nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒09‒05
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Firms price discriminate based on suppliers’ relative distances to competitors By Granlund, David; Meens-Eriksson, Sef
  2. A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets By Aguirre, Iñaki; Yenipazarli, Arda
  3. The tragedy of the common holdings: Coordination strategies and product market competition By Neus, Werner; Stadler, Manfred
  4. Horizontal agreements about the use of a natural resource By Van Moer, Geert
  5. Discount opportunities in hub-and-spoke networks: The determinants of hidden-city ticketing By Luttmann, Alexander; Gaggero, Alberto A
  6. Patent term extensions and commercialization lags in the pharmaceutical industry: A growth-theoretic analysis By Hu, Mei-Ying; Lu, You-Xun; Lai, Ching-Chong
  7. Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform By Kurt R. Brekke; Chiara Canta; Odd Rune Straume
  8. Market Power in the U.S. Dairy Industry By Bolotova, Yuliya V.
  9. The organic food price premium and its susceptibility to news media coverage: Evidence from the U.S. milk industry By Gayle, Philip; Wang, Jin; Fang, Shengnan
  10. Taste Renaissance, Tax Reform, and Industrial Organization of the Beer Industry By Luckstead,, Jeff; Devadoss, Stephen
  11. A Study of Bid-rigging in Procurement Auctions: Evidence from Indonesia, Georgia, Mongolia, Malta, and State of California By Kei Kawai; Jun Nakabayashi; Daichi Shimamoto

  1. By: Granlund, David (Department of Economics, Umeå University); Meens-Eriksson, Sef (Department of Economics, Umeå University)
    Abstract: We derive a theoretical model predicting that firms should mark down input prices more the longer distance a supplier has to a competitor’s plant relative to their own plant. We test this prediction using contract-level data on prices of waste burned at energy plants. To the best of our knowledge, we are the first to study whether firms price discriminate based on relative distance to the closest competitor. The empirical results confirm that longer relative distances to competitors’ plants lead to lower prices and show no evidence of additional effects of the distance to the chosen plant.
    Keywords: auction; market power; oligopsony; price discrimination; procurement; spatial competition; transport cost; waste incineration
    JEL: D43 D44 L11 L13 Q53
    Date: 2022–08–17
  2. By: Aguirre, Iñaki; Yenipazarli, Arda
    Abstract: This paper analyzes the economic implications of oligopoly price discrimination when competition pressure varies across markets. We find that a necessary condition for price discrimination to enhance social welfare is satisfied when the number of firms is higher in the strong market compared to the weak market. We also investigate certain economic implications of the Robinson-Patman Act (RPA) associated with “meeting competition defense” (MCD). Using equilibrium models, we find a basic rationale for the MCD: in cases of primary-line injury, when competitive pressure is more pronounced in the strong market relative to the weak market, the use of MCD might allow price discrimination to enhance welfare by boosting consumer surplus in the weak market. This result holds true regardless of whether price discrimination occurs in the final good market or intermediate good market, and it is robust to the nature of competition. We also unravel that these results change drastically under secondary-line injury.
    Keywords: third-degree price discrimination, Robinson-Patman Act, meeting competition defense, oligopoly, welfare.
    JEL: D43 D61 L13 L41
    Date: 2022–07–12
  3. By: Neus, Werner; Stadler, Manfred
    Abstract: We study quantity and price competition in heterogeneous triopoly markets where two firms are commonly owned by institutional shareholders, whereas the third firm is owned by independent shareholders. With such a mixed ownership structure, the common owners have an incentive to coordinate their firms' behavior. If direct coordination of the operational decisions is prevented by antitrust authorities, delegation to managers enables indirect coordination via the designs of the manager compensation contracts. Compared to direct owner collusion, this more sophisticated type of indirect collusion leads to a lower loss of social welfare in the mode of quantity competition, but to a higher loss of welfare in the mode of price competition. In general, owner coordination via the management compensation contracts is detrimental to welfare: the tragedy of common holdings.
    Keywords: Manager compensation,common holdings,shareholder coordination
    JEL: G32 L22 M52
    Date: 2022
  4. By: Van Moer, Geert
    Abstract: I analyze horizontal agreements about the use of a natural resource. I consider a Cournot duopoly where production depends on two inputs, a natural resource and a basket of other resources, according to a production technology with constant returns to scale. I compare three regimes. (1) The competitive benchmark is defined such that firms operate with the cost-minimizing input combination. (2) A joint absolute usage target lowers the absolute usage of the natural resource. It also lowers the usage in relative terms, per unit of production, except with a fixed-proportions production technology. (3) A joint relative usage target mimics the competitive benchmark.
