nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒09‒27
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Empirical Models of Demand and Supply in Differentiated Products Industries By Amit Gandhi; Aviv Nevo
  2. An Industrial Organization Perspective on Productivity By Jan De Loecker; Chad Syverson
  3. Buyer Alliances in Vertically Related Markets By Hugo Molina
  4. Flagship Entry in Online Marketplaces By Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Lu Fang
  5. Intangibles and industry concentration: Supersize me By Matej Bajgar; Chiara Criscuolo; Jonathan Timmis
  6. Agency Costs in Small Firms By Bianchi, Milo; Luomaranta, Henri
  7. Emerging trends in communication market competition By OECD
  8. Manufacturing Revolutions: Industrial Policy and Industrialization in South Korea By Nathan Lane
  9. Hub and Spoke Cartels: Theory and Evidence from the Grocery Industry By Robert Clark; Ignatius Horstmann; Jean-François Houde

  1. By: Amit Gandhi; Aviv Nevo
    Abstract: This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We present empirical models of demand and supply in differentiated products industries with an emphasis on the key ideas arising from the recent applied literature. We start with a discussion of the challenges in modeling and estimation of demand for differentiated products, and focus on discrete choice characteristics-based demand models that address these challenges while allowing enough flexibility to capture realistic substitution patterns. Our discussion emphasizes how empirical strategies can leverage different features of data depending on the sources of variation that are commonly found in applied work. Moving to the supply-side, we show how demand estimates combined with a pricing model, can be used to recover markups and marginal costs. We also show how the model of pricing can be tested. We discuss a baseline Bertrand-Nash model of competitive pricing, and expand it to cover a) coordinated pricing, b) wholesale relationships, and c) bargaining. We end the chapter with extensions of the demand model, including dynamic and continuous demand.
    JEL: C01 D12 D22 D43 L13
    Date: 2021–09
  2. By: Jan De Loecker; Chad Syverson
    Abstract: This chapter overviews productivity research from an industrial organization perspective. We focus on what is known and what still needs to be learned about the productivity levels and dynamics of individual producers, but also how these interact through markets and industries to influence productivity aggregates. We overview productivity concepts, facts, data, measurement, analysis, and open questions.
    JEL: D2 L1 L2 L6
    Date: 2021–09
  3. By: Hugo Molina (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: Alliances of buyers to negotiate input prices with suppliers are commonplace. Using pre- and post-alliances data on household purchases of bottled water, I develop a structural model of bilateral oligopoly to estimate the effects of three alliances formed by retailers on their bargaining power vis-à-vis manufacturers and retail prices paid by consumers. Results provide evidence of a countervailing buyer power effect that reduces retail prices by roughly 7%. Exploring determinants of buyer power, I find that changes in retailers' bargaining ability play an important role in the countervailing force exerted by the alliances which, otherwise, would have not been profitable.
    Keywords: Bilateral oligopoly,Countervailing buyer power,Bargaining,Antitrust policy
    Date: 2021–09–10
  4. By: Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Lu Fang
    Abstract: In the world of omnichannel retail, some brands open a flagship store at online marketplaces, while others avert it. Focusing on a large e-commerce platform, we empirically study how flagship entry affects consumers, the platform, and various sellers on the platform. We find flagship entry may benefit consumers by expanding the choice set, by intensifying price competition within the entry brand, and by improving consumer perception for parts of the platform. In the meantime, flagship entry cannibalizes the sales of same-brand sellers, while other brands may gain as the buyer base expands on the platform. Counterfactual simulation suggests that flagship entry improves the gross merchandise value (GMV) of the platform but hurts existing sellers of the entry brand. On average, the effect on consumer welfare is more positive if the flagship entry is from a non-prominent brand than from a prominent brand, because consumers tend to lower their willingness to pay for individual sellers upon a prominent flagship entry. In hypothetical scenarios where flagship entry were accompanied by constraints on other same-brand sellers, the reduced competition would benefit the flagship store but hurt consumers.
