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on Industrial Organization |
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Issue of 2021‒10‒25
five papers chosen by |
| By: | Renato Soeiro; Alberto Pinto |
| Abstract: | The partition of society into groups, polarization, and social networks are part of most conversations today. How do they influence price competition? We discuss Bertrand duopoly equilibria with demand subject to network effects. Contrary to models where network effects depend on one aggregate variable (demand for each choice), partitioning the dependence into groups creates a wealth of pure price equilibria with profit for both price setters, even if positive network effects are the dominant element of the game. If there is some asymmetry in how groups interact, two groups are sufficient. If network effects are based on undirected and unweighted graphs, at least five groups are required but, without other differentiation, outcomes are symmetric. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.05891&r= |
| By: | Didier Laussel; Ngo Van Long; Joana Resende |
| Abstract: | Using a Markov-perfect equilibrium model, we show that the use of customer data to practice intertemporal price discrimination will improve monopoly profit if and only if information precision is higher than a certain threshold level. This U-shaped relationship lends support to a popular view that knowledge is good only if it is sufficiently refined. When information accuracy can only be achieved through costly investment, we find that investing in profiling is profitable only if this allows to reach a high enough level of information precision. Consumers expected surplus being a hump-shaped function of information accuracy, we show that consumers have an incentive to lobby for privacy protection legislation which raises the cost of monopoly’s investment in information accuracy. However, this cost should not dissuade firms to collect some information on customers’ tastes, as the absence of consumers’ profiling is actually detrimental to consumers. |
| Keywords: | consumers profiling, endogenous investment in profiling capability, dynamic monopoly, consumers‘ collective action on privacy protection legislation |
| JEL: | C73 D42 L12 L15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9346&r= |
| By: | Marcel Wieting (KU Leuven, Department of Management, Strategy and Innovation (MSI), Naamsestraat 69, 3000 Leuven, Belgium); Geza Sapi (Düsseldorf Institute for Competition Economics, Heinrich Heine University of Düsseldorf, Universitätsstraße 1, 40225 Düsseldorf, Deutschland) |
| Abstract: | We analyze algorithmic pricing on Bol.com, the largest online marketplace in the Netherlands and Belgium. Based on more than two months of pricing data for around 2,800 popular products, we find that algorithmic sellers can both increase and reduce the price of the Buy Box (the most prominently displayed offer for a product). Consistently with collusion, algorithms benefit from each other's presence: Prices are particularly high if two algorithms bid against each other and there is a medium number of sellers in the market. We identify several algorithmic pricing patterns that are often associated with collusion. Algorithmic sellers are more likely to win the Buy Box, implying that consumers may face inflated prices more often. We also document efficiencies due to algorithmic pricing. With a sufficient number of competitors, algorithmic sellers reduce the Buy Box price and compete particularly fiercely. Algorithms furthermore reduce prices in monopoly markets. We explain this by the inability of traditional product managers to manually adjust prices product-by-product for a large number of items, which automated agents may correct. Overall, our findings call for careful policy with respect to pricing algorithms, that considers both the risk of collusion and the need to preserve potential efficiencies. |
| Keywords: | Algorithmic pricing; Artificial intelligence; Collusion; Forensic economics |
| JEL: | D42 D82 L42 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:2106&r= |
| By: | Doh-Shin Jeon (Toulouse School of Economics, University of Toulouse Capitole, 1, Esplanade de l’Université, 31080 Toulouse, Cedex 06, France); Yassine Lefouili (Toulouse School of Economics, University of Toulouse Capitole, 1, Esplanade de l’Université, 31080 Toulouse, Cedex 06, France); Leonardo Madio (University of Padova, Department of Economics and Management, Via del Santo, 33, 35139 Padova, Italy) |
| Abstract: | We study an e-commerce platform's incentives to delist IP-infringing products and the effects of introducing a liability regime that induces the platform to increase its screening intensity. We identify conditions under which platform liability is socially desirable (respectively, undesirable) by analyzing its intended and unintended effects on the innovation incentives of brand owners. We show that making the platform liable for the presence of IP-infringing products can lead to a reduction (instead of an increase) in brand owners' innovation if the platform responds to more screening by raising its commission rate. We then consider various extensions that allow us to identify additional forces that strengthen (respectively, weaken) the social desirability of liability. We conclude by presenting some implications for policymakers. |
| Keywords: | Platforms, Platform Liability, Intellectual Property, Innovation, Delisting |
| JEL: | L13 L43 L96 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:2105&r= |
| By: | Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Ryoma Kitamura (Faculty of Economics, Otemon Gakuin University) |
| Abstract: | We consider the product line strategies of duopolistic firms, each of which can supply two vertically differentiated products under nonnegative output constraints and expectations of their rival's product line reaction. Considering a game of firms with heterogeneous (homogeneous) unit costs for high- (low-) quality products, we derive the equilibria of the game and explore the effects of the relative superiority of the high-quality product and relative cost efficiency on the equilibrium outcomes and illustrate the result using the production substitution of differentiated goods within a firm and the high-quality good between firms. |
| Keywords: | Multiproduct firm; Product line; Vertical product differentiation |
| JEL: | D21 D43 L13 L15 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:230&r= |