nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒04‒19
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Markups for Consumers By Bernhard Ganglmair; Alexander Kann; Ilona Tsanko
  2. Entry Regulations and Product Variety in Retail By Orth, Matilda; Maican, Florin
  3. Myopic Oligopoly Pricing By Iwan Bos; Marco A. Marini; Riccardo D. Saulle
  4. Double Marginalization and Vertical Integration By Philippe Choné; Laurent Linnemer; Thibaud Vergé
  5. Characterization of Nash equilibria in Cournotian oligopolies with interdependent preferences By Marco F. Boretto; Fausto Cavalli; Ahmad Naimzada
  6. Strategic Reserves versus Market-wide Capacity Mechanisms By Holmberg, P.; Tangerås, T.
  7. How to project action through the sound of brand names? By Jamel Khenfer; Caroline Cuny
  8. Concentration in International Markets: Evidence from US Imports By Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
  9. Spectrum Concentration and Performance of the U.S. Wireless Industry By Woroch, GA
  10. Research and Development in the Pharmaceutical Industry By Congressional Budget Office

  1. By: Bernhard Ganglmair; Alexander Kann; Ilona Tsanko
    Abstract: A central motivating factor for studying price markups is their effect on consumer welfare. Reported estimates of (firm-level) price markups in the literature, however, are often focused on industry or cross-country comparisons. These treat different industries equally rather than based on how relevant they are for consumers. We propose markup measures in which firm-level price markups are weighted according to consumption expenditures in the respective industries. Using a concordance table between consumption categories (otherwise used for the calculation of consumer price indices) and a firm's industry classification, we report results for Germany for the years 2002 through 2016. We find that consumption-weighted price markups are higher than the conventionally reported revenue-weighted markups. We further show that consumption-weighted markups have increased faster, in particular for medium-income households, which highlights a potential role of price markup as a contributing factor to changes of inequality in society.
    Keywords: COICOP, consumption weights, Germany, inequality, price markups
    JEL: D63 E31 K21 L11 L40
    Date: 2021–04
  2. By: Orth, Matilda (Research Institute of Industrial Economics (IFN)); Maican, Florin (Department of Economics, University of Gothenburg,)
    Abstract: This paper estimates a dynamic model of store adjustments in product variety that considers multiproduct service technology to evaluate the impact of entry regulations on variety and long-run profits in Swedish retail. Using rich data on stores and product categories, we find that more liberal entry regulation increases productivity and decreases the adjustment costs of variety. Counterfactual simulations of modest liberalizations of entry incentivize incumbents to offer more product categories to consumers while increasing efficiency and long-run profits. Regional differences are reduced as consumers and incumbents obtain more benefits in markets with restrictive regulation. Generous liberalizations of entry induce net exit of product categories and harm incumbents in markets with limited demand.
    Keywords: Retail markets; Entry regulation; Product variety; Productivity; Competition
    JEL: L11 L13 L81
    Date: 2021–04–01
  3. By: Iwan Bos (Department of Organisation, Strategy and Entrepreneurship, Maastricht University); Marco A. Marini (Department of Social and Economic Sciences, Sapienza University of Rome); Riccardo D. Saulle (Department of Economics and Management, University of Padova)
    Abstract: This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set stability concept and establish the existence of a unique pure-strategy price solution for any given level of capacity. This solution is shown to coincide with the set of pure-strategy Nash equilibria when capacities are large or small. For an intermediate range of capacities, it predicts a price interval that includes the mixed-strategy support. This stability concept thus encompasses all Nash equilibria and offers a pure-strategy solution when there is none in Nash terms. In particular, it provides a behavioral rationale for different types of pricing dynamics, including real-world economic phenomena such as Edgeworth-like price cycles, price dispersion and supply shortages.
    Keywords: Behavioral IO, Bounded Rationality, Capacity Constraints, Oligopoly Pricing, Myopic Stable Set
    JEL: C72 D43 L13
    Date: 2021–04
  4. By: Philippe Choné; Laurent Linnemer; Thibaud Vergé
    Abstract: Asymmetric information in procurement entails double marginalization. The phenomenon is most severe when the buyer has all the bargaining power at the production stage, while it vanishes when the buyer and suppliers’ weights are balanced. Vertical integration eliminates double marginalization and reduces the likelihood that the buyer purchases from independent suppliers. Conditional on market foreclosure, the probability that final consumers are harmed is positive only if the buyer has more bargaining power when selecting suppliers than when negotiating over quantities and intermediate prices. The buyer’s and consumers’ interests are otherwise aligned.
