nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒08‒23
eleven papers chosen by

  1. The IO of Selection Markets By Liran Einav; Amy Finkelstein; Neale Mahoney
  2. Industrial Organization of Health Care Markets By Benjamin R. Handel; Kate Ho
  3. Third-Degree Price Discrimination in the Age of Big Data By Charlson, G.
  4. Fighting Collusion: An Implementation Theory Approach By Azacis, Helmuts; Vida, Peter
  5. Estimating Demand with Multi-Homing in Two-Sided Markets By Pauline Affeldt; Elena Argentesi; Lapo Filistrucchi
  6. From Monopoly to Competition: Optimal Contests Prevail By Xiaotie Deng; Yotam Gafni; Ron Lavi; Tao Lin; Hongyi Ling
  7. Vertical integration as a source of hold-up: An experiment By Marie-Laure Allain; Claire Chambolle; Patrick Rey; Sabrina Teyssier
  8. The concentration of digital markets: How to preserve the conditions for effective and undistorted competition? By Frédéric Marty
  9. Consumer Responses to Firms’ Voluntary Disclosure of Information: Evidence from Calorie Labeling by Starbucks By Rosemary Avery; John Cawley; Julia Eddelbuettel; Matthew D. Eisenberg; Charlie Mann; Alan D. Mathios
  10. An Empirical Analysis of Pricing in the U.S. Broiler and Pork Industries By Bolotova, Yuliya V.
  11. Market Power in the United States Potato Industry By Bolotova, Yuliya V.

  1. By: Liran Einav; Amy Finkelstein; Neale Mahoney
    Abstract: This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We focus on "selection markets," which cover markets in which consumers vary not only in how much they are willing to pay for a product but also in how costly they are to the seller. The chapter tries to organize the recent wave of IO-related papers on selection markets, which has largely focused on insurance and credit markets. We provide a common framework, terminology, and notation that can be used to understand many of these papers, and that we hope can be usefully applied going forward.
    JEL: G22 L00 L13
    Date: 2021–07
  2. By: Benjamin R. Handel; Kate Ho
    Abstract: In this paper we outline the tools that have been developed to model and analyze competition and regulation in health care markets, and describe particular papers that apply them to policy-relevant questions. We focus particularly on the I.O. models and empirical methods and analyses that researchers have formulated to address policy-relevant questions, although we also provide an overview of the institutional facts and findings that inform them. We divide the chapter into two broad sections: (i) papers considering competition and price-setting among insurers and providers and (ii) papers focused specifically on insurance and market design. The former set of papers is largely concerned with models of oligopolistic competition; it is often focused on the US commercial insurance market where prices are market-determined rather than being set administratively. The latter focuses on insurance market design with an emphasis on issues raised by asymmetric information, leading to adverse selection and moral hazard. In addition, we discuss the literature on consumer choice frictions in this market and the significant implications of those frictions for I.O. questions.
    JEL: I11 L13 L2
    Date: 2021–08
  3. By: Charlson, G.
    Abstract: A platform holds information on the demographics of its users and wants maximise total surplus. The data generates a probability over which of two products a buyer prefers, with different data segmentations being more or less informative. The platform reveals segmentations of the data to two firms, one popular and one niche, preferring to reveal no information than completely revealing the consumer's type for certain. The platform can improve profits by revealing to both firms a segmentation where the niche firm is relatively popular, but still less popular than the other firm, potentially doing even better by revealing information asymmetrically. The platform has an incentive to provide more granular data in markets in which the niche firm is particularly unpopular or in which broad demographic categories are not particularly revelatory of type, suggesting that the profit associated with big data techniques differs depending on market characteristics.
    Keywords: Strategic interaction, network games, interventions, industrial organisation, platforms, hypergraphs
    JEL: D40 L10 L40
    Date: 2021–08–19
  4. By: Azacis, Helmuts (Cardiff Business School); Vida, Peter (Corvinus Institute for Advanced Studies, Corvinus University of Budapest)
    Abstract: A competition authority has an objective, which specifies what output profile firms need to produce as a function of production costs. These costs change over time and are only known by the firms. The objective is implementable if in equilibrium, the firms cannot collude on their reports to the competition authority. Assuming that the firms can only report prices and quantities, we characterize what objectives are one-shot and repeatedly implementable. We use this characterization to identify conditions when the competitive output is implementable. We extend the analysis to the cases when a buyer also knows the private information of firms and when the firms can supply hard evidence about their costs.
