nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒02‒28
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. E-commerce During Covid: Stylized Facts from 47 Economies By Joel Alcedo; Alberto Cavallo; Bricklin Dwyer; Prachi Mishra; Antonio Spilimbergo
  2. How does COVID-19 affect intertemporal price dispersion? Evidence from the airline industry By Luttmann, Alexander; Gaggero, Alberto A
  3. Technology licensing and Collusion By Sen, Neelanjan; Minocha, Priyansh; Dutta, Arghya
  4. The dual of Bertrand with homogeneous products is Cournot with perfect complements By Paolo Bertoletti
  5. Optimal patent licensing: from three to two part tariffs By Ma, Siyu; Sen, Debapriya; Tauman, Yair
  6. Disclosure regime of contract terms and bargaining in vertical markets By Petrakis, Emmanuel; Skartados, Panagiotis
  7. Advance sales and deterrence with heterogeneous firms By Henry Thille; Sebastien Mitraille
  8. Consumer Reviews and Regulation: Evidence from NYC Restaurants By Chiara Farronato; Georgios Zervas

  1. By: Joel Alcedo; Alberto Cavallo; Bricklin Dwyer; Prachi Mishra; Antonio Spilimbergo
    Abstract: We study e-commerce across 47 economies and 26 industries during the COVID-19 pandemic using aggregated and anonymized transaction-level data from Mastercard, scaled to represent total consumer spending. The share of online transactions in total consumption increased more in economies with higher pre-pandemic e-commerce shares, exacerbating the digital divide across economies. Overall, the latest data suggest that these spikes in online spending shares are dissipating at the aggregate level, though there is variation across industries. In particular, the share of online spending in professional services and recreation has fallen below its pre-pandemic trend, but we observe a longer-lasting shift to digital in retail and restaurants.
    JEL: E2 F00 L81 O3
    Date: 2022–02
  2. By: Luttmann, Alexander; Gaggero, Alberto A
    Abstract: This study provides empirical evidence documenting how COVID-19 affects intertemporal price dispersion in the airline industry. Exploiting a unique panel of 43 million fares collected before and during the pandemic, we find that airlines discounted fares by an average of 57%. The rate of intertemporal price increases also declined, particularly in the last week to departure. We also find that flight-level price dispersion increased during the pandemic. Fare decreases (and the associated increase in price dispersion) are found to be driven primarily by the diffusion of COVID-19 at the destination as opposed to the origin market.
    Keywords: airlines, COVID-19, intertemporal pricing, price dispersion
    JEL: D40 I19 L11 L93
    Date: 2022–02–02
  3. By: Sen, Neelanjan; Minocha, Priyansh; Dutta, Arghya
    Abstract: This paper considers the possibility of technology licensing and tacit collusion between firms that produce homogeneous goods under asymmetric cost structures and compete in quantities. We discuss the possibility of collusion under Grim-Trigger strategies when technology may be licensed via fixed fee or royalty or two-part tariff. Irrespective of the type of licensing contract, the possibility that a stable cartel is formed is the same. In the no-licensing stage, the cartel formation is more likely if the cost difference between the firms is higher. In contrast to Lin (1996), all forms of licensing facilitate (obstruct) collusion, if the initial cost difference between the firms is less (more). Technology will always be licensed in the first stage and the optimal form of licensing is either fixed-fee or royalty or two-part tariff. The cartel will be formed if the firms are relatively patient and welfare either increases or decreases in the post-licensing stage.
    Keywords: Technology licensing; Oligopoly; Cartel; Grim-Trigger Strategy; Cournot Competition
    JEL: D24 L13 L24
    Date: 2022–02–23
  4. By: Paolo Bertoletti
    Abstract: The quantity-setting (Cournot) oligopoly with perfect complements is dual to the price-setting (Bertrand) oligopoly with homogeneous goods. Under mild technical conditions, the former setting has a unique (pure strategy) Nash equilibrium with null quantities.
    Keywords: Cournot duopoly; Bertrand duopoly; perfect complements; homogeneous products.
