nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒03‒15
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Science and the Market for Technology By Ashish Arora; Sharon Belenzon; Jungkyu Suh
  2. Organizational Structure and Technological Investment By Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
  3. Competition with List Prices By Marco Haan; Pim Heijnen; Martin Obradovits
  4. How Antitrust Really Works: A Theory of Input Control and Discriminatory Supply By Woodcock, Ramsi
  5. Imperfect Tacit Collusion and Asymmetric Price Transmission By Bulutay, Muhammed; Hales, David; Julius, Patrick; Tasch, Weiwei
  6. Computing Prices for Target Profits in Contracts By Ghurumuruhan Ganesan
  7. Market-Share Contracts, Exclusive Dealing, and the Integer Problem By Zhijun Chen; Greg Shaffer
  8. Device-funded vs Ad-funded Platforms By Federico Etro
  9. ‘You Will:’ A Macroeconomic Analysis of Digital Advertising By Jeremy Greenwood; Yueyuan Ma; Mehmet Yorukoglu
  10. Progress of Digital Platforms and their Impact on Japan's Industrial Competitiveness By MOTOHASHI Kazuyuki
  11. The Motor Vehicles Industry in Slovakia, 2005–2015 By Biswajit Banerjee; Juraj Zeman
  12. Sales Prediction Model Using Classification Decision Tree Approach For Small Medium Enterprise Based on Indonesian E-Commerce Data By Raden Johannes; Andry Alamsyah

  1. By: Ashish Arora; Sharon Belenzon; Jungkyu Suh
    Abstract: Well functioning Markets for Technology (MFT) allow inventors to sell their inventions to others that may derive more value from them. We argue that the growing reliance on science in inventions enhances MFT. In addition to higher quality inventions, reliance on science may enhance gains from trade and reduce the transfer cost of knowledge and other transaction costs. Using large scale data, we show that patents citing science are more likely to be traded, especially for novel patents and for smaller inventors. Leveraging the fall of the Berlin Wall as a source of exogenous variation in the relevant scientific knowledge to technological fields, we confirm reliance on science increases the likelihood that the invention will be traded
    JEL: L24 O3 O31 O33 O34 O36
    Date: 2021–03
  2. By: Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
    Abstract: We analyze firms’ decisions on their vertical organization, taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains, where upstream sectors invest in R&D. Such investment determines the production costs of the downstream sector and has spillovers on the production and the investment costs of the rival. In a general setting, we show that the equilibrium organizational structure depends on whether the situation considered belongs to one of four possible cases. We study how final good market competition, R&D spillover, and R&D incentives interact to determine the equilibrium vertical structure.
    Keywords: R&D, vertical separation, market structure, spillover
    JEL: L22 L13 O32 C72
    Date: 2021–03
  3. By: Marco Haan; Pim Heijnen; Martin Obradovits
    Abstract: This paper studies the competitive role of list prices. We argue that such prices are often more salient than actual retail prices, so consumers' purchase decisions may be influenced by them. Two firms compete by setting prices in a homogeneous product market. They first set a list price that serves as an upper bound on their retail price. Then, after having observed each other's list price, they set retail prices. Building on the canonical Varian (1980) model, we assume that some consumers observe no prices, some observe all prices, and some only observe list prices. We show that if the latter partially informed consumers use a simple rule of thumb, the use of list prices leads to lower retail prices on average. This effect is weakened if partially informed consumers are rational.
