nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒09‒12
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The sociology of cartels By Haucap, Justus; Heldman, Christina
  2. Are Deregulated Airports More Efficient? By Pierre M. Picard; Alessandro Tampieri; Xi Wan
  3. Search and competition in expert markets By Cao, Yiran; Chen, Yongmin; Ding, Yucheng; Zhang, Tianle
  4. Quality Regulation and Competition: Evidence from Pharmaceutical Markets By Juan Pablo Atal; José Ignacio Cuesta; Morten Sæthre

  1. By: Haucap, Justus; Heldman, Christina
    Abstract: Traditional economic theory of collusion assumed that cartels are inherently unstable, and yet some manage to operate for years or even decades. While the literature has presented several determinants of cartel stability, the vast majority focuses on firms as entities, even though cartels are typically formed between individuals who need to develop structures that allow them to establish trust and ensure cooperation. We analyze 15 German cartels, focusing on the individual participants, the communication and internal structures within the cartels as well as their breakup. Our results indicate that cartel members are highly homogeneous and often rely on existing networks within the industry. Most impressively, only two of the 156 individuals involved in these 15 cartels were female, suggesting that gender also plays a role for cartel formation. We further identify various forms of communication and divisions of responsibilities and show that leniency programs are a powerful tool in breaking up cartels. Based on these results we discuss implications for competition policy and further research.
    Keywords: Cartels,Collusion,Social Networks,Trust,Antitrust
    Date: 2022
  2. By: Pierre M. Picard; Alessandro Tampieri; Xi Wan
    Abstract: Picard et al. (2019) show that allocative inefficiency may occur in a private airport when passenger fees are regulated. In this paper, we investigate the presence of inefficiency in slot allocation when an airport faces no regulation over per-passenger charges. In the model, passengers favor peak times and the number of available peak-time slots is constrained by airport capacities. Consistent with empirical evidence, we find that fees deregulation solves allocative inefficiency by raising per-passenger fees. However, when the infrastructural resources appear to be more efficiently employed, the increase in fees leads to a fall in social welfare.
    Keywords: Slot allocation, Endogenous fee, Airport capacity
    JEL: R41 H21 H23
    Date: 2022
  3. By: Cao, Yiran; Chen, Yongmin; Ding, Yucheng; Zhang, Tianle
    Abstract: We develop a model in which consumers sequentially search experts for recommendations and prices to treat a problem, and experts simultaneously compete in these two dimensions. Consumers have either zero or a positive search cost. In equilibrium, experts may "cheat" by recommending an unnecessary treatment with positive probabilities, prices follow distributions that depend on a consumer's problem type and the treatment, and consumers search with Bayesian belief updating about their problem types. Remarkably, as search cost decreases, both expert cheating and prices can increase stochastically. However, if search cost is sufficiently small, competition forces all experts to behave honestly.
    Keywords: search, experts, competition, credence good
    JEL: D8 L1
    Date: 2022–08–12
  4. By: Juan Pablo Atal; José Ignacio Cuesta; Morten Sæthre
    Abstract: Quality regulation attempts to ensure quality and foster competition by reducing vertical differentiation, but it may also have adverse effects on market structure. We study this trade-off in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the introduction of bioequivalence in Chile, we find that stronger regulation decreased the number of drugs in the market by 21% and increased average paid prices by 13%. We estimate a model of drug entry, certification, and demand to study the role of drug quality, aversion against generics, and certification costs in shaping the equilibrium effects of quality regulation. We find that quality regulation increased demand for generic drugs by resolving asymmetric information and reducing aversion against unbranded generics, which induced entry of high-quality drugs in place of low-quality drugs. Consumer welfare increased despite higher prices and a lower number of firms. We compare minimum quality standards to quality disclosure and other designs of quality regulation.
    JEL: I11 L11 L15
    Date: 2022–08

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