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on Industrial Organization |
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Issue of 2022‒01‒24
seven papers chosen by |
| By: | Buehler, Stefan; Eschenbaum, Nicolas |
| Abstract: | This paper studies dynamic monopoly pricing for a class of settings that includes multiple durable, multiple rental, or a mix of varieties. We show that the driving force behind pricing dynamics is the seller’s incentive to switch consumers—buyers and non-buyers—to higher-valued consumption options by lowering prices (“trading up”). If consumers cannot be traded up from the static optimal allocation, pricing dynamics do not emerge in equilibrium. If consumers can be traded up, pricing dynamics arise until all trading-up opportunities are exhausted. We study the conditions under which pricing dynamics end in finite time and characterize the final prices at which dynamics end. |
| Keywords: | price discrimination, inter-temporal pricing, Coasian dynamics |
| JEL: | D42 L12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2021:13&r= |
| By: | Martin Peitz; Lily Samkharadze |
| Abstract: | Platform competition can be intense when offering non-differentiated services. However, competition is somewhat relaxed if platforms cannot set negative prices. If platforms collude they may be able to implement the outcome that maximizes industry profits. In an infinitely repeated game with perfect monitoring, this is feasible if the discount factor is sufficiently large. When this is not possible, under some condition, a collusive outcome with one-sided rent extraction along the equilibrium path can be sustained that leads to higher profits than the non-cooperative outcome. |
| Keywords: | Two-sided markets, tacit collusion, cartelization, price structure, platform competition |
| JEL: | L41 L13 D43 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_331&r= |
| By: | Crémer, Jacques; Biglaiser, Gary; Veiga, André |
| Abstract: | We study incumbency advantage in markets with positive consumption externalities. Users of an incumbent platform receive sto- chastic opportunities to migrate to an entrant and can either accept them or wait for a future opportunity. In some circumstances, users have incentives to delay migration until others have migrated. If they all do so, no migration takes place, even when migration would have been Pareto-superior. We use our framework to identify environments where incumbency advantage is larger. A key result is that having more migration opportunities actually increases incumbency advantage. |
| Keywords: | Platform; Migration; Standardization and Compatibility; Industry Dynamics |
| JEL: | D85 L14 R23 L15 L16 |
| Date: | 2022–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126336&r= |
| By: | James J. Feigenbaum; Daniel P. Gross |
| Abstract: | AT&T was the largest U.S. firm for most of the 20th century. Telephone operators once comprised over 50% of its workforce, but in the late 1910s it initiated a decades-long process of automating telephone operation with mechanical call switching—a technology first invented in the 1880s. We study what drove AT&T to do so, and why it took one firm nearly a century to automate this one basic function. Interdependencies between operators and nearly every other part of the business were obstacles: the manual switchboard was the fulcrum of a complex system which had developed around it, and automation only began after the firm and automatic technology were adapted to work together. Even then, automatic switching was only profitable for AT&T in larger markets—hence diffusion expanded as costs declined and service areas grew. We show that automation supported AT&T's continued growth, generating a positive feedback loop between scale and automation that reinforced AT&T's high market share in local markets. |
| JEL: | J23 L11 L23 M11 M15 M54 N32 O33 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29580&r= |
| By: | Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics); Olmstead, Derek E.H. (University of Calgary) |
| Abstract: | A challenge in setting regulated rates for default retail electricity products is the presence of both price and quantity risk faced by retailers. To address this challenge, regulators have been increasingly employing competition via full-load (load following) auctions to value these risks. In a full-load auction, firms bid to supply a fixed percentage of the regulated utility's hourly demand at a fixed price. In this paper, we develop a model of break-even pricing of electricity forward products under risk aversion, based on a mean-variance utility function. We use this model to evaluate the performance of full-load auctions in Alberta, where the largest regulated retail provider adopted such auctions in December 2018. We find that winning full-load bids exceed break-even levels, even allowing for risk-aversion, but that the difference falls over time. This reduction coincides with an increase in the number of bidders active in the full-load auctions. Our paper highlights the importance of sufficient participation for the success of full-load auctions and the potential role for competitive markets in determining the value of risk faced by retailers. |
| Keywords: | Electricity; Forward Contracts; Regulation; Procurement Auctions |
| JEL: | L51 L94 Q48 |
| Date: | 2021–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2021_014&r= |
| By: | Alon Bergman; Matthew Grennan; Ashley Swanson |
| Abstract: | We draw upon newly merged administrative data sets to study the relationship between payments from medical technology firms to physicians and medical device procurement by hospitals. These payments (and the interactions that accompany them) may facilitate the transfer of valuable information to and from physicians. However, they may also influence physicians’ treatment decisions, and in turn hospital device procurement, in favor of paying firms. Payments are pervasive: 87 percent of device sales in our sample occurred at a hospital where a relevant physician received a payment from a device firm. Payments are also highly correlated with spending within a firm-hospital pair: event studies suggest that a large positive increase in payments to a given hospital from a given firm ($438 per physician on average, or 112 percent of the mean) is associated with 27 percent higher expenditures on the paying firm’s devices post-event. Finally, we explore how payments mediate the relationship between expertise and device procurement patterns. Hospitals affiliated with the top Academic Medical Centers (AMCs), which plausibly represent an expert benchmark, purchase a different mix of devices than other hospitals, and payments to hospitals outside the top AMCs are correlated with larger deviations from the procurement patterns of top AMC hospitals. |
| JEL: | D23 D73 I11 L15 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29583&r= |
| By: | Garrett, Daniel F.; Gomes, Renato; Maestri, Lucas |
| Abstract: | We study competition by firms that simultaneously post (potentially nonlinear) tariffs to consumers who are privately informed about their tastes. Market power stems from informational frictions, in that consumers are heterogeneously informed about firms’ offers. In the absence of regulation, all firms offer quantity discounts. As a result, relative to Bertrand pricing, imperfect competition benefits disproportionately more consumers whose willingness to pay is high, rather than low. Regulation imposing linear pricing hurts the former but benefits the latter consumers. While consumer surplus increases, firms’ profits decrease, enough to drive down utilitarian welfare. By contrast, improvements in market transparency increase utilitarian welfare, and achieve similar gains on consumer surplus as imposing linear pricing, although with limited distributive impact. On normative grounds, our analysis suggests that banning price discrimination is warranted only if its distributive benefits have a weight on the societal objective. |
| Keywords: | oligopoly,; nonlinear pricing,; linear pricing; informational frictions; asymmetric information |
| JEL: | D82 |
| Date: | 2022–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126354&r= |