    Keywords: list prices, recommended retail prices, price competition, price dispersion, advertising
    JEL: C72 L13
    Date: 2021–08
  4. By: Woodcock, Ramsi
    Abstract: ------->Antitrust law and policy today are a semi-coherent welter of legal and economic doctrines. Immanent in them, however, is a structure of great simplicity and utility. The concept at the heart of the antitrust laws is the linear supply chain, consisting of an essential input, a downstream market in which competition is harmed through the discriminatory supply of the input to downstream firms, and consumers who pay higher prices for finished products as a result of the discriminatory behavior. Antitrust attacks this problem of the discriminatory supply of inputs in two ways. First, it seeks to prevent any one intelligence from taking control over the input, because absent such centralized control, competition from input suppliers eliminates any attempt at discrimination. Stopping the centralization of control over inputs is not always possible, however, because sometimes centralized control improves the quality of the input, and antitrust follows an implicit rule of “innovation primacy,” which holds that any act that plausibly improves the product likely does more good for consumers than any resulting increase in prices harms them, and so the act must be immune from antitrust scrutiny. ------->Second, antitrust regulates attempts by input controllers to use their power to increase their profits other than by charging what they know to be the highest possible prices for their products given their level of knowledge of consumer willingness to pay. Profits can be increased in this way by only three routes, each of which involves discrimination by the input controller in the supply of inputs to downstream firms. The input controller can discriminate in favor of firms that improve the final product ultimately sold to consumers and so increase consumers’ willingness to pay. The input controller can discriminate in favor of downstream firms that supply the input controller with information about consumer willingness to pay, enabling the input controller better to choose its prices to maximize its profits. And the input controller can discriminate against downstream firms that refuse to give the input controller access to profits that the firms have in turn extracted from consumers. The doctrine of innovation primacy protects discrimination that improves the final product sold to consumers, but not discrimination that facilitates information acquisition or the disciplining of refractory downstream firms. ------->This analysis resolves numerous longstanding conundrums in antitrust, including (1) whether antitrust picks winners (it must), (2) whether picking winners limits consumer sovereignty (impossible, because whenever a firm discriminates in the supply of inputs, the firm picks winners, and antitrust, which does no more than challenge such discrimination, therefore only ever substitutes its judgment for that of firms, never for that of end consumers), (3) whether antitrust should have a monopoly power requirement (it should, but the requirement should apply to the input market and not, as at present, to the downstream market in which competition is harmed), (4) whether firms should be allowed to compete on their own platforms as a general matter (of course they should, unless it is thought that consumers always know better than firms how everything they buy should be made, from start to finish), and (5) how to define the limits of the firm (the boundary of the firm does not end where formal ownership ends, but rather where discrimination in the supply of inputs ends). The analysis also shows why Lorain Journal, Aspen Skiing, Linkline, Trinko, Microsoft, Qualcomm, exclusive dealing, and tying are all the same basic case.
    Date: 2021–02–28
  5. By: Bulutay, Muhammed; Hales, David; Julius, Patrick; Tasch, Weiwei
    Abstract: We investigate the role tacit collusion plays in Asymmetric Price Transmission (APT), the tendency of prices to respond more rapidly to positive than to negative cost shocks. Using a laboratory experiment that isolates the effects of tacit collusion, we observe APT pricing behavior in markets with 3, 4, 6, and 10 sellers, but not in duopolies. Furthermore, we find that sellers accurately forecast others’ prices, but nevertheless consistently set their own prices above the profit-maximizing response, particularly in the periods immediately following negative shocks. Overall, our findings support theories in which tacit collusion plays a central role in APT.
    Keywords: Asymmetric Price Transmission,Tacit Collusion,Oligopolistic Competition,Market Power,Rockets and Feathers
    JEL: D43 L13 C92 C72 C73
    Date: 2021
  6. By: Ghurumuruhan Ganesan
    Abstract: Price discrimination for maximizing expected profit is a well-studied concept in economics and there are various methods that achieve the maximum given the user type distribution and the budget constraints. In many applications, particularly with regards to engineering and computing, it is often the case than the user type distribution is unknown or not accurately known. In this paper, we therefore propose and study a mathematical framework for price discrimination with \emph{target} profits under the contract-theoretic model. We first consider service providers with a given user type profile and determine sufficient conditions for achieving a target profit. Our proof is constructive in that it also provides a method to compute the quality-price tag menu. Next we consider a dual scenario where the offered service qualities are predetermined and describe an iterative method to obtain nominal demand values that best match the qualities offered by the service provider while achieving a target profit-user satisfaction margin. We also illustrate our methods with design examples in both cases.
    Date: 2021–03
  7. By: Zhijun Chen; Greg Shaffer
    Abstract: Exclusionary contracts have long been a focus of antitrust law and the subject of much scholarly debate. This paper compares two types of exclusionary contracts, exclusive-dealing and market-share contracts, in a model of naked exclusion. We discuss the different mechanisms through which each works and identify a fundamental tradeoff that arises: market-share contracts are better at maximizing a seller’s benefit from foreclosure (because they allow the seller to obtain any foreclosure level it desires) whereas exclusive-dealing contracts are better at minimizing a seller’s cost of foreclosure (because, unlike with market-share contracts, the seller does not have to overpay for the units it forecloses). We identify settings in which each can be more profitable and show that welfare can be worse under market-share contracts
    Keywords: Exclusive dealing, Market-share contracts, Dominant Firm, Foreclosure
    JEL: L13 L41 L42 K21 D86
    Date: 2019–06
  8. By: Federico Etro
    Abstract: We analyze device-funded and ad-funded platforms with differentiated ecosystems supporting apps provided under monopolistic competition. The incentives of a device-funded platform in investing in app curation, introducing and pricing its own apps and setting commissions on in-app purchases of external apps are largely aligned with those of consumers, while this is not necessarily the case for the ad-funded platform. In particular, consumers gain from a positive commission set by the device-funded platform because this implies a comparatively lower price of the device, and platform’s apps are introduced and priced internalizing the impact on consumer welfare, perfectly in models of horizontal differentiation and partially in models of vertical differentiation.