    JEL: D11 D43 D61
    Date: 2022–02
  5. By: Ma, Siyu; Sen, Debapriya; Tauman, Yair
    Abstract: We consider the licensing of a cost-reducing innovation in a Cournot oligopoly where an outside innovator uses three part tariffs that are combinations of upfront fees, per unit royalties and ad valorem royalties. The key insight of our analysis is per unit royalties have a location effect and ad valorem royalties have a scale effect on marginal costs. Using these two effects, we show that the same market outcome (price, quantities, operating profits) can be sustained by multiple combinations of per unit and ad valorem royalties. In the monopoly case, under three part tariffs it is optimal to set a pure upfront fee while the unique optimal two part royalty is a pure ad valorem royalty. In the case of a general oligopoly with linear demand, for relatively insignificant innovations, it is optimal to set a pure upfront fee; otherwise there is a continuum of optimal policies and there always exists an optimal policy consisting of a positive per unit royalty and upfront fee but no ad valorem royalty. For intermediate innovations, provided the demand intercept is relatively large, there exists an optimal policy that has both kinds of royalties but no fees. Finally in a Cournot duopoly it is illustrated that when the innovator is one of the incumbent firms rather than an outsider, market outcomes separately depend on two kinds of royalties and a pure ad valorem royalty is optimal among all three part tariffs.
    Keywords: patent licensing; per unit royalties; ad valorem royalties; three part tariffs; acceptability and feasibility constraints
    JEL: D43 D45 L13 L14
    Date: 2022–01–21
  6. By: Petrakis, Emmanuel; Skartados, Panagiotis
    Abstract: We consider a vertically related market where an upstream monopolist supplies two downstream Cournot competitors. We allow the vertical contract terms to be either interim observable or secret. We address a dichotomy in the literature by endogenizing the disclosure regime of contract terms. The latter could be set via a Non-Disclosure Agreement. Firms bargain over both the disclosure regime and the contract terms. Our results indicate that when firms trade over two-part tariffs, universal interim observability is the unique equilibrium no matter the bargaining power distribution or the product differentiation. Yet, when firms trade over linear tariffs there may be a multiplicity of equilibria. We also show that under competing vertical chains we get universal interim observability as a unique equilibrium no matter the upstream structure. Our results qualitatively hold under Bertrand competition too. Our welfare analysis indicates that universal interim observability and two-part tariffs yield the highest consumer surplus and total welfare.
    Keywords: Bilateral Contracting; Vertical Relations; Two-Part Tariffs; Bargaining; Nondisclosure Agreements; Secret Contracts
    JEL: D43 L13 L14
    Date: 2022–02–16
  7. By: Henry Thille (Department of Economics and Finance, University of Guelph, Guelph ON Canada); Sebastien Mitraille (Toulouse Business School)
    Abstract: We examine the e?ects of ?rm heterogeneity when ?rms can compete in advance for future demand by either entering forward contracts or by selling to agents that store the good to meet future demand. Firms’ sales in the second period are reduced by aggregate advance sales, so high-cost ?rms may produce zero output in equilibrium if aggregate advance sales induce a price below their marginal cost. The endogenous number of active ?rms leads to the possibility of a deterrence equilibrium in which lower-cost ?rms act to deter the activity of higher-cost ?rms. In this case, the presence of inactive higher-cost ?rms in the market results in a lower price than would otherwise obtain. In addition, the advance sales equilibrium with heterogeneous ?rms has higher market shares for relatively e?cient ?rms compared to that in both the heterogeneous ?rm Cournot equilibrium and the homogeneous ?rm advance sales equilibrium. Consequently, the equilibrium outcome results in industry output produced at a lower average cost, which represents an additional welfare gain associated with the pro-competitive e?ects of strategic advance sales even though the reallocation of market shares leads to higher measured concentration.
    Keywords: Advance sales, oligopoly, quantity competition
    JEL: C72 D43 L13
    Date: 2022
  8. By: Chiara Farronato; Georgios Zervas
    Abstract: We investigate the informativeness of hygiene signals in online reviews, and their effect on consumer choice and restaurant hygiene. We first extract signals of hygiene from Yelp. Among all dimensions that regulators monitor through mandated restaurant inspections, we find that reviews are more informative about hygiene dimensions that consumers directly experience - food temperature and pests - than other dimensions. Next, we find causal evidence that consumer demand is sensitive to these hygiene signals. We also find suggestive evidence that restaurants that are more exposed to Yelp are cleaner along dimensions for which online reviews are more informative.
    JEL: D18 D22 D82 K2 K20 L15 L51 L80 L86
    Date: 2022–02

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