    JEL: D4 L1 L8
    Date: 2021–09
  5. By: Matej Bajgar (Center for Economic Research and Graduate Education - Economics Institute); Chiara Criscuolo (OECD); Jonathan Timmis (The World Bank)
    Abstract: This paper presents new evidence on the growing scale of big businesses in the United States, Japan, and Europe. It finds broad evidence of rising industry concentration across the majority of countries and sectors over the period 2002 to 2014. Rising concentration is strongly associated with intensive investment in intangibles, particularly innovative assets, software, and data. This relationship appears to be stronger in more globalised and digital-intensive industries. The results are consistent with intangibles disproportionately benefiting large firms and enabling them to scale up and increase market shares. We find nuanced implications of these new business models for competition – rising markups and reduced churning amongst the top firms, but falling industry prices.
    Keywords: Competition, Industry and entrepreneurship, Innovation
    JEL: E22 L1 L25
    Date: 2021–09–22
  6. By: Bianchi, Milo; Luomaranta, Henri
    Abstract: We explore how the separation between ownership and control a§ects Örm productivity. Using administrative panel data on the universe of limited liability Örms in Finland, we document a substantial increase in productivity when the CEO obtains majority ownership or when the majority owner becomes the CEO. We exploit plausibly exogenous variations to CEO turnover, induced by shocks to the CEO spouseís health. Extending the analysis beyond typical samples of large public Örms, we show that our e§ects are stronger in medium-sized private Örms. We also investigate possible mechanisms and provide suggestive evidence that increased ownership boosts CEOís e§ort at work.
    Keywords: agency costs;Örm productivity,;CEO ownership.
    JEL: G30 M12 D24 E23 L25
    Date: 2021–08
  7. By: OECD
    Abstract: Communication market structures and their effect on delivering efficient and inclusive connectivity is of key interest to policy makers and regulators. This report discusses emerging competition trends in OECD broadband markets that are shaping market structures, covering both fixed and mobile networks. The increasing complementarity of fixed and wireless networks and the convergence of previously separate markets have led to new forms of communication market competition. While convergence has been acting as a driver for market consolidation, there is also increased scrutiny in merger review. Some OECD countries are discussing options to keep mobile communication markets open to new entrants in the context of merger reviews, while others have experienced a recent wave of entry. The report explores the role of horizontal and vertical mergers in communication markets, presents examples of entry in mobile communication markets, and discusses some of effects of entry and consolidation in OECD markets.
    Date: 2021–09–24
  8. By: Nathan Lane (University of Oxford)
    Abstract: I study the impact of industrial policy on industrial development by considering a canonical intervention. Following a political crisis, South Korea dramatically altered its development strategy with a sector-specific industrial policy: the Heavy and Chemical Industry (HCI) drive, 1973-1979. With newly assembled data, I use the sharp introduction and withdrawal of industrial policies to study the impacts of industrial policy — during and after the intervention period. I show (1) HCI promoted the expansion and dynamic comparative advantage of directly targeted industries. (2) Using variation in exposure to policies through the input-output network, I show HCI indirectly benefited downstream users of targeted intermediates. (3) I find direct and indirect benefits of HCI persisted even after the end of HCI, following the 1979 assassination of the president. These effects include the eventual development of directly targeted exporters and their downstream counterparts. Together, my findings suggest that the temporary drive shifted Korean manufacturing into more advanced markets and created durable industrial change. These findings clarify lessons drawn from South Korea and the East Asian growth miracle.
    Keywords: industrial policy, East Asian miracle, economic history, industrial development, Heavy-Chemical Industry Drive
    JEL: L5 O14 O25 N6
    Date: 2021–09
  9. By: Robert Clark; Ignatius Horstmann; Jean-François Houde
    Abstract: Numerous recently uncovered cartels operated along the supply chain, with firms at one end facilitating collusion at the other – hub-and-spoke arrangements. These cartels are hard to rationalize because they induce double marginalization and higher costs. We examine Canada’s alleged bread cartel and provide the first comprehensive analysis of hub-and-spoke collusion. We make three contributions: i) Using court documents and pricing data we provide evidence that collusion existed at both ends of the supply chain, ii) we show that collusion was effective, increasing inflation by about 40% and iii) we provide a model explaining why this form of collusion arose.
    JEL: L1 L4 L41 L42
    Date: 2021–09

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