nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒01‒17
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Seafood Supply and Demand Disruptions: The Covid-19 Pandemic and Shrimp By Schmitz, Andrew; Nguyen, Ly
  2. Taxes and Market Power: A Network Approach By Andrea Galeotti; Benjamin Golub; Sanjeev Goyal; Eduard Talam\`as; Omer Tamuz
  3. Entry, Variable Markups, and Business Cycles By William L. Gamber
  4. The Effects of Local Demand and Supply Restrictions on Markup By Antonio Acconcia; Elisa Scarinzi
  5. A Sequential Search Model with Partial Depth Evaluation By Yuxin Chen; Lin Liu; X. Henry Wang; Haojun Yu
  6. The Limits of Marketplace Fee Discrimination By Mark J. Tremblay
  7. E-commerce Live streaming – An Emerging Industry in China and A Potential Future Trend in the World By Lu, Yang; Siegfried, Patrick
  8. Effects of Policy Reforms on Firm Innovation By Murat Seker; Mehmet Fatih Ulu

  1. By: Schmitz, Andrew; Nguyen, Ly
    Abstract: We develop a theoretical trade model based on classical welfare economics and apply it empirically to both importers and exporters of shrimp, the most traded seafood, to determine the effects of the Covid-19 pandemic on the excess supply and excess demand of shrimp industry. We consider two time periods and compare these to the base period before the pandemic. Period 1 (March–June 2020): there is a net economic loss globally of $194 million due to lockdowns. Period 2 (July 2020–June 2021): there is a net welfare gain globally of $885 million due to increased shrimp demand. Overall, the global net economic gain was $692 million. For the United States alone, shrimp consumers gained $470 million while shrimp producers gained $24 million, which is relatively consistent with the net quasi-consumer gain of $475 million due to the Covid-19 pandemic.
    Keywords: Demand and Price Analysis, International Relations/Trade
    Date: 2022–01
  2. By: Andrea Galeotti; Benjamin Golub; Sanjeev Goyal; Eduard Talam\`as; Omer Tamuz
    Abstract: Suppliers of differentiated goods make simultaneous pricing decisions, which are strategically linked due to consumer preferences and the structure of production. Because of market power, the equilibrium is inefficient. We study how a policymaker should target a budget-balanced tax-and-subsidy policy to increase welfare. A key tool is a certain basis for the goods space, determined by the network of interactions among suppliers. It consists of eigenbundles -- orthogonal in the sense that a tax on any eigenbundle passes through only to its own price -- with pass-through coefficients determined by associated eigenvalues. Our basis permits a simple characterization of optimal interventions. For example, a planner maximizing consumer welfare should tax eigenbundles with low pass-through and subsidize ones with high pass-through. We interpret these results in terms of the network structure of the market.
    Date: 2021–12
  3. By: William L. Gamber
    Abstract: The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their market share and that adjustment costs slow the reallocation of employment between firms. In response to a decline in entry, incumbent firms' market shares increase, their elasticity of demand falls, and they increase their markups and reduce employment. To quantify the model, I study the relationship between variable input use and revenue in panel data on large firms. Viewed through the lens of my model, my estimates imply that for large firms, the within-firm elasticity of the markup to relative sales is 25 percent. I use the calibrated model to study shocks to entry, finding that a fall in entry can lead to a significant contraction in employment. A shock to entry that replicates the decline in the number of businesses during the Great Recession generates a prolonged 2.5 percent fall in employment in the model. Finally, I show that the declining correlation between revenue and variable input use over the past 30 years implies that the effect of entry on the business cycle has become stronger over time.
    Keywords: Macroeconomics; Heterogeneous firms; Business dynamics; Variable markups
    JEL: E24 E32 J23 L20
    Date: 2021–12–02
  4. By: Antonio Acconcia (Università di Napoli Federico II and CSEF); Elisa Scarinzi (Bank of Italy)
    Abstract: We use firm-level data to investigate the causal response of markup to a contraction in local demand and supply. We find that the effects of the two types of drops are symmetric overall, quantitatively heterogeneous among sectors, and amplified by spillovers. For differentiated manufacturing products, transport and business services, markups change quite a lot: they amplify after a decrease in supply while they shrink in response to a decrease in demand. For horizontally differentiated local services, essentially retail, wholesale, accommodation and food, markups change much less mainly because of the adjustment in the labor cost. We also find that in response to the reallocation of demand resulting from a supply contraction, firms with the lowest markups already increase more the markups while highest markup firms mainly gain in terms of market shares. Our findings have implications for business cycle modeling, suggest more market concentration after a deep recession like the one related to the Covid-19 pandemic and caution against the use of aggregate model to understand its impact.
    Keywords: Demand/Supply Contraction, Markup, Local Competition, Labor Cost, Reallocation Shock.
