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on Industrial Organization |
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Issue of 2022‒07‒18
six papers chosen by |
| By: | Ying Fan; Chenyu Yang |
| Abstract: | This paper presents a new method for estimating discrete games based on bounds of conditional choice probabilities. The method does not require solving the game and is scalable to models with many firms and many discrete decisions. We apply the method to study merger effects on firm entry and product variety in the retail craft beer market in California. We simulate an acquisition of multiple craft breweries by a large brewery and find that the acquisition would induce firm entry and product entry by non-merging firms. However, these changes are insufficient to offset the negative welfare effects resulting from the higher prices and decreased product offerings by the merging firms. |
| JEL: | D43 L13 L41 L66 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30146&r= |
| By: | Matteo Bizzarri (University of Naples Federico II and CSEF.) |
| Abstract: | This paper studies how input-output connections among firms determine the distribution and the welfare impact of market power in a production network. Firms compete by choosing supply and demand functions relating quantities to prices. In this way, firms' ability to affect prices, the total size, and the distribution of surplus are endogenous objects and are determined in equilibrium by the technology and the network structure. Firms have market power in both input and output markets: restricting market power exclusively in either output or input markets can reverse the ranking of market power among firms. Firms act strategically, taking their position in the supply chain into account: ignoring this effect would yield lower distortions and lower final prices. With a suitable parametric functional form, the equilibrium is in linear schedules. An equilibrium exists for very general networks, and an algorithm to compute it is provided. Finally, horizontal mergers (even with some synergies) always increase the final price, despite countervailing power. |
| Keywords: | production networks, oligopoly, double auction, supply function equilibrium. |
| JEL: | L13 D43 D44 D57 |
| Date: | 2022–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:648&r= |
| By: | Antoine Dubus; Patrick Legros |
| Abstract: | Firms may share information to discover potential synergies between their data sets and algorithms, which eventually may lead to more efficient mergers and acquisitions (M&A) decisions. However, as pointed out by Arrow, information sharing also modifies the competitive balance when companies do not merge, and a firm may be reluctant to share information with potential rivals. Under general conditions, we show that firms benefit from (partially) sharing information. Because more sharing of information may increase industry expected profits both when there is head-to-head competition and when there is an M&A, the presence of a regulator who can prevent or allow the M&A can decrease or increase the level of information sharing, as well as consumer surplus, with respect to the no-regulator case. A regulator who can also control the level of information sharing will allow firms to share information. |
| Keywords: | synergies, mergers, sale of data, incomplete information, antitrust, privacy |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/344835&r= |
| By: | Massimo Motta; Antonio Penta |
| Abstract: | We investigate the market effects of brand search advertising, within a model where two firms simultaneously choose the price of their (differentiated) product and the bids for the advertising auction which is triggered by own and rival's brand keywords search; and where there exist sophisticated/attentive consumers (who look for any available information on their screen) and naive/inattentive consumers (who only look at the top link of their screen), both aware of either brand's characteristics and price. Relative to a benchmark where only organic search exists, in any symmetric equilibrium each firm wins its own brand auction, and advertising has detrimental effects on welfare: (i) the sponsored link crowds out the rival's organic link, thus reducing competition and choice, and leading to price increases; (ii) the payment of the rival's bid (may) raise marginal cost, also contributing to raise market prices. Under extreme asymmetry (there is an incumbent and an unknown new entrant), we do find that the market effect of brand bidding might be beneficial, if the search engine does not list the entrant's link in organic search, and the share of the sophisticated consumers in the economy is large enough for an equilibrium in which the entrant wins the advertising auction on the search for the incumbent's brand to exist. |
| Keywords: | digital advertising, auctions, oligopoly, search engines, brands, horizontal agreements |
| JEL: | D44 L13 L4 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1844&r= |
| By: | Bos, Olivier; Truyts, Tom |
| Abstract: | We study the optimal entry fee in a symmetric private value first-price auction with signaling, in which the participation decisions and the auction outcome are used by an outside observer to infer the bidders' types. We show that this auction has a unique fully separating equilibrium bidding function. When the bidders' sensibility for the signaling concern is sufficiently strong, the expected revenue maximizing entry fee is the maximal fee that guarantees full participation. The larger is the bidder's sensibility, the higher is the optimal participation. |
| Keywords: | first-price auction,entry,monotonic signaling,social status |
| JEL: | D44 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:22016&r= |
| By: | Daniel Chaves (University of Western Ontario) |
| Abstract: | This paper empirically assesses the impact of a discontinuous tax schedule on prices, markups and product assortment in the Brazilian automobile industry. To this end, I estimate a structural, equilibrium model of demand and supply for over a hundred different models and engine sizes of automobiles. With the model estimates of price elasticities and marginal costs I quantify how market power impacts the progressivity of the discontinuous tax schedule. I also examine how firms would reposition their products to avoid the tax and quantify the impact of this repositioning on equilibrium outcomes. |
| Keywords: | Market Power, Taxation, Endogenous Product Assortment, Environmental Regulation |
| JEL: | D22 D43 H23 L13 L51 L62 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:uwowop:20227&r= |