nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒06‒27
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Excess Profits during COVID-19 and Their Tax Revenue Potential By Evgeniya Dubinina; Javier Garcia-Bernardo; Petr Jansky
  2. Deceptive Features on Platforms By Johnen, Johannes; Somogyi, Robert
  3. Distracted from Comparison: Product Design and Advertisement with Limited Attention By Johnen, Johannes; Leung, Benson Tsz Kin
  4. Bargaining and International Reference Pricing in the Pharmaceutical Industry By Pierre Dubois; Ashvin Gandhi; Shoshana Vasserman

  1. By: Evgeniya Dubinina (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Javier Garcia-Bernardo (Department of Methodology and Statistics, Utrecht University, Utrecht, Netherlands); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The COVID-19 pandemic has affected most companies´ profits negatively, but other companies did exceptionally well, recording excess profits during the pandemic. In this paper we estimate the scale of these excess profits, their determinants, and the revenue potential of excess profits tax. To estimate excess profits, we develop a trend-adjusted average earnings methodology. We apply the methodology to the consolidated Orbis data to estimate that large multinational corporations (MNCs) with subsidiaries in the EU made excess profits of $447 billion in 2020 (41.7% of their total profits in 2020). We show that primary business activities is a key determinant of MNCs´ excess profits made during the COVID-19 pandemic. We show that manufacturing, information, and financial sectors are responsible for the majority of excess profits. With country-by-country reporting data we estimate the excess profits arising from each EU member state and find that EU member states could together raise $6 billion with an excess profits tax of 10%, an additional tax levied by governments on corporations’ excess profits. The research findings may be useful for policymakers in addressing the question of financing economic recovery from the COVID-19 pandemic.
    Keywords: excess profits; covid-19; multinational corporations; excess profits tax; european union
    JEL: H25 L11 L25
    Date: 2022–06
    URL: http://d.repec.org/n?u=RePEc:fau:wpaper:wp2022_13&r=
  2. By: Johnen, Johannes (Université catholique de Louvain, LIDAM/CORE, Belgium); Somogyi, Robert (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: Many products sold on online platforms have additional features. Platforms can deliberately shroud these features from consumers, e.g. by revealing them only late in the purchase process. For example, platforms often reveal fees for shipping, handling, extra luggage or hotel services only late in the purchase process. We study when a two-sided platform discloses (a.k.a unshrouds) additional fees when some buyers naively ignore shrouded fees. We uncover a novel mechanism to explain why platforms shroud: platforms shroud or unshroud to manipulate cross-group externalities between buyers and sellers. Exploring this mechanism, we highlight two results suggesting online marketplaces lead to more shrouded features. First, we ask when a platform shrouds seller fees on its marketplace. Driven by cross-group network externalities to attract buyers and appear cheap, the platform has stronger incentives to shroud seller fees than sellers themselves. Second, we investigate when the platform shrouds its own additional fees and uncover a perverse effect of seller competition: fiercer competition between sellers encourages the platform to shroud its own fees. Both results hold even though the platform earns no commission to shroud seller fees and does not sell its own brands, so banning these practices will not induce a transparent marketplace. We discuss further policy implications and connect to common practices like drip pricing, steering, and rebate design.
    Date: 2022–04–13
    URL: http://d.repec.org/n?u=RePEc:cor:louvco:2022019&r=
  3. By: Johnen, Johannes (Université catholique de Louvain, LIDAM/CORE, Belgium); Leung, Benson Tsz Kin
    Abstract: We study how firms choose designs—of their products or product information—to divert consumers’ limited attention away from price comparison or towards it. Firms choose designs to affect the dispersion of product match values and thereby how consumers allocate their limited attention. Consumers with limited attention trade off breadth and depths of search: they either study fewer products in detail to learn their match value, or superficially browse and compare prices of more products. We highlight a novel distraction effect of designs. Firms combine larger prices with designs that disperse match values to distract consumers from price-comparison. We show that more-detailed product information disperse match values and allows firms to distract consumers more effectively from price comparison. This way, interventions that allow firms to disclose more-detailed product information weaken competition and decrease consumer surplus. In turn, interventions that make information coarser and more easily-available information—like energy-efficiency labels and front-package food labels like nutriscores—increases competition and consumer surplus. These findings connect evidence of various informational interventions in the context of pension funds, advertisements, and food labels.
    Keywords: Limited Attention ; Product Design ; Information Design ; Market Competition
    JEL: D83 L13 L15
    Date: 2022–04–12
    URL: http://d.repec.org/n?u=RePEc:cor:louvco:2022017&r=
  4. By: Pierre Dubois; Ashvin Gandhi; Shoshana Vasserman
    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.
    JEL: C51 C57 I11 I18 L11 L13 L22
    Date: 2022–05
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:30053&r=

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