nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒03‒01
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Market Concentration and Uniform Pricing: Evidence from Bank Mergers By João Granja; Nuno Paixao
  2. The Leniency Rule Revisited: Experiments on Cartel Formation with Open Communication By Maximilian Andres; Lisa Bruttel; Jana Friedrichsen
  3. Public vs. Private Investments In Network Industries By Jean-Marc Zogheib; Marc Bourreau
  4. Pricing decisions under manufacturer's component open supply strategy with customer behavior and market spillover By Peiya Zhu; Xiaofei Qian; Xinbao Liu; Shaojun Lu
  5. Eliciting and utilizing willingness to pay: evidence from field trials in northern Ghana By Berry, James; Fischer, Gregory; Guiteras, Raymond

  1. By: João Granja; Nuno Paixao
    Abstract: We show that U.S. banks price deposits almost uniformly across their branches and that this pricing practice is crucial to explain the deposit rate dynamics following bank mergers. We find a strong and sharp post-merger convergence between the deposit rates of the acquired branches and the median deposit rate of the acquirer. This pattern is almost fully explained by adjustments in the deposit rates of the acquired branches, irrespective of whether their rates were above or below those practiced by the acquirer. Acquired branches lose deposits and local market share, especially when they decrease their rates due to uniform pricing. Local competitors respond to changes in deposit rates at the acquired branches by adjusting their own deposit rates in the same direction. We find that pre-merger differences in deposit rates between merged entities explain more of the post-merger evolution of deposit rates than the predicted changes in local market concentration induced by the merger. This result indicates that competition authorities would be well advised to review the potential impact of pre-merger pricing differences in evaluating a merger within an industry with strong uniform pricing practices.
    Keywords: Financial institutions; Financial system regulation and policies; Market structure and pricing
    JEL: D4 G34 L11
    Date: 2021–02
    URL: http://d.repec.org/n?u=RePEc:bca:bocawp:21-9&r=all
  2. By: Maximilian Andres (University of Potsdam); Lisa Bruttel (University of Potsdam); Jana Friedrichsen (WZB, Humboldt-Universität zu Berlin, DIW Berlin)
    Abstract: The experimental literature on antitrust enforcement provides robust evidence that communication plays an important role for the formation and stability of cartels. We extend these studies through a design that distinguishes between innocuous communication and communication about a cartel, sanctioning only the latter. To this aim, we introduce a participant in the role of the competition authority, who is properly incentivized to judge communication content and price setting behavior of the firms. Using this novel design, we revisit the question whether a leniency rule successfully destabilizes cartels. In contrast to existing experimental studies, we find that a leniency rule does not affect cartelization. We discuss potential explanations for this contrasting result.
    Keywords: cartel, judgment of communication, corporate leniency program, price competition, experiment
    JEL: C92 D43 L41
    Date: 2021–02
    URL: http://d.repec.org/n?u=RePEc:pot:cepadp:24&r=all
  3. By: Jean-Marc Zogheib; Marc Bourreau
    Abstract: We study the competition between a private firm and public firms on prices andinvestment in new infrastructures. While the private firm maximizes its profits,public firms maximize the sum of their profits and consumer surplus, subject to abudget constraint. We consider two scenarios of public intervention, with a nationalpublic firm and with local public firms. In a monopoly benchmark, we find that thenational public firm has the highest coverage and charges a uniform price allowingcross-subsidies between high-cost and low-cost areas. Moreover, the private firmcovers as much as local public firms. In a mixed duopoly, a stronger competitivepressure drives firms' prices up while it drives down (up) the national public (private)firm's coverage.
    Keywords: public firms, investment, network industries, mixed duopoly.
    JEL: D43 H44 L20 L33
    Date: 2021
    URL: http://d.repec.org/n?u=RePEc:drm:wpaper:2021-4&r=all
  4. By: Peiya Zhu; Xiaofei Qian; Xinbao Liu; Shaojun Lu
    Abstract: Faced with huge market potential and increasing competition in emerging industries, product manufacturers with key technologies tend to consider whether to implement a component open supply strategy. This study focuses on a pricing game induced by the component open supply strategy between a vertically integrated manufacturer (who produces key components and end products) and an exterior product manufacturer (who produces end products using purchased key components) with different customer perceived value and different cost structure. This study first establishes a three stage pricing game model and proposes demand functions by incorporating relative customer perceived value. Based on the demand functions, we obtain feasible regions of the exterior manufacturer's sourcing decision and the optimal price decision in each region. Then the effects of relative customer perceived value, cost structure, and market structure on price decisions and optimal profits of the vertically integrated manufacturer are demonstrated. Finally, as for the optimal component supply strategy, we present a generalized closed supply Pareto zone and establish supply strategy Pareto zones under several specific configurations.
    Date: 2021–02
    URL: http://d.repec.org/n?u=RePEc:arx:papers:2102.10280&r=all
  5. By: Berry, James; Fischer, Gregory; Guiteras, Raymond
    Abstract: We use the Becker-DeGroot-Marschak (BDM) mechanism to estimate willingness to pay (WTP) for and heterogeneous impacts of clean water technology through a field experiment in Ghana. Although WTP is low relative to cost, demand is inelastic at low prices. Short-run treatment effects are positive throughout the WTP distribution. After 1 year, use and benefits are both increasing in WTP, with negative effects on low-WTP households. Combining estimated treatment effects with house-holds’ WTP implies valuations of health benefits much smaller than typically used by policy makers. We explore differences between BDM and take-it-or-leave-it valuations and make recommendations for implementing BDM in the field.
    Keywords: price mechanism; heterogeneous treatment effects; health behavior; Becker- DeGroot-Marschak; field experiments
    JEL: C93 D12 L11 L31 O12 Q51
    Date: 2020–04–01
    URL: http://d.repec.org/n?u=RePEc:ehl:lserod:100236&r=all

This nep-ind issue is ©2021 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.