nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒02‒14
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cournot, Bertrand or Chamberlin: Market Structures and the Home Market Effect By Kenji Fujiwara
  2. The Unilateral Accident Model under a Constrained Cournot-Nash Duopoly By Gérard Mondello; Evens Salies
  4. Product market competition, creative destruction and innovation By Rachel Griffith; John Van Reenen
  5. Markups and financial shocks By Meinen, Philipp; Soares, Ana Cristina
  6. Profit Margins in U.S. Domestic Airline Routes By Hakan Yilmazkuday
  7. Voice assistants as gatekeepers for consumption? How information intermediaries shape competition By Noskova, Victoriia
  8. Competitors’ Reactions to Big Tech Acquisitions: Evidence from Mobile Apps By Pauline Affeldt; Reinhold Kesler
  9. Measuring the online platform economy in Germany By Hildenbrand, Hannah-Maria; von Rueden, Christina; Viete, Steffen
  10. Endogenous multihoming and network effects: Playstation, Xbox, or both? By Foros, Øystein; Kind, Hans Jarle; Stähler, Frank

  1. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: Comparison among Cournot, Bertrand and (Chamberlin) monopolistic competition receives recent attention in industrial organization, but not in New Economic Geography (NEG). To fulfill this gap, we examine how the difference in market structures affects industry location in a footloose capital (FC) model of NEG. We find that the home market effect is strongest in Cournot competition, second strongest in Bertrand competition, and weakest in monopolistic competition.
    Keywords: Cournot competition, Bertrand competition, monopolistic competition, Home market effect
    JEL: D43 F12 F21 L13
    Date: 2022–01
  2. By: Gérard Mondello (UCA - Université Côte d'Azur); Evens Salies
    Abstract: This paper extends the basic unilateral accident model to allow for Cournot competition. Two firms compete with production input and prevention as strategic variables under asymmetric capacity constraints. We find that liability regimes exert a crucial influence on the equilibrium price and outputs. Strict liability leads to higher output and higher risk compared to negligence. We also study the conditions under which both regimes converge.
    Keywords: Tort Law,Strict Liability,Negligence Rule,Imperfect Competition,Oligopoly,Cournot Competition JEL Classification: D43,L13,L52,K13
    Date: 2021–12–26
  3. By: Gérard Mondello (UCA - Université Côte d'Azur)
    Abstract: This paper analyzes the impact of strict liability on imperfect competition and shows first that it is not an obstacle to achieving a socially optimal level of care. Second, this result is compromised when firms face a scarce generic asset. Under this asset limitation, this paper shows that competition (here a Cournot-Nash duopoly) leads to a lower level of prevention even if more product at lower price is supplied at the equilibrium. Introducing standards linked to operating permits improves the economy's safety level but may lead firms to exit.
    Keywords: Tort Law,Strict Liability,Negligence Rule,Imperfect Competition,Oligopoly,Cournot Competitio
    Date: 2021–12–26
  4. By: Rachel Griffith (Institute for Fiscal Studies and University of Manchester); John Van Reenen (Institute for Fiscal Studies)
    Abstract: We examine the economic analysis of the relationship between innovation and product market competition. First, we give a brief tour of the intellectual history of the area. Second, we examine how the Aghion-Howitt framework has influenced the development of the literature theoretically and (especially) empirically, with an emphasis on the “inverted U”: the idea that innovation rises and then eventually falls as the intensity of competition increases. Thirdly, we look at recent applications and development of the framework in the areas of competition policy, international trade and structural Industrial Organization.
    Date: 2021–12–03
  5. By: Meinen, Philipp; Soares, Ana Cristina
    Abstract: This paper analyses the impact of financial frictions on markup adjustments at the firm level. We use a rich panel data set that matches information on banking relationships with firm-level data. By relying on insights from recent contributions in the literature, we obtain exogenous credit supply shifters and markups that are both firm specific and time varying. We uncover new findings at this level. In particular, firms more exposed to liquidity risks tend to raise markups in response to negative bank-loan supply shocks, while less exposed firms generally reduce them. Further empirical analyses suggest that our findings are mostly consistent with models featuring a sticky customer base, where financially constrained firms have an incentive to raise markups in order to sustain liquidity. Our results have important economic implications regarding the cyclicality of the aggregate markup.
    Keywords: Financial Shocks,Markups,Firm-level data
    JEL: L22 L11 D22 G10 G01
    Date: 2021
  6. By: Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: This paper estimates profit margins in the U.S. airline industry at the domestic route level. The dynamic estimation methodology used not only is robust to any simultaneity/endogeneity bias by construction but also results in profit margin estimates that are highly consistent with actual profit data from the U.S. airline industry. Estimated annual profit margins have an average of about 13.3%, with a range between 2.7% and 42.9% across routes. A cross-route analysis further suggests that annual profit margins increase with the market share of the largest airline serving the route, whereas they decrease with airfare. Important policy suggestions follow.