    Keywords: Collusion, Antitrust, (Repeated) Implementation, Monotonicity, Price-Quantity Mechanism, Hard Evidenc
    JEL: C72 C73 D71 D82 L41
    Date: 2021–08
  5. By: Pauline Affeldt; Elena Argentesi; Lapo Filistrucchi
    Abstract: We empirically investigate the relevance of multi-homing in two-sided markets. First, we build a micro-founded structural econometric model that encompasses demand for differentiated products and allows for multi-homing on both sides of the market. We then use an original dataset on the Italian daily newspaper market that includes information on double-homing by readers to estimate readers’ and advertisers’ demand. The results show that an econometric model that does not allow for multi-homing is likely to produce biased estimates of demand on both sides of the market. In particular, on the reader side, accounting for multi-homing helps to recognize complementarity between products; on the advertising side, it allows to measure to what extent advertising demand depends on the shares of exclusive and overlapping readers.
    Keywords: two-sided markets, platforms, multi-homing, media, advertising
    JEL: C51 D43 L13 L82 M37
    Date: 2021
  6. By: Xiaotie Deng; Yotam Gafni; Ron Lavi; Tao Lin; Hongyi Ling
    Abstract: We study competition among contests in a general model that allows for an arbitrary and heterogeneous space of contest design, where the goal of the contest designers is to maximize the contestants' sum of efforts. Our main result shows that optimal contests in the monopolistic setting (i.e., those that maximize the sum of efforts in a model with a single contest) form an equilibrium in the model with competition among contests. Under a very natural assumption these contests are in fact dominant, and the equilibria that they form are unique. Moreover, equilibria with the optimal contests are Pareto-optimal even in cases where other equilibria emerge. In many natural cases, they also maximize the social welfare.
    Date: 2021–07
  7. By: Marie-Laure Allain (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Claire Chambolle (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Patrick Rey (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Sabrina Teyssier (GAEL - Laboratoire d'Economie Appliquée de Grenoble - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes)
    Abstract: In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, vertical integration can create holdup problems for the rival. We develop an experiment to test this theoretical prediction in a setup in which suppliers can either precommit ex ante to being greedy or degrade ex post the input they provide to their customer. Our experimental results confirm that vertical integration creates holdup problems. However, vertical integration also generates more departures from theory, which can be explained by bounded rationality and social preferences.
    Keywords: Vertical integration,Hold-up,Experimental economics,Bounded rationality,Social preferences
    Date: 2021–06–08
  8. By: Frédéric Marty
    Abstract: The policy initiatives announced on both sides of the Atlantic to complement competition rules focus on two key dimensions: the contestability of markets on the one hand and fairness in their functioning on the other. The underlying idea is that the market positions of Big Tech would be inexpugnable - insofar as high barriers to entry protect them from self-regulating competition and insofar as they would have regulatory power over their respective ecosystems. Competition for the market would no longer be free, and competition in the market would be distorted. Our purpose in this working paper is to discuss these two dimensions. Are digital markets still contestable, and is the competition in them still competition on the merits? Finally, we discuss the remedies proposed to address these two alleged phenomena. La concentration des marchés numériques : Comment préserver les conditions d'une concurrence effective pour le marché et d'une concurrence non faussée dans le marché ? Les initiatives politiques annoncées de part et d’autre de l’Atlantique pour compléter les règles de concurrence mettent l’accent sur deux dimensions essentielles : la contestabilité des marchés d’une part et la loyauté dans le fonctionnement dans leur fonctionnement d’autre part. L’idée sous-jacente est la suivante : les positions de marché des grandes entreprises du numérique seraient inexpugnables – dans la mesure où de fortes barrières à l’entrée les protègent d’un caractère auto-régulateur de la concurrence et dans la mesure où elles jouiraient d’un pouvoir de régulation sur leurs écosystèmes respectifs. La concurrence pour le marché ne serait plus libre et la concurrence dans le marché serait faussée. Notre propos dans ce document de travail est de discuter ces deux dimensions. Les marchés numériques sont-ils toujours contestables et la concurrence qui s’y exerce est-elle encore une concurrence par les mérites ? Nous discutons enfin les remèdes proposés pour répondre à ces deux phénomènes allégués.