    Keywords: antitrust policy, vertical merger, asymmetric information, bargaining, double marginalization, procurement mechanism
    JEL: L10 L40 D40 D80
    Date: 2021
  5. By: Marco F. Boretto; Fausto Cavalli; Ahmad Naimzada
    Abstract: We study the effects on the Nash equilibrium of the presence of a structure of social interdependent preferences in a Cournot oligopoly, described in terms of a game in which the network of interactions reflects on the utility functions of firms through a combination of weighted profits of their competitors as in [7]. Taking into account the channels of social and market interactions, we detail the consequence of preference interdependence on the best response of a firm, focusing on both direct and high degree of interdependence effects between two given firms. We characterize the Nash equilibrium in terms of social and market interactions among firms, through a Bonacich-like centrality measure and a scalar index describing the degree of competitiveness that characterizes an oligopoly with interdependent preferences. Finally, we study the equilibrium of some scenarios described by regular structures of interaction.
    Keywords: Cournot Game, Preference interdependence, Nash Equilibrium
    JEL: D43 C62 C70
    Date: 2021–03
  6. By: Holmberg, P.; Tangerås, T.
    Abstract: Many electricity markets use capacity mechanisms to support generation owners. Capacity payments can mitigate imperfections associated with “missing money†in the spot market and solve transitory capacity shortages caused by investment cycles, regulatory changes, or technology shifts. We discuss capacity mechanisms used in different electricity markets around the world. We argue that strategic reserves, if correctly designed, are likely to be more efficient than market-wide capacity mechanisms. This is especially so in electricity markets that rely on substantial amounts of intermittent generation, hydro power, and energy storage whose available capacity varies with circumstances and is difficult to estimate.
    Keywords: Capacity mechanism, market design, reliability, resource efficiency
    JEL: D25 D47 Q40 Q48
    Date: 2021–04–12
  7. By: Jamel Khenfer (Zayed University); Caroline Cuny (GEM - Grenoble Ecole de Management)
    Abstract: Objectives/research questions: Brand names not only serve to identify specific products and services, but also to convey information. Such information may depend on the sound of the word—independent of its semantic meaning. In this research, we propose that plosive consonants such as [b], [d], [p], and [t] (vs. fricative consonants such as [f], [l], [s], and [s]) elicit the feeling of doing something because of the articulatory movements their pronunciation requires. Method/ approach We ran three experimental studies in a behavioral lab with samples composed of French-speaking participants. Results Study 1 relies on implicit measures to demonstrate that plosive consonants are unconsciously associated with the semantic concept of action. Studies 2 and 3 put this property to the test in the context of threats to personal control. If plosive consonants can simulate action, threats to personal control should increase the perceived attractiveness of brand names that include such sounds since threats to personal control have been shown to trigger a willingness to act. Managerial/societal implications: Our results suggest that managers can project action based on the sounds of their brands—independently of their semantic meaning. Originality The demonstration of the capacity of plosive consonants to evoke action relies on the use of implicit measures and the replication of the observed effect across several studies.
    Keywords: action,brand linguistics,brand management,brand name,personal control,sensory marketing
    Date: 2021
  8. By: Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
    Abstract: We use transaction-level data to study changes in the concentration of US imports. Concentration has fallen in the typical industry, while it is stable by industry and origin country. The fall in concentration is driven by the extensive margin: the number of exporting firms has grown, and the number of exported products has fallen relatively more for top firms. Instead, average revenue per product of top firms has increased. At the industry level, top firms are converging, but top firms within country are diverging. Finally, higher concentration from an origin country is associated with a fall in prices, foreign entry and industry growth. These facts suggest that intensified competition in international markets coexists with growing concentration among national producers.
    Keywords: superstar firms, concentration, US imports, firm heterogeneity, international trade
    JEL: E23 F12 F14 L11 R12
    Date: 2021
  9. By: Woroch, GA
    Abstract: This paper estimates the empirical relationship between concentration in mobile carriers’ holdings of radio spectrum and the performance of the U.S. wireless industry. Reduced-form regressions that use a 2012–2013 cross-section of approximately 700 Cellular Market Areas reveal a robust inverted-U relationship between spectrum HHIs and subscriber penetration rates—a measure of consumer welfare. The marginal effect of spectrum concentration is positive throughout the range of sampled markets—contrary to the conventional concentration-performance hypothesis. This pattern persists when spectrum concentration is separately measured for bands below 1 GHz and for rural areas. It is also shown not to be biased by the potential endogeneity of spectrum HHIs. This paper is distinguished by relating subscriber penetration rates to the quality and coverage of operator networks that supports efficiency explanations for operator size, and hence the benefits of structural concentration. These findings cast doubt on federal policies adopted as early as the 1927 Radio Act that attempt to equalize ownership of spectrum. Instead, our empirical results recommend measures that promote investment in wireless infrastructure and other non-spectrum factors.
    Keywords: Spectrum concentration, Industry performance, Mobile wireless services, Applied Economics, Economics
    Date: 2020–02–01
  10. By: Congressional Budget Office
    Abstract: CBO assesses trends in spending for prescription drug research and development (R&D) and the introduction of new prescription drugs. CBO also examines factors that determine how much drug companies spend on R&D: expected global revenues from a new drug; the cost to develop a new drug; and federal policies that affect the demand for drug therapies, the supply of new drugs, or both.
    JEL: H51 I11 I18 L65 O31 O38
    Date: 2021–04–08

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