nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒12‒06
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Does Firm Exit Increase Prices? By Suveg, Melinda
  2. Buyer’s Optimism, Information Design, and Price Discrimination By Pham, Hien
  3. The impact on market outcomes of the portfolio selection of large equity investors By Moreno Ruiz, Diego; Petrakis, Emmanuel
  4. Airline Cooperation Effects on Airfare Distribution: An Auction-model-based Approach By Ivaldi, Marc; Petrova, Milena J; Urdanoz, Miguel

  1. By: Suveg, Melinda (Research Institute of Industrial Economics (IFN))
    Abstract: This paper examines how changes in product market concentration, specifically firm exit, affect prices. I develop a model where firms have variable markups to show that the remaining firms increase their markups and prices after their competitors’ exit. The model predictions are tested using micro-data on Swedish firms. I use the exposure of firms to a bank, which was severely affected by the financial crisis abroad, as an instrument to identify the causal relationship between firm exit and prices. I find that the remaining firms increase their prices by 0.3 percent when firms with a combined market share of one percent exit.
    Keywords: Price setting; Market structure; Financial shocks; Firm exit
    JEL: D43 E31 E32 L13 L16 L60
    Date: 2021–11–08
  2. By: Pham, Hien
    Abstract: A seller (she) faces a single buyer (he) who holds a biased and private prior belief regarding whether the product fits his need (which brings him a higher payoff than otherwise). The seller can provide additional information about the product that helps the buyer privately refine his belief. We fully characterize the revenue-maximizing menu of prices and disclosure policies that follows a simple cutoff structure. While the diversity in the priors alone is not sufficient to trigger price discrimi-nation, the presence of information design induces the optimal mech-anism featuring both information and price discrimination. Further-more, the seller does not strictly benefit from charging upfront pay-ments for information.
    Date: 2021–11
  3. By: Moreno Ruiz, Diego; Petrakis, Emmanuel
    Abstract: We study a setting in which several large investors select their portfolios of equity of the firms competing in a symmetric duopoly considering the impact of their interests on the managerial incentives. Assuming that investors objective is to maximize the value of their portfolios, we show that equilibrium portfolios will be symmetric, contributing to enhance the anticompetitive impact of the presence of large investors on price mark ups and profits.
    Keywords: Market Power; Common Ownership; Minority Equity; Portfolio Selection
    JEL: L13 L2 L4 L5
    Date: 2021–11–22
  4. By: Ivaldi, Marc; Petrova, Milena J; Urdanoz, Miguel
    Abstract: Airline alliances have a long history yet there is no academic consensus on how they affect price levels and their impact on price dispersion has not yet been studied. We address this question using a novel methodology motivated by the service homogenization and increased price competiton in this industry in the recent years. Establishing an equivalence between the online sales process and a reverse English auction, we use methods from auction econometrics to work in a new way with the standard industry data set: using individual ticket sales where only aggregated prices have been used in the past. Applicable to other industries where sellers compete in prices, this approach allows us to reconsider the effect of airline alliances on the distribution of airfares in the US domestic market. We find lower price mean and dispersion in markets where airlines belong to an alliance as a result of the lower variability of costs. The methodology we apply here can be used to study any distribution of individualized prices, which are now prevalent since the advent of the digital economy.
    Keywords: Airline,;cooperation; auction, price dispersion, price distribution.
    JEL: D22 D44 L11 L93
    Date: 2021–11

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