    Keywords: Profit Margin, Price Elasticity, U.S. Domestic Routes
    JEL: C32 L93
    Date: 2021–11
  7. By: Noskova, Victoriia
    Abstract: In December 2020, new regulation of digital markets was proposed by European Commission. It specifically addresses main concerns raised by business behavior of operators of core services in their gatekeeping positions. However, voice assistants (or digital personal assistants, DPAs, e.g. Apple's Siri, Amazon's Alexa, Google Assistant) are not included into this regulation. In contrast, the Internal Market and Consumer Protection Committee of European Parliament suggested to include them. This paper argues that (i) voice assistants as gatekeepers for consumption should be listed among core services, (ii) some Digital Market Act's obligations need to be adopted to fit specifics of voice assistants, (iii) two relevant dimensions of power should be included into rebuttable presumptions used for competition policy and regulation: market power on voice assistants' market and ecosystem of related markets (cross-market integration criterion), (iv) growth of new gatekeepers should be prevented, among other means by stricter merger control.
    Keywords: Voice Assistants,Gatekeepers,Digital Market Act,Digital Personal Assistants,Virtual Assistants,Competition in Digital Markets,Competitive Bottleneck,Information Intermediaries,Platform Competition,Smart Speakers,Siri,Alexa,Google Assistant
    JEL: K21 L1 L4 L86 O33 D4
    Date: 2021
  8. By: Pauline Affeldt; Reinhold Kesler
    Abstract: Since 2010, Google, Apple, Facebook, Amazon, and Microsoft (GAFAM) have acquired more than 400 companies. Competition authorities did not scrutinize most of these transactions and blocked none. This raised concerns that GAFAM acquisitions target potential competitors yet fly under the radar of current merger control due to the features of the digital economy. We empirically study the competitive effects of big tech acquisitions on competitors in a relevant online market. We identify acquisitions by GAFAM involving apps from 2015 to 2019, matching these to a comprehensive database covering apps available in the Google Play Store. We find that competing apps tend to innovate less following an acquisition by GAFAM, while there seems to be no impact on prices and privacy-sensitive permissions of competing apps. Additionally, we find evidence that affected developers reallocate innovation efforts to unaffected apps and that affected markets experience less entry post-acquisition.
    Keywords: Mergers and acquisitions, digital markets, GAFAM, apps, innovation, privacy, event study
    JEL: K21 L41 L86 G34
    Date: 2021
  9. By: Hildenbrand, Hannah-Maria; von Rueden, Christina; Viete, Steffen
    Abstract: Online platforms have become one of the most important business models of the digital economy and likely counteracted some of the drop in economic activity during the COVID-19 pandemic. At the same time, platform markets are subject to controversial debates about market power and the need for pro-competitive policy reforms. Despite their rising importance in modern economies, however, a lack of data on platforms' activity complicates the evaluation of their impact on economies and societies. In this paper we aim to improve the understanding of patterns of platform diffusion and market dynamics among online platforms in Germany using proprietary data on website traffic between 2018 and 2021. Our analysis suggests that German platform markets experienced considerable growthover the past years, and especially since the onset of the COVID-19 pandemic. Results also show that the pandemic led to diverging growth patterns between sectors of the German platform economy, reflecting the sectoral heterogeneity of the COVID-19 shock. Finally, while German platforms are numerous, they often fail to reach a critical size to challenge the mostly foreign dominant platforms. We associate this finding with the observation that dominance in platform market typically persists over time, possibly reflecting a lack of market contestability.
    Date: 2021
  10. By: Foros, Øystein (Dept. of Economics, Norwegian School of Economics and Business Administration); Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Stähler, Frank (University of Tübingen)
    Abstract: Competition between firms that sell incompatible varieties of network products might be fierce, because it is important for each of them to attract a large number of users. The literature therefore predicts that stronger network effects decrease prices and profits. We show that this prediction hinges critically on an implicit or explicit assumption that each consumer buys only one of the varieties offered in the market (singlehoming consumers). We show that multihoming (some consumers buy more than one variety) may arise endogenously if the number of exclusive features that each variety offers is sufficiently high. In sharp contrast to the conventional prediction under consumer singlehoming, we further show that both prices and profits could increase in the strength of the network effects if (some) consumers multihome. However, this does not necessarily imply that profits are higher under multihoming than under singlehoming. On the contrary, multihoming might constitute a prisoner s dilemma for the firms, in the sense that they could make higher profits if each consumer bought only one of the varieties.
    Keywords: multihoming; incremental pricing; network effects.
    JEL: L13 L14 L82
    Date: 2022–02–06

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