atomistic or myopic are eliminated when buyers internalize even a modest share of their effects on future surplus. The equilibria that survive tend to be those where long-run market competition is preserved. |
| JEL: | C73 D21 D43 L13 L41 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28272&r=all |
| By: | Elliott, M.; Galeotti., A.; Koh., A. |
| Abstract: | Prodigious amounts of data are being collected by internet companies about their users' preferences. We consider the information design problem of how to share this information with traditional companies which, in turn, compete on price by offering personalised discounts to customers. We provide a necessary and sufficient condition under which the internet company is able to perfectly segment and monopolise all such markets. This condition is surprisingly mild, and suggests room for regulatory oversight. |
| Keywords: | Information design, market segmentation, price discrimination |
| JEL: | D43 D83 L13 |
| Date: | 2021–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2105&r=all |
| By: | Louis Kaplow |
| Abstract: | Economic analysis of competition regulation is most developed in the domain of horizontal mergers, and modern agency guidelines reflect a substantial consensus on the appropriate template for merger assessment. Nevertheless, official protocols are understood to rest on a problematic market definition exercise, to use HHIs and ΔHHIs in ways that conflict with standard models, and more broadly to diverge with how economic analysis of proposed mergers should be and often is conducted. These gaps, unfortunately, are more consequential than is generally appreciated. Moreover, additional unrecognized errors and omissions are at least as important: analysis of efficiencies, which are thought to justify a permissive approach, fails to draw on the most relevant fields of economics; entry is often a misanalyzed afterthought; official information collection and decision protocols violate basic tenets of decision analysis; and single-sector, partial equilibrium analysis is employed despite the presence of substantial distortions (many due to imperfect competition) in many sectors of the economy. This article elaborates these deficiencies, offers preliminary analysis of how they can best be addressed, and identifies priorities for further research. |
| JEL: | D43 K21 L13 L41 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28189&r=all |
| By: | Choi, Pak-Sing (Washington State University); Espinola-Arredondo, Ana (Washington State University); Munoz, Felix (Washington State University) |
| Abstract: | This paper considers firms’ incentives to merge under duopoly, where we allow for product differentiation, cost asymmetries, and pollution intensities (green and brown goods). We first analyze mergers in the absence of environmental regulation, showing that mergers induce an output shift towards the lowest cost firm. When emission fees are introduced, however, firms also consider their relative pollution intensities, potentially reverting the above output shift. We show that firms have stronger incentives to merge when goods are more differentiated, costs are more symmetric, and products generate similar environmental damages. However, socially excessive mergers can arise when firms shift output to the more cost-efficient firm after the merger, which may cause more pollution. In contrast, socially insufficient mergers can arise if output shifts after the merger would have reduced pollution. |
| Keywords: | socially excessive/insufficient mergers; product differentiation; cost asymmetry; pollution intensity; emission fees; antitrust authorities; environmental regulation losses; Policy uncertainty. |
| JEL: | G34 H23 L41 Q50 |
| Date: | 2020–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:ris:wsuwpa:2020_001&r=all |
| By: | Kevin Boudreau |
| Abstract: | The theoretical literature on platforms and network effects predicts that the initial growth and takeoff of a platform crucially depends on the market’s expectations of the future installed base. This paper tests this claim, reporting on a field experiment in which invitations to join a newly launched platform were sent to 16,349 individuals and included randomized statements regarding the future expected installed base (along with disclosures of the current installed base). I find evidence consistent with subjective expectations playing a crucial role in shaping early adoption and platform takeoff. Statements regarding expectations of the future installed base more significantly affected adoption than did disclosures of the current installed base. Statements of larger numbers of expected users caused more adoption than did smaller numbers. Statements of a smaller installed base of users (whether current or expected) led to lower demand than did stating nothing at all. The effect of stating subjective expectations by the platform became insignificant once the current installed base grew larger. The response of adoption to expected numbers of users reveals patterns consistent with the long-theorized chicken-and-egg problem and self-fulfilling expectations. The findings have significant implications for the effective promotion, marketing, and “evangelism” of new platform ventures. |
| JEL: | C93 D16 D26 D43 L1 L13 L86 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28325&r=all |