    Keywords: Horizontal Agreements; Natural Resources
    JEL: L13 L41 Q01 Q38
    Date: 2022–07–25
  5. By: Luttmann, Alexander; Gaggero, Alberto A
    Abstract: We offer a comprehensive empirical study on hidden-city ticketing (HCT), a pricing phenomenon in the airline industry that occurs when the fare for a nonstop trip from A to B is more expensive than a connecting trip from A to B and B to C. Exploiting a unique panel of over 772 thousand fares for flights departing between October 1st, 2019 and February 29th, 2020, we find that HCT depends on route competition (both on A-B and A-C routes), largely occurs in the last week to departure, and primarily occurs on carriers that operate large hub-and-spoke networks (e.g., American, Delta, and United).
    Keywords: advance-purchase, airline pricing, competition, hidden-city ticketing, price discrimination.
    JEL: D40 L11 L13 L93
    Date: 2022–07–26
  6. By: Hu, Mei-Ying; Lu, You-Xun; Lai, Ching-Chong
    Abstract: Due to the lags in commercialization, the effective life of a patent is generally less than its statutory term. We introduce commercialization lags into the Schumpeterian growth model and explore the effects of patent term extensions on pharmaceutical R&D and social welfare. Our results show that extending patent terms stimulates the consumption of homogeneous goods but generates an ambiguous effect on the consumption of pharmaceuticals. When patent extensions have an inverted-U effect on social welfare, the optimal patent extension increases with the length of commercialization lags but decreases with the input intensity of commercialization lags. Finally, we calibrate the model and find that increasing patent breadth reduces the optimal patent extension.
    Keywords: commercialization lags; patent term extensions; pharmaceutical R&D; economic growth; social welfare
    JEL: I11 L65 O31 O34
    Date: 2022–07–28
  7. By: Kurt R. Brekke; Chiara Canta; Odd Rune Straume
    Abstract: Policy makers use reference pricing to curb pharmaceutical expenditures by reducing coverage of expensive branded drugs. In a theoretical analysis we show that the net effect of reference pricing is generally ambiguous when accounting for entry by generic producers. Reference pricing shifts demand towards generics but also induces the branded producer to become more agressive, which triggers price competition and potentially deters entry by generic producers. To investigate the counter- vailing effects, we exploit a policy reform in Norway with a gradual implementation of reference pricing across substances over time. Using a difference-in-differences approach, we find that treated substances have a sharper decline in both branded and generic drug prices and branded market shares. Despite fiercer price competition, the number of generic producers and products increases after exposure to reference pricing, resulting in a reduction of 30 percent in pharmaceutical expenditures. Thus, we find no evidence for a countervailing entry deterring effect of reference pricing.
    Keywords: pharmaceuticals, reference pricing, generic competition
    JEL: I11 I18 L13 L65
    Date: 2022
  8. By: Bolotova, Yuliya V.
    Keywords: Agricultural and Food Policy, Demand and Price Analysis, Livestock Production/Industries
    Date: 2022–08
  9. By: Gayle, Philip; Wang, Jin; Fang, Shengnan
    Abstract: This paper investigates the extent to which media coverage on organic dairy issues influences consumers’ willingness to pay (WTP) for the organic attribute of milk. We find that news with contents most often viewed as negative toward organic dairy are more powerful in decreasing consumers’ WTP for the organic attribute of milk compared to the positive WTP impact of news articles with contents most often viewed as positive toward organic dairy. Interestingly, consumers' increasing exposure to organic dairy news that even take a neutral stance on the organic attribute also increases their WTP for the organic attribute.
    Keywords: Organic Food; Organic Price Premium; Newspaper Coverage; Milk Industry
    JEL: D10 L13 L15 L82 M30 Q00
    Date: 2022–07–13
  10. By: Luckstead,, Jeff; Devadoss, Stephen
    Keywords: Marketing, Agribusiness, Agricultural and Food Policy
    Date: 2022–08
  11. By: Kei Kawai; Jun Nakabayashi; Daichi Shimamoto
    Abstract: We apply a Regression Discontinuity based approach to screen for collusion developed in Kawai et al. (2022) to public procurement data from five countries. We find that bidders who win by a very small margin have significantly lower backlog than those who lose by a very small margin in the sample of procurement auctions from Indonesia, suggesting that bidders collude by bid rotation. Our results suggest that the proportion of noncompetitive auctions is at least about 5% for all E-procurement auctions and about 3% for all auctions in Indonesia. We cannot reject the null of competition in other countries.
    JEL: L41 O52 O53
    Date: 2022–07

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