    JEL: E30 D22 D40
    Date: 2022–01–07
  5. By: Yuxin Chen (Stern School of Business, New York University-Shanghai); Lin Liu (School of Economics and Management, Beihang University); X. Henry Wang (Department of Economics, University of Missouri); Haojun Yu (College of Business, Shanghai University of Economics and Finance)
    Abstract: Improvement in infrastructure and advances in information technology have strived to make both online and offline store visits better experiences and less costly for consumers. In addition, on-site product information search has been unprecedentedly facilitated by provisions of tools such as mobile store apps, search engines, screening/sorting aids, and better in-store display etc. With the decrease in the cost to visit stores, may firms have an incentive to facilitate consumers’ information collection and evaluation on product attributes? This paper attempts to shed light on this important question with a model that considers both travel cost (transportation cost between firm visits) and search cost (product evaluation cost) and explores how they affect consumer search behavior and firms’ pricing decisions. Specifically, consumers make a trade-off between how many attributes to evaluate (search depth) and whether continuing the search to the next firm (search breadth). We extend the classical framework for sequential search developed by Wolinsky (1986) and Anderson and Renault (1999) by letting consumers choose search depth at each step. The analysis reveals a novel interaction effect: lower (higher) search cost benefits firms if travel cost is lower (higher). Thus, facilitating consumers’ product evaluation may benefit firms in the context of reduced travel cost. Critically, we show that this interaction effect occurs only when search depth is endogenous with partial-depth search as the result. In addition, we show that travel and search costs may play opposite roles on depth and prices—they increasing (decreasing) in travel (search) cost. Relevant managerial implications are discussed.
    Keywords: Travel Cost, Search Cost, Partial Depth Search, Pricing, Competition
    JEL: D43 L13 L41
    Date: 2022
  6. By: Mark J. Tremblay
    Abstract: Platforms often use fee discrimination within their marketplace (e.g., Amazon, eBay, and Uber specify a variety of merchant fees). To better understand the impact of marketplace fee discrimination, we develop a model that allows us to determine equilibrium fee and category decisions that depend on the extent of fee discrimination available to the platform and we highlight how our fee discrimination strategies can be derived in practice using data from In addition, we find that greater fee discrimination allows the platform to serve more markets in its marketplace but also increases fees in high surplus markets. However, if the platform enters into retail, then the platform reduces its fees and generates greater retail competition. These effects mitigate distortions from fee discrimination and improve welfare. In terms of policy, we show that (1) banning fee discrimination and platform entry is detrimental to welfare, (2) a vertical merger within a retail market mitigates fee distortions but is often worse than an equilibrium with platform entry into retail, and (3) taxing the platform in retail (not merchants) levels the retail playing field and can generate a Pareto improvement upon a policy that bans platform retail entry.
    Keywords: platforms, platform retail entry, price discrimination, vertical integration, intermediary
    JEL: L11 L12 L40 H21 L50
    Date: 2021
  7. By: Lu, Yang; Siegfried, Patrick
    Abstract: With the widespread use of the Internet, many industries have developed rapidly. The economy based on the Internet poses a significant threat to the traditional economy. Live streaming plus e-commerce, which is acknowledged as the current global economic status, is the result of combing live streaming and various industries through the Internet. E-commerce live streaming is one of the most essential types of online live streaming. In this article, it is defined as the live streaming of the e-commerce platform used by Key Opinion Leaders or product sellers through the built-in live streaming function of the platform to propagate goods, brands, events, etc. to achieve goals of brand exposure and product sales. Compared with the traditional economic model, the combined model of e-commerce and live streaming has its advantages and characteristics. This kind of marketing tool is now prevalent. However, there are many deficiencies in e-commerce live streaming that need to be improved since the development of e-commerce is immature and supervision of Internet use is ongoing.
    Keywords: Consumer behavior; Digital and social media; E-commerce live streaming; New media marketing
    JEL: F1 L8 L81
    Date: 2021–12–31
  8. By: Murat Seker (Turkish Airlines Headquarter, Istanbul); Mehmet Fatih Ulu (Koc University, Istanbul)
    Abstract: The regulatory environment in a country is an important factor that affects firm performance. This study investigates the impact of a particular regulation – license requirements for certain firm activities – on the innovation performance of Indian firms in the 1990s. Using a unique firm-level panel data set, it shows that the removal of license requirements led to an eight percentage points higher innovation rate within two years following the reform. We measure innovation as the introduction of new product varieties that had not been produced by the firm before. It takes a longer time for firms to innovate in industries in which they were not producing before. The conclusions in this study are also robust to the inclusion of controls for other policy reforms that occurred during the period of licensing reform. They also persist in tests with different subgroups of firms and with the use of alternative estimation methods.
    Keywords: Innovation, research and development, regulatory environment, regulations, industrial policy, India.
    JEL: L11 L52 O14 O31 O3
    Date: 2022–01

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