| By: | Mark Armstrong (Department of Economics Oxford University); Jidong Zhou (Cowles Foundation, Yale University) |
| Abstract: | This paper studies competition between ï¬ rms when consumers observe a private signal of their preferences over products. Within the class of signal structures which induce pure-strategy pricing equilibria, we derive signal structures which are optimal for ï¬ rms and those which are optimal for consumers. The ï¬ rm-optimal policy ampliï¬ es underlying product differentiation, thereby relaxing competition, while ensuring consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal policy dampens differentiation, which intensiï¬ es competition, but induces some consumers to buy their less-preferred product. Our analysis sheds light on the limits to competition when the information possessed by consumers can be designed flexibly. |
| Keywords: | Information design, Bertrand competition, Product differentiation, Online platforms |
| JEL: | D43 D83 L13 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2269&r=all |
| By: | Pauline Affeldt; Tomaso Duso; Klaus Gugler; Joanna Piechucka |
| Abstract: | An increasing body of empirical evidence is documenting trends toward rising concentration, profits, and markups in many industries around the world since the 1980s. Two major criticisms of these studies is that concentration and market shares are poorly measured at the national industry level while firm level revenues are a poor indicator of product sales. We use a novel database that identifies over 20,000 product/geographic antitrust markets affected by over2,000 mergers scrutinized by the European Commission between 1995 and 2014. We show that concentration, as measured by the market-specific post-merger HHI, is larger than reported in the extant literature (at least) by a factor of ten. We also show that concentration has increased over time on average. Yet, there is a great deal of heterogeneity across geographic markets and within broader industries. In a regression analysis that exploits this within-industry variation, we show that barriers to entry are unambiguously positively related to concentration irrespective of time periods, sectors of activity, and geographical market dimension analyzed. Strict past merger enforcement negatively correlates with concentration. Yet, this effect is stronger in the earlier decade (1995-2004) than subsequently. Intangibility of investments consistently displays positive correlation with concentration only for EU wide and worldwide services markets. In contrast, the correlation is negative in national markets. This underscores the importance of the large heterogeneity present in concentration developments across markets. |
| Keywords: | Concentration, HHI, market definition, entry barriers, mergers, merger control, intangibles |
| JEL: | L24 L44 K21 O32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1930&r=all |
| By: | Chor, Davin; Manova, Kalina; Yu, Zhihong |
| Abstract: | Global value chains have fundamentally transformed international trade and development in recent decades. We use matched firm-level customs and manufacturing survey data, together with InputOutput tables for China, to examine how Chinese firms position themselves in global production lines and how this evolves with productivity and performance over the firm lifecycle. We document a sharp rise in the upstreamness of imports, stable positioning of exports, and rapid expansion in production stages conducted in China over the 1992-2014 period, both in the aggregate and within firms over time. Firms span more stages as they grow more productive, bigger and more experienced. This is accompanied by a rise in input purchases, value added in production, and fixed cost levels and shares. It is also associated with higher profits though not with changing profit margins. We rationalize these patterns with a stylized model of the firm lifecycle with complementarity between the scale of production and the scope of stages performed. |
| Keywords: | global value chains; production line position; upstreamness; firm heterogeneity; firm lifecycle; China |
| JEL: | F10 F23 L23 L24 L25 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108215&r=all |
| By: | Carlos Suarez (Department of Econometrics, Statistics and Applied Economics, Research Group on Governments and Markets, University of Barcelona, Avinguda Diagonal 690, 08034 Barcelona, Tower 6 Floor 3. Engineering Department, Research Group on Energy, Environment and Development, Jorge Tadeo Lozano University.) |
| Abstract: | Using information on price bids in wholesale electricity pools and empirical techniques described in the literature on electricity markets, this study identifies the market power mitigation effect of public firms in the Colombian market. The results suggest that while private firms exercise less market power than is predicted by a profit-maximization model, there are marked differences between private and public firms in their exercise of unilateral market power. These findings support the hypothesis of the market power mitigation effect of public firms. |
| Keywords: | Electricity Markets, Market Power, Privatization, Mixed Oligopoly, Regulatory Intervention. JEL classification: L13, L94, C10. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202101&r=all |