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on Industrial Organization |
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Issue of 2022‒06‒20
eight papers chosen by |
| By: | Jay Pil Choi; Christodoulos Stefanadis |
| Abstract: | We examine tippy network markets that accommodate price discrimination. The analysis shows that when a mild equilibrium refinement, the monotonicity criterion, is adopted, network competition may have a unique subgame-perfect equilibrium regarding the winner’s identity; the prevailing brand may be fully determined by its product features. We bring out the concept of the dominant value margin, which is a metric of the effectiveness of divide-and-conquer strategies. The supplier with the larger dominant value margin may always sell to all customers in equilibrium. Such a market outcome is not always socially efficient since a socially inferior supplier may prevail if has a stand-alone-benefit advantage and only a modest network-benefit disadvantage. |
| Keywords: | network externalities, equilibrium uniqueness, price discrimination, monotonicity criterion, dominant value margin, divide and conquer |
| JEL: | L13 L40 D43 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9717&r= |
| By: | Jan Eeckhout; Laura Veldkamp |
| Abstract: | Might firms' use of data create market power? To explore this hypothesis, we craft a model in which economies of scale in data induce a data-rich firm to invest in producing at a lower marginal cost and larger scale. However, the model uncovers much richer interactions between data, welfare and market power. Data affects risk, firm size and the composition of the goods firms produce, all of which affect markups. The tradeoff between these forces depends on the level of aggregation at which markups are measured. Empirical researchers who measure markups at the product level, firm level or industry level come to different conclusions about trends and cyclical fluctuations in markups. Our results reconcile and re-interpret these facts. The divergence between product, firm and industry markups can be a sign that firms are using data to reallocate production to the goods consumers want most. |
| JEL: | D8 E3 L0 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30022&r= |
| By: | Rohit Lamba; Sergey Zhuk |
| Abstract: | This paper studies Markov perfect equilibria in a repeated duopoly model where sellers choose algorithms. An algorithm is a mapping from the competitor's price to own price. Once set, algorithms respond quickly. Customers arrive randomly and so do opportunities to revise the algorithm. In the simple game with two possible prices, monopoly outcome is the unique equilibrium for standard functional forms of the profit function. More generally, with multiple prices, exercise of market power is the rule -- in all equilibria, the expected payoff of both sellers is above the competitive outcome, and that of at least one seller is close to or above the monopoly outcome. Sustenance of such collusion seems outside the scope of standard antitrust laws for it does not involve any direct communication. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2205.04661&r= |
| By: | Evans, R., Park, I-U.; Park, I-U. |
| Abstract: | We study design and pricing of information by a monopoly information provider for a buyer in a trading relationship with a seller. The profit-maximizing information structure has a binary threshold character. This structure is inefficient when seller production cost is low. Compared with a situation of no information, the information provider increases welfare if cost is high but reduces it if cost is low. A monopoly provider creates higher welfare than a competitive market in information if the prior distribution of buyer valuations is not too concentrated. Giving the seller a veto over the information contract generates full efficiency. |
| Keywords: | Information Sale, Mechanism Design, Information Design |
| JEL: | D42 D61 D82 D83 L12 L15 |
| Date: | 2022–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2233&r= |
| By: | Dubois, Pierre; Gandhi, Ashvin; Vasserman, Shoshana |
| Abstract: | The United States spends twice as much per person on pharmaceuticals as European countries, in large part because prices are much higher in the US. This fact has led policymakers to consider legislation for price controls. This paper assesses the effects of a US international reference pricing policy that would cap prices in US markets by those offered in reference countries. We estimate a structural model of demand and supply for pharmaceuticals in the US and reference countries like Canada where prices are set through a negotiation process between pharmaceutical companies and the government. We then simulate the counterfactual equilibrium under such international reference pricing rules, allowing firms to internalize the cross-country externalities introduced by these policies. We find that in general, these policies would result in much smaller price decreases in the US than price increases in reference countries. The magnitude of these effects depends on the number, size and market structure of references countries. We compare these policies with a direct bargaining on prices in the US. |