    Keywords: contestability,fairness,loyalty,Big Tech,concentration,exclusionary abuses, contestabilité,loyauté de la concurrence,équité,Big Tech,concentration,abus d’éviction
    JEL: K21 L41
    Date: 2021–08–17
  9. By: Rosemary Avery; John Cawley; Julia Eddelbuettel; Matthew D. Eisenberg; Charlie Mann; Alan D. Mathios
    Abstract: This paper estimates the impact on consumer behavior of a firm’s voluntary disclosure of information. Specifically, we study the impact of Starbucks’ disclosure of calorie information on its menu boards in June 2013. Using data on over 250,000 consumers’ visits to specific restaurant chains, we estimate difference-in-difference models that compare the change in the probability that consumers recently visited Starbucks to the change in the probability that they recently visited a similar chain that did not voluntarily disclose: Dunkin Donuts. Estimates from difference-in-differences models indicate that we cannot reject the null hypothesis that Starbucks’ disclosure of calorie information had no impact on the probability that consumers patronized Starbucks in the past month. However, we find evidence of a transitory negative impact on the probability of visits the first year after disclosure, and evidence that disclosure reduced the probability of visits by men. These results are useful for understanding how consumers respond to the voluntary disclosure of information, a decision faced by many firms.
    JEL: D22 D8 I12 L2 L83
    Date: 2021–07
  10. By: Bolotova, Yuliya V.
    Abstract: During the recent decade a group of large meat processors in the U.S. broiler and pork industries implemented a series of production control practices at various stages of the broiler and pork supply chains. Direct and indirect buyers of broilers and pork filed class action antitrust lawsuits alleging that by implementing these production control practices the meat processors engaged in unlawful conspiracies with the purpose of fixing, increasing, and stabilizing prices of broilers and pork and thus violated Section 1 of the Sherman Act. The research presented in the paper conducts an econometric analysis of price behavior in the U.S. broiler and pork industries during the periods of alleged price-fixing cartels and prior (more competitive) periods. The empirical evidence presented in the paper suggests the following. The wholesale pricing of pork by pork processors is consistent with an oligopoly pricing during both the pre-cartel and cartel periods. The retail pricing of pork by food retailers is consistent with a perfectly competitive pricing during both analyzed periods. The retail pricing of broilers by food retailers is consistent with a monopoly pricing during the pre-cartel period and with a monopoly and an oligopoly pricing during the cartel period.
    Keywords: Agribusiness, Agricultural and Food Policy, Agricultural Finance, Financial Economics, Industrial Organization, Institutional and Behavioral Economics
  11. By: Bolotova, Yuliya V.
    Abstract: The motivations for this case study are the U.S. potato industry developments involving the implementation of a potato supply management program by a nation-wide group of cooperatives of potato growers during the period of 2005-2010. This program aimed to mitigate potato oversupply adversely affecting profitability of potato growers and provide fair returns for potato growers. The potato supply management program raised legal issues leading to antitrust lawsuits filed by potato buyers against potato growers and their cooperatives, which resulted in a large settlement. The case study introduces economic, business, and legal issues surrounding the implementation of this potato supply management program. The case study also provides simple contemporary applications of economic models of the profit-maximizing behavior of firms with seller market power in the U.S. potato industry. The case study presents a theoretical framework, which explains conduct and performance of the U.S. potato industry in alternative market scenarios, and a basic market and price analysis. The intended audiences are undergraduate and graduate students, as well as extension and outreach audiences. A teaching note includes a set of discussion questions and suggested answers. The teaching note also discusses teaching objectives, teaching strategies, and student background knowledge.
    Keywords: Agricultural Finance, Production Economics

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