    Keywords: Platforms, business models, monopolistic competition, horizontal differentiation, vertical differentiation.
    JEL: L1 L4
    Date: 2020
  9. By: Jeremy Greenwood; Yueyuan Ma; Mehmet Yorukoglu
    Abstract: A model is developed where traditional and digital advertising finance the provision of free media goods and affect price competition. The economy is not efficient. Media goods are under provided. Additionally, there is too much advertising when ads cannot be perfectly directed toward potential buyers. The tax-cum-subsidy policy that over-comes these inefficiencies in an informationally-constrained economy is characterized. The model is calibrated to the U.S. economy. Digital advertising increases consumer welfare significantly and is disproportionately financed by better-off consumers. The welfare gain from the optimal tax-cum-subsidy policy is much smaller than the one realized by the introduction of digital advertising.
    JEL: E1 L1 O3
    Date: 2021–03
  10. By: MOTOHASHI Kazuyuki
    Abstract: Digitalization has a transformative impact on innovation in firms and markets, and new business models based on digital platforms are disrupting traditional industries. However, understanding the impact of digital platforms on the supply side of manufacturing industries, where Japan's industrial competitiveness is based, is insufficient. This paper conducts and discusses a review of existing studies on digital platforms and the relationship between digitalization and Japan's industrial competitiveness. A platform business can be categorized into three groups, type 1 (internet platformer type), type 2 (producer ecosystem type) and type 3 (IoT data-use type), depending on the existence of direct and/or indirect network effects on the producer and consumer sides of the platform. We have compared these three types of platforms together with "pipeline businesses" (with a traditional supply chain model) regarding the impact of digitalization on each business model. Our analysis found that digitalization does not directly affect the existing pipeline model, as is shown in the automotive industry, for example. However, the convergence of virtual and physical environments (CPS: Cyber-Physical System) redefines the boundaries of existing markets, which introduces a chance of existing pipeline models being displaced by new integrated services, based on platform models.
    Date: 2021–01
  11. By: Biswajit Banerjee (Ashoka University); Juraj Zeman (National Bank of Slovakia)
    Abstract: This paper examines the evolution of the Slovak motor vehicles sector during 2005–2015, drawing on the latest update (December 2018) of OECD’s Inter-Country Input-Output (ICIO) model database. The review takes a global value chain (GVC) approach and looks at the linkages from the gross production and value added perspectives. The overall contribution of the motor vehicles sector to Slovakia’s gross production and domestic value added increased twofold during the reference period. There was an ongoing change in the structure of the GVC linkages. The reliance on domestically-sourced inputs increased over the years. The (indirect) value added created in the production of domestically-sourced inputs gradually approached the level of the (direct) value added generated within the motor vehicles sector. Subsequent to the global financial crisis, the share of intermediate goods in exports, the forward linkage of the GVC, and the upstreamness of the production process were all on a rising trend. The sourcing pattern of imports of intermediate inputs and the market for exports steadily shifted away from the euro area towards non-EU countries. It is estimated that a hypothetical 10 percent negative shock to global final demand for motor vehicles would lower Slovak GDP growth by 1 percentage point.
    Keywords: Backward linkage, Forward linkage, GVC participation rate, Length of GVC, Position in GVC
    Date: 2021–03
  12. By: Raden Johannes; Andry Alamsyah
    Abstract: The growth of internet users in Indonesia gives an impact on many aspects of daily life, including commerce. Indonesian small-medium enterprises took this advantage of new media to derive their activity by the meaning of online commerce. Until now, there is no known practical implementation of how to predict their sales and revenue using their historical transaction. In this paper, we build a sales prediction model on the Indonesian footwear industry using real-life data crawled on Tokopedia, one of the biggest e-commerce providers in Indonesia. Data mining is a discipline that can be used to gather information by processing the data. By using the method of classification in data mining, this research will describe patterns of the market and predict the potential of the region in the national market commodities. Our approach is based on the classification decision tree. We managed to determine predicted the number of items sold by the viewers, price, and type of shoes.
    Date: 2021–03

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