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on Industrial Organization |
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Issue of 2022‒08‒22
six papers chosen by |
| By: | Gerda Dewit (Department of Economics, Finance and Accounting, Maynooth University.); Dermot Leahy (Department of Economics, Finance and Accounting, Maynooth University.) |
| Abstract: | We develop a model in which two vaccine-producing Â…rms from two developed countries supply vaccines to the developing world during a pandemic. Exporting developed countries experience a neg- ative externality from incomplete global vaccination. Both domestic and trade policies are examined. Alternative policy regimes of non-intervention, independent national policy and cooperation among exporters are considered. For each alternative, welfare levels of exporting and importing countries and global welfare are calculated. We derive conditions for cooperation among producing countries to attain higher global welfare than non-cooperation. In fact, in some circumstances cooperation among developed countries can even achieve the global optimum. Classification-F12, F13, H23, L13 |
| Keywords: | Cooperative and non-cooperative trade policy, Export promotion, Global externality, Global welfare, Pigovian subsidies |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n317-22.pdf&r= |
| By: | Vahid Ashrafimoghari; Jordan W. Suchow |
| Abstract: | In a digital age where companies face rapid changes in technology, consumer trends, and business environments, there is a critical need for continual revision of the business model in response to disruptive innovation. A pillar of innovation in business practices is the adoption of novel pricing schemes, such as Pay-What-You-Want (PWYW). In this paper, we employed game theory and behavioral economics to model consumers' behavior in response to a PWYW pricing strategy where there is an information asymmetry between the consumer and supplier. In an effort to minimize the information asymmetry, we incorporated the supplier's cost and the consumer's reference prices as two parameters that might influence the consumer's payment decision. Our model shows that consumers' behavior varies depending on the available information. As a result, when an external reference point is provided, the consumer tends to pay higher amounts to follow the social herd or respect her self-image. However, the external reference price can also decrease her demand when, in the interest of fairness, she forgoes the purchase because the amount she is willing to pay is less that what she recognizes to be an unrecoverable cost to the supplier. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2207.08923&r= |
| By: | Aditya Bhattacharjea (Department of Economics, Delhi School of Economics); Srishti Gupta (Department of Economics, Delhi School of Economics) |
| Abstract: | We derive several variations of a model in which two upstream firms supply a differentiated product to two downstream firms under exclusive contracts of different kinds. We first derive a benchmark model with upstream first-mover pricing. We then compare its outcomes with four other types of vertical arrangements representing different modes of exploiting buyer power: downstream first mover pricing; Nash bargaining, alternatively with linear and two-part tariffs; and vertical integration. In each case, we show how the equilibrium values of wholesale and retail prices as well as downstream firms’ profits are affected by changes in the exogenous parameters (degree of product differentiation, bargaining power, and production costs). We evaluate the various vertical regimes from the perspective of downstream firms’ profits as well as consumer welfare, and show how more powerful downstream firms can benefit consumers by exercising “countervailing power” against upstream firms. Key Words: Buyer power, Bertrand duopoly, Vertical contracts, Nash bargaining, Vertical integration. JEL Codes: D43, L13, L22 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:326&r= |
| By: | Eric Langlais; Andreea Cosnita-Langlais |
| Abstract: | The paper considers how product liability may shape firm size, product specification choices and market structure. We introduce a spatial Cournot duopoly on the linear market, where firms make an initial decision of product differentiation, then invest in precaution, before competing in quantity. Our main results are fourfold; 1) with full coverage of the market by the duopoly, there exist two equilibria (in pure strategies): central agglomeration (which is stable for low liability costs), and dispersion (which is stable for not too large liabiliy costs); 2) for larger liability costs, a mixed market structure duopoly/monopoly sustains a unique equilibrium with product differentiation; 3) this equilibrium enables a scope of differentiation higher (smaller) than the full duopoly (the social optimum); 4) the impact of liability costs on firms size and profits is complex, since it depends on the impact on both product differentiation and market structure. Finally, we show that consumer surplus and social welfare are both higher under the mixed market structure than under the full duopoly in an equilibrium with product differentiation. |
| Keywords: | horizontal differentiation, Cournot competition, spatial model, endogenous market structures, product liability, strict liability, negligence |
| JEL: | L41 K21 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2022-18&r= |
| By: | Franco Mairuzzo (Centre for Competition Policy and School of Economics, University of East Anglia); Peter Ormosi (Centre for Competition Policy and Norwich Business School, University of East Anglia) |
| Abstract: | One of the central tenets of industrial organisation is that increasing/decreasing market concentration is likely to lead to increased/reduced markups. But does this affect every consumer to the same extent? Previous literature agrees that there can be significant price dispersion even in the case of homogeneous goods, which is at least partially due to the heterogeneity in how much consumers engage with the market. We link this heterogeneity to the impact of changing market concentration on markups. For this purpose, we employ a combination of 18 years of station-level motor fuel price data from Western Australia and a rich set of information on local market concentration. We summon a non-parametric causal forest approach to explore the heterogeneity in the effect of market exit/entry. The paper offers evidence of the distributional effect of changing market concentration. Areas with lower income experience a larger increase in petrol stations’ price margin as a result of market exit. On the other hand, entry does not benefit the same low-income areas with a larger reduction in the margin than in high-income areas. We argue that these findings are due to differences in how much consumers in different demographic groups engage with the market. Our findings give support to the argument that antitrust could help address inequality while staying true to its mission of promoting competition, provided that priorities are given to not only fixing supply-side problems but also to exploring demand-side remedies. |
| Keywords: | inequality, market concentration, income, consumer search, causal forests, petrol |
| Date: | 2022–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaccp:2021_08&r= |
| By: | Elias Deutscher (Centre for Competition Policy and School of Law, University of East Anglia) |
| Abstract: | This paper explores the law and economics of brand bidding restraints. By means of this novel type of restraints, brand owners restrict how their licensed retailers use their brand names and trademarks as keywords in paid search advertising. The paper tests and critically reflects on the restrictive approach European competition watchdogs have recently adopted towards brand bidding restraints. It contends that this harsh antitrust treatment of brand bidding restraints is not sufficiently grounded in the economic analysis of vertical restraints. In proposing a comprehensive framework for the legal and economic analysis of brand bidding restraints, the paper makes three principal contributions. First, it asserts that brand bidding restraints can have a number of procompetitive effects by internalising advertising-related externalities, addressing free-riding on display and traditional advertising and facilitating fixed cost recovery through price discrimination. Second, the paper considers different ways through which brand bidding restraints may harm competition and consumer welfare when they disproportionately affect infra-marginal consumers, prevent meaningful intra- and inter-brand comparisons or result in price discrimination on the basis of search costs rather than brand preferences. Moreover, brand bidding restraints are of particular concern when adopted in the context of dual distribution systems where vertically integrated brand owners have an incentive to raise their retailers’ costs to prevent them from cannibalising their own sales channel. Third, the paper explores various legal filters to disentangle and balance the anti- and procompetitive effects of brand bidding restraints. In this respect, the paper makes a number of policy recommendations for the future antitrust analysis of brand bidding restraints. These proposals could also inform the ongoing revision of the Vertical Block Exemption Regulation and Vertical Guidelines in the EU and in the UK. |
| Keywords: | Antitrust, online advertising, restraints |
| Date: | 2022–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaccp:2021_09&r= |