nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒05‒23
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Are industrial policy instruments effective?: A review of the evidence in OECD countries By Chiara Criscuolo; Nicolas Gonne; Kohei Kitazawa; Guy Lalanne
  2. The Innovation Index in Europe By Leogrande, Angelo; Laureti, Lucio; Costantiello, Alberto
  3. Personalized Pricing and Competition By Rhodes, Andrew; Zhou, Jidong
  4. Regulation through Reference Prices By Alfredo Salgado
  5. The Economy of Collaboration between Reciprocity and Profit By Leogrande, Angelo
  6. Value Creation by Ad-Funded Platforms By Gregor Langus; Vilen Lipatov
  7. Conflicts of interest, ethical standards, and competition in legal services By BOUCKAERT, Jan; STENNEK, Johan
  8. Does Entry Remedy Collusion? Evidence from the Generic Prescription Drug Cartel By Amanda Starc; Thomas G. Wollmann
  9. Copyright Protection in the Digital Single Market By Frank Stähler; Leander Stähler
  10. Pharmacy Benefit Managers and Vertical Relationships in Drug Supply: State of Current Research By Zarek C. Brot-Goldberg; Catherine Che; Benjamin R. Handel
  11. The price impacts of the exit of the Hazelwood coal power plant By Ricardo Gonçalves; Flavio M. Menezes

  1. By: Chiara Criscuolo (OECD); Nicolas Gonne (OECD); Kohei Kitazawa (OECD); Guy Lalanne (OECD)
    Abstract: While the case for industrial policy is gaining traction across OECD countries, little consensus exists on the effectiveness of such interventions. Building on a new analytical framework for industrial policy developed in a companion paper, this paper reviews the empirical literature on the effectiveness of industrial policy instruments, laying out the knowns and unknowns. Overall, it strongly supports the premise that well-designed economic incentives for firms and good framework conditions shaping the business environment are effective. At the same time, it emphasises the limited and inconclusive nature of the evidence regarding the increasingly frequent targeted and demand-side instruments. Finally, it underlines the complementarities between economic incentives and other interventions such as skill policies or framework conditions, notably competition and trade policies. Framework conditions are indeed key in enabling the most productive firms to grow and an important channel for structural change.
    Keywords: industrial policy, public guarantees, public loans, public venture capital, subsidies, tax expenditures
    JEL: L52 L53 O25 O38 Q58
    Date: 2022–05–03
  2. By: Leogrande, Angelo; Laureti, Lucio; Costantiello, Alberto
    Abstract: The following article analyzes the determinants of the innovation index in Europe. The data refer to the European Innovation Scoreboard-EIS of the European Commission for the period between 2010 and 2019 for 36 countries. The data are analyzed using the following econometric techniques: Panel Data with Random Effects, Panel Data with Fixed Effects, Dynamic Panel Data, Pooled OLS, WLS. The results show that the Innovation Index is negatively connected to some variables, among which the most significant are "GDP per capita", "R&D expenditure public sector", "Venture capital", "Tertiary education", and positively connected to some variables among which the most relevant are: "Government procurement of advanced technology products", "Average annual population growth", "Finance and support", "Human resources", "Marketing or organisational innovators", "Linkages". A clustering was then carried out using the unsupervised k-Means algorithm optimized with the Silhouette coefficient which shows the presence of 2 clusters per value of the Innovation Index. Eight machine learning algorithms has been used for prediction with real data. The Tree Ensemble Regression algorithm has been chosen as best performer. A further prediction has been made with the augmented data. The result shows that the best performing algorithm is Linear Regression with an innovation index value predicted to grow by approximately 3.38%.
    Keywords: Innovation, and Invention: Processes and Incentives; Management of Technological Innovation and R&D; Diffusion Processes; Open Innovation.
    JEL: O30 O31 O32 O33 O34
    Date: 2022–04–23
  3. By: Rhodes, Andrew; Zhou, Jidong
    Abstract: We study personalized pricing (or first-degree price discrimination) in a general oligopoly model. In the short-run, when the market structure is fixed, the impact of personalized pricing hinges on the degree of market coverage (i.e., how many consumers buy). If coverage is high (e.g., because the production cost is low, or the number of firms is large), personalized pricing intensifies competition and so harms firms but benefits consumers, whereas the opposite is true if coverage is low. However in the long-run, when the market structure is endogenous, personalized pricing always benefits consumers because it induces the socially optimal level of firm entry. We also study the asymmetric case where some firms can use consumer data to price discriminate while others cannot, and show it can be worse for consumers than when either all or no firms can personalize prices.
    JEL: D43 D82 L13
    Date: 2022–05–09
  4. By: Alfredo Salgado
    Abstract: This paper theoretically analyzes the role of reference prices on competition and welfare in a context of a circular city model with free entry and reference prices, in which paying market prices above a reference negatively affects the utility of consumers. Agents interact in a three-stage game: 1. A policymaker chooses a reference price to maximize consumer welfare. 2. Firms make their entry decision. 3. Firms compete in prices and consumers make their consumption decisions. We find that in equilibrium the market price and the optimal reference price chosen by the policymaker always coincide. In addition, it is shown that the use of reference prices reduces market equilibrium prices compared with the case without reference prices, which implies a net welfare gain for consumers. These gains could be higher in less competitive environments and lower in the presence of higher marginal costs.
