nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒01‒03
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Heterogeneous consumer preferences for product quality and uncertainty By Wolfgang Maennig; Steffen Q. Mueller
  2. Price-cost Margins and Fixed Costs By Filip Abraham; Yannick Bormans; Jozef Konings; Werner Roeger
  3. Wealth Inequality, Uninsurable Entrepreneurial Risk and Firms Markup By Samuel Brien
  4. How Does the Position in Business Group Hierarchies Affect Workers’ Wages? By Hartmut Egger; Elke Jahn; Stefan Kornitzky
  5. Comparing Market Efficiency Frontiers By Mu, Yali
  6. Collusion in the US Generic Drug Industry By Robert Clark; Christopher Anthony Fabiilli; Laura Lasio
  7. Why Do Some New Products Fail? Evidence from the Entry and Exit of Vanilla Coke By Robert Clark; Yiran Gong

  1. By: Wolfgang Maennig (Chair for Economic Policy, University of Hamburg); Steffen Q. Mueller (Chair for Economic Policy, University of Hamburg)
    Abstract: We provide evidence for heterogeneous consumer preferences for product quality and game outcome uncertainty (GOU) in Major League Baseball. Using attendance data from 2013 to 2019, we explore func-tional data clustering techniques to detect common patterns in predictive margins of team-specific win-ning probability. As a central result, we identify five groups of teams with similar GOU effects. However, only a few teams’ fans show GOU preferences that resemble the typical hump-shape that is postulated by the uncertainty of outcome hypothesis; the largest cluster is comprised of teams with fans whose at-tendance behavior is relatively insensitive to differences in GOU.
    Keywords: Consumer demand, Heterogeneous preferences, Product Quality, Uncertainty of outcome hypothesis, Clustering, Functional data analysis
    JEL: D12 L15 L2 L83 Z2
    Date: 2021–12–28
  2. By: Filip Abraham; Yannick Bormans; Jozef Konings; Werner Roeger
    Date: 2021–12–09
  3. By: Samuel Brien
    Abstract: This paper examines the effect of wealth concentration on firms’ market powerwhen firm entry is driven by entrepreneurs facing uninsurable idiosyncratic risks. Undergreater wealth concentration, households in the lower end of the wealth distribution aremore risk averse and less willing (or able) to bear the risk of entrepreneurial activities.This has implications for firm entry, competitiveness, and market power.I calibrate a Schumpeterian model of endogenous growth with heterogeneous riskaverse entrepreneurs competing to catch up with firms. This model is unique in thatboth household wealth distribution and a measure of firm markup are endogenouslydetermined on a balanced growth path. I find that a spread in the wealth distributiondecreases entrepreneurial firm creation, resulting in greater aggregate firm marketpower. This result is supported by time series evidence obtained from the estimationof a structural panel VAR with OECD data from eight countries.
    Keywords: Wealth inequality, market power, growth, Schumpeterian, endogenous growth, entrepreneur
    JEL: E22 E21 L12 O31 O33
    Date: 2021–11
  4. By: Hartmut Egger; Elke Jahn; Stefan Kornitzky
    Abstract: We merge firm-level data on ownership linkages with administrative data on German workers to analyze how the position in a business group hierarchy affects workers’ wages. To acknowledge that ownership linkages are not onedirectional, we propose an index of hierarchical distance to the ultimate owner that accounts for the complex network structure of business groups. After controlling for unobserved heterogeneity, we find a positive effect of larger hierarchical distance to the ultimate owner of a business group on workers’ wages. To explain this finding, we develop a monitoring-based theory of business groups. Our model predicts higher wages to prevent shirking by workers if a larger hierarchical distance to the ultimate owner is associated with lower monitoring efficiency.
    Keywords: Business groups, ownership networks, workers wages, differencein-difference, hierarchical distance
    JEL: C23 J31 L23
    Date: 2021–12
  5. By: Mu, Yali
    Keywords: Marketing
    Date: 2021–08
  6. By: Robert Clark (Queen's University); Christopher Anthony Fabiilli (Competition Bureau Canada); Laura Lasio (McGill University)
    Abstract: We study cartels that operated in the US generic drug industry, leveraging quarterly Medicaid data from 2011-2018 and a difference-in-differences approach comparing the evolution of prices of allegedly collusive drugs with a group of competitive control drugs. Our analysis highlights (i) the difficulty of establishing a suitable control group when collusion is pervasive, (ii) the importance of accounting for market structure changes when defining the control period, and (ii) the existence of across- and within-drug heterogeneity. We focus on six drug markets that that were part of the expanded initial complaint and where there was no entry in the same class during the collusive period, permitting a clean measure of the causal impact of collusion on prices. Our most conservative estimates suggest that collusion led to price increases of between 0% and 166% for each of the six drugs, and damages of between $0 and $3 million for the Medicaid market.
    Keywords: antitrust, generic drugs, price fixing
    JEL: L41 L12 L13 D22 D43 K21 I18 L65
    Date: 2021–11
  7. By: Robert Clark (Queen's University); Yiran Gong
    Abstract: The analysis of new product introduction using discrete-choice demand models has focused on successful products (e.g. the minivan) and their welfare impacts. Instead, we apply this approach to unsuccessful products to provide insight into the reasons for their failure. Our case study is the introduction and subsequent exit of Coca Cola's Vanilla Coke. Using IRI scanner data we estimate demand and supply and simulate counterfactual scenarios in which Vanilla Coke was not introduced. We then estimate Coca Cola's profit gains from the new brand and find they would not cover fixed costs. We analyze the importance of (i) overall demand for soft drinks, (ii) private label presence, (iii) rival promotion, and (iv) consumer preferences for explaining Vanilla Coke's failure, by investigating what the levels of each would have had to be for Vanilla Coke to at least cover its fixed costs. We then investigate the extent to which Coca Cola may have misjudged the levels for these variables by looking at their pre-introduction values. We find Coca Cola did anticipate part of rival reactions that made survival harder, but the actual changes were even beyond its anticipation and contributed to Vanilla Coke's exit.
    Keywords: New product introduction, Product Failure, Brand Value, Cannibalization, Soft drink industry
    JEL: L11 L13 L66 M31 M11
    Date: 2021–08

This nep-ind issue is ©2022 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.