nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒05‒02
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Addictive Platforms By Shota Ichihashi; Byung-Cheol Kim
  2. An Oligopoly-Fringe Model with HARA Preferences By Gerard Cornelis van der Meijden; Cees A. Withagen; Hassan Benchekroun
  3. Unraveling the spreading pattern of collusively effective competition clauses By Trost, Michael

  1. By: Shota Ichihashi; Byung-Cheol Kim
    Abstract: We study competition for consumer attention, in which platforms can sacrifice service quality for attention. A platform can choose the “addictiveness” of its service. A more addictive platform yields consumers a lower utility of participation but a higher marginal utility of allocating attention. We provide conditions under which increased competition can harm consumers by encouraging platforms to offer low-quality services. In particular, if attention is scarce, increased competition reduces the quality of services because business stealing incentives induce platforms to increase addictiveness. Restricting consumers’ platform usage may decrease addictiveness and improve consumer welfare. A platform’s ability to charge for its service can also decrease addictiveness.
    Keywords: Economic models
    JEL: D40 L51
    Date: 2022–04
  2. By: Gerard Cornelis van der Meijden; Cees A. Withagen; Hassan Benchekroun
    Abstract: Inspired by empirical evidence from the oil market, we build a model of an oligopoly facing a fringe as well as competition from renewable resources. We explore different subclasses of HARA utility functions (Cobb-Douglas, power and quadratic utility) to check the robustness of results found in the previous literature. For isoelastic demand, we characterize the equilibrium extraction rates of the fringe and the oligopolists. There always exists a phase of simultaneous supply of the oligopolists and the fringe, implying an inefficient order of use of resources since the oligopolists have smaller unit extraction costs and carbon emissions than the fringe. We calibrate our model to the oil market to quantify this sequence effect. In our benchmark calibration, we find for the three HARA subclasses that the sequence effect is responsible for almost all of the welfare loss compared to the first-best. It becomes smaller as market power decreases. Furthermore, we show that climate damage and Green Paradox effects depend non-monotonically on the degree of market power.
    Keywords: oligopoly-fringe, climate policy, non-renewable resource, Herfindahl rule, limit pricing, oligopoly, HARA preferences
    JEL: Q31 Q42 Q54 Q58
    Date: 2022
  3. By: Trost, Michael
    Abstract: Meanwhile, the Industrial Organization literature gives several reasons why retailers adopt competition clauses (CCs) such as price matching or price beating guarantees. The motivations underlying the CCs might affect their forms and spread. In this paper, we unravel the spreading pattern of CCs in markets where they are used as a device to facilitate tacit collusion. It turns out that in homogeneous markets with capacity-constrained retailers, the retailers with the largest capacities are most inclined to adopt CCs. Our finding is in line with results of earlier studies on the formation of price leadership, which suggest that the retailers with the largest capacities take on the leadership position. On the other side, we find that in some market instances, retailers have to resort to CCs of non-conventional forms (i.e., of forms uncommon in real commercial life) to induce the most robust collusion. However, it turns out that this peculiar finding can be resolved for markets with additional characteristics. For example, if there exist market dominant retailers or the residual market demand is specified by efficient rationing, the most resilient collusion can also be enforced by CCs of conventional forms.
    Keywords: Wettbewerbsverhalten
    Date: 2022

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.