| Date: | 2022–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126993&r= |
| By: | Ruediger Bachmann; Christian Bayer; Heiko Stüber; Felix Wellschmied |
| Abstract: | When employers face a trade-off between growing large and paying low wages—that is, when they have monopsony power—some productive employers will decide to acquire fewer customers, forgo sales, and remain small. These decisions have adverse consequences for aggregate labor productivity. Using high-quality administrative data from Germany, we document that East German plants (compared to West German ones) face a steeper size-wage curve, invest less into marketing, and remain smaller. A model with labor market monopsony, product market power, and customer acquisition matching these features of the data predicts 10 percent lower aggregate labor productivity in East Germany. . |
| Keywords: | aggregate productivity, plant heterogeneity, unions, monopsony power, size-wage curve, monopolistic competition, customer capital, size distortions |
| JEL: | E20 E23 E24 J20 J42 J50 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9751&r= |
| By: | Margit Molnar |
| Abstract: | The impressive emergence of China’s economy is set to lose some momentum as the country catches up with more advanced economies and its rapid ageing also weighs on it. However, China can still reap the “reform dividend”, especially with measures to keep up the sustained growth of productivity. Reforms that enhance competition in product markets are among those that can potentially bring about significant productivity gains. China has been lowering the burden on start-ups and simplifying administrative procedures for a while already, achieving significant progress, though more procedures could go online and a one-stop shop is still to be implemented across the country. State ownership remains dominant in most network industries and there are many SOEs even in commercially-oriented industries such as retail or catering. SOEs enjoy implicit government guarantees and are the main beneficiaries of administrative monopolies, i.e. exclusive rights granted by regulations. In addition, they also benefit from various subsidies, sometimes leading to low-level, repetitious investment, excess capacity and waste of public money. A more level playing field would bring about efficiency-enhancing competition by private and foreign firms. Some network industries such as electricity and gas have recently accelerated their opening up and competition is developing in some segments. Digitalisation is a promising candidate to lift China’s long-term growth potential. Competition, in particular competitive pressure from foreign counterparts when there are few domestic players could be an important source of efficiency gains in digital services. China has been a frontrunner in business digitalisation for a while already, but the outbreak accelerated also the provision of e-government services. While strengthening of IPR protection and promoting innovative ways of financing are welcome steps to nurture innovative industries, generous tax exemptions – which by OECD standards do not constitute good tax policy - reduce the availability of public funds for other priority areas. |
| Keywords: | administrative monopolies, competition, digitalisation, e-commerce, industrial policy, innovation, private firms, product markets, regulation, state-owned enterprises, trade in services |
| JEL: | D40 H81 L11 L50 L63 L84 L90 O25 P20 |
| Date: | 2022–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1716-en&r= |
| By: | Yojiro Ito (Economist, Institute for Monetary and Economic Studies (currently, Personnel and Corporate Affairs Department), Bank of Japan (E-mail: youjirou.itou@boj.or.jp)); Daisuke Miyakawa (Associate Professor, Hitotsubashi University Business School (E-mail: dmiyakawa@hub.hit-u.ac.jp)) |
| Abstract: | Studies on firm performance have found that exiting firms in Japan persistently show better performance than surviving firms, and this persistence adversely affects aggregate productivity. We use the panel data of business enterprises along with unique information on their exit modes (i.e., default, voluntary closure, and merger) to show that a large part of such a "negative exit effect" is attributed to the firms exiting through mergers. Further, we confirm that the causal effect of those mergers results in positive growth in the productivity of merging firms. Given that the size of such a positive causal effect overwhelms the negative exit effect, resource reallocation through mergers positively contributes to the aggregate growth in productivity for Japanese firms. |
| Keywords: | Productivity dynamics, Exit effects, Mergers |
| JEL: | D24 G33 G34 O47 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:22-e-07&r= |