    JEL: C7 D4 D9 L1 L2 L5
    Date: 2022–03
  5. By: Leogrande, Angelo
    Abstract: The book entitled “L’Economia della Collaborazione. Le Nuove Piattaforme Digitali della Produzione e del Consumo” was written by Francesco Ramella and Cecilia Manzo in 2019 and published in Bologna for il Mulino. The book has 245 pages and a cover price of 22.00 euros. The book consists of an introduction, 8 chapters and conclusions.
    Keywords: Business Objectives of the Firm, Firm Organization and Market Structure, Organization of Production, Contracting Out • Joint Ventures • Technology Licensing, Firm Performance: Size, Diversification, and Scope, Entrepreneurship
    JEL: L20 L21 L22 L23 L24 L25 L26
    Date: 2022–04–24
  6. By: Gregor Langus; Vilen Lipatov
    Abstract: We identify features of interactions on online platforms that make an ad-funded business model attractive for the platform, but also for consumers. We then show that ad-funded platforms heavily rely on data for their ability to create value for their users. Formally, we show that data restrictions may trigger a switch away from ad-funded to fee-funded model, resulting in a loss of consumer welfare. We also argue that restricting the effort to increase data quality weakens competition to the detriment of consumers.
    Keywords: ad-funded business model, data aggregation restrictions, targeted advertising, platform competition, merchant competition, transaction costs
    JEL: K21 L22 L40 M37
    Date: 2022
  7. By: BOUCKAERT, Jan; STENNEK, Johan
    Abstract: We study how the legal profession manages representational conflicts of interest. Such conflicts arise when the same law firm represents clients with adverse interests. They may compromise the legal process, ultimately jeopardizing social welfare. We argue that current ethical standards, emphasizing disqualification over Chinese walls, may actually worsen the clients’ situation. Instead, the clients’ interests are today mainly protected by law firms being small. Despite low market concentration, law firms enjoy high earnings as representational conflicts create negative network externalities at the firm level. These profits are not eroded even in the long run as entry occurs through firm splitups.
    Keywords: Law firms, Professional services, Dual representation, Representational conflicts of interest, Ethical standards, Chinese walls, Recusals, Negative network externalities, Competition, Self-regulation
    JEL: K40 L13 L22 L44 L84
    Date: 2022–04
  8. By: Amanda Starc; Thomas G. Wollmann
    Abstract: Entry represents a fundamental threat to cartels engaged in price fixing. We study the extent and effect of this behavior in the largest price fixing case in US history, which involves generic drugmakers. To do so, we link information on the cartel’s internal operations to regulatory filings and market data. We find that collusion induces significant entry, which in turn reduces prices. However, regulatory approvals delay most entrants by 2-4 years. We then estimate a structural model to assess counterfactual policies. We find that reducing regulatory delays by just 1-2 years equates to consumer compensating variation of $597 million-$1.52 billion.
    JEL: L11 L41 L65
    Date: 2022–03
  9. By: Frank Stähler; Leander Stähler
    Abstract: This paper scrutinizes the effects of the European Directive on Copyright in the Digital Single Market on platform competition in media markets. Platforms that are Online Content-Sharing Service Providers must have a license agreement with collective management organizations that control the content platform users may (or must not) upload to the platform. The paper shows that the new directive may imply market concentration and an aggregate welfare loss. The reason is that only users of the large platform will be allowed to upload content if the content asset controlled by a collective management organization is sufficiently valuable and if network effects are strong.
    Keywords: copyright protection, IPRs, content platforms, trade in services, digital services
    JEL: D43 F12 L86
    Date: 2022
  10. By: Zarek C. Brot-Goldberg; Catherine Che; Benjamin R. Handel
    Abstract: Despite their importance to the supply of prescription drugs, there has been limited research on pharmacy benefit managers (PBMs) and their vertical relationships to insurers and drug manufacturers. This paper provides an overview of the current state of research on this topic, motivates why further research is needed, and discusses promising theoretical and empirical directions for that research.
    JEL: I11 I13 L1 L42
    Date: 2022–04
  11. By: Ricardo Gonçalves (Católica Porto Business School and CEGE, Universidade Católica Portuguesa); Flavio M. Menezes (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: This paper estimates the price impacts of the unanticipated closure of Hazelwood, a large brown coal power plant (1600 MW) in Victoria, Australia. We measure the total impact of the closure on prices in Australia's National Electricity Market for each half-hour interval and for each state 3 months, 6 months, and 12 months from closure. We also break down the impact into direct and indirect effects. We fnd that the total impact of the closure on prices varies considerably across half-hours. The results vary not only in magnitude and across time, but also in statistical significance. Our estimates suggest an upper bound for the impact on the average half-hourly price of $18.90/MW 12 months from closure, with a total market impact of $4,287.7 million. When we break down the total impact into direct and indirect effects, we find the latter to be the main driver of our results. In particular, we find that the reduction in the prices because of increased wind generation in a given half hour - the merit-order effect - has decreased markedly following the closure, and this largely explains the observed price increases post-closure.
    Keywords: electricity markets; market impacts; closure of coal power plant.
    JEL: D4 L94
    Date: 2022–04

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