nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒09‒19
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Platform pricing strategies when consumers web/showroom By Federico Navarra
  2. Research Joint Ventures: The Role of Financial Constraints By Philipp Brunner; Igor Letina; Armin Schmutzler
  3. Pricing Novel Goods By Francesco Giovannoni; Toomas Hinnosaar
  4. A Mixed Duopoly in Interbank Payment Services By Carlos A. Arango-Arango; Yanneth Rocio Betancourt-Garcia
  5. Consumer Demand with Social Influences: Evidence from an E-Commerce Platform By El Hadi Caoui; Chiara Farronato; John J. Horton; Robert Schultz
  6. Dynamic Price Competition: Theory and Evidence from Airline Markets By Ali Hortaçsu; Aniko Oery; Kevin R. Williams
  7. Non-Stationary Dynamic Pricing Via Actor-Critic Information-Directed Pricing By Po-Yi Liu; Chi-Hua Wang; Heng-Hsui Tsai
  8. Intellectual Property Rights Protection and Trade: An Empirical Analysis By Auriol, Emmanuelle; Biancini, Sara; Paillacar, Rodrigo

  1. By: Federico Navarra (University of Padova)
    Abstract: This paper studies the effects of price parity clauses (PPC) on consumer surplus and platform profit by investigating the strategic interactions among horizontally differentiated multi-channel retailers selling through online platforms as well as in their the direct channel. Consumers first choose which product to buy and then in which channel (online/direct) to finalize the purchase; platforms can decide about whether or not to impose PPCs. We show that the direct sales channel constrains platform pricing strategies such that PPCs have ambiguous effects on consumers. From the social welfare perspective, imposing PPCs is desirable when platforms are perceived as highly substitutable. Both platforms imposing price parity is always a Nash equilibrium but under certain conditions it can also arise another Nash equilibrium in which both platforms select an unrestricted pricing regime.
    Keywords: platform competition, price parity clauses, vertical restraints, showrooming, webrooming
    JEL: D43 L13 L42
    Date: 2022–08
  2. By: Philipp Brunner; Igor Letina; Armin Schmutzler
    Abstract: This paper provides a novel theory of research joint ventures for financially constrained firms. When firms choose R&D portfolios, an RJV can help to coordinate research efforts, reducing investments in duplicate projects. This can free up resources, increase the variety of pursued projects and thereby increase the probability of discovering the innovation. RJVs improve innovation outcomes when market competition is weak and external financing conditions are bad. An RJV may increase the innovation probability and nevertheless lower total R&D costs. RJVs that increase innovation tend to be profitable, but innovation-reducing RJVs also exist. Finally, we compare RJVs to innovation-enhancing mergers.
    Keywords: Innovation, Research Joint Ventures, Financial Constraints, Mergers, Intensity of Competition, Licensing
    JEL: L13 L24 O31
    Date: 2022–07
  3. By: Francesco Giovannoni; Toomas Hinnosaar
    Abstract: We study a buyer-seller problem of a novel good for which the seller does not yet know the production cost. A contract can be agreed upon at either the ex-ante stage, before learning the cost, or at the ex-post stage, when both parties will incur a costly delay, but the seller knows the production cost. We show that the optimal ex-ante contract for a profit-maximizing seller is a fixed price contract with an "at-will" clause: the seller can choose to cancel the contract upon discovering her production cost. However, sometimes the seller can do better by offering a guaranteed-delivery price at the ex-ante stage and a second price at the ex-post stage if the buyer rejects the first offer. Such a "limited commitment" mechanism can raise profits, allowing the seller to make the allocation partially dependent on the cost while not requiring it to be embedded in the contract terms. Analogous results hold in a model where the buyer does not know her valuation ex-ante and offers a procurement contract to a seller.
    Date: 2022–08
  4. By: Carlos A. Arango-Arango (Banco de la Republica de Colombia); Yanneth Rocio Betancourt-Garcia (Banco de la Republica de Colombia)
    Abstract: In this paper, we analyze theoretically the coexistence of two means of payment, such as cash and digital or electronic payments, introducing some distortions in the payments markets to understand the widespread use of cash, specially in emerging countries. Lagos and Wright (2005) theoretical approach allows us to model explicitly the frictions in the exchange process considering money as essential. We introduce in this framework theft and informality (measured by tax evasion) as factors aecting cash usage and competition with a private digital payment platform. Considering heterogeneity in the seller's side by assuming dierent levels of productivity we nd the factors that explain the use of cash or digital payments. If a public provider enters the market with a less expensive platform the fees charged by the private provider have to be adjusted to the cost level of the public platform, decreasing the use of cash in the economy.
    Keywords: Cash; means of payments; payments services; digital payments; instant payments
    JEL: E40 E41 E42 E44
    Date: 2022–08–15
  5. By: El Hadi Caoui; Chiara Farronato; John J. Horton; Robert Schultz
    Abstract: For some kinds of goods, rarity itself is valued. "Fashionable'" goods are demanded in part because they are unique. In this paper, we explore the economics of rare goods using auctions of limited-edition shoes held by an e-commerce platform. We model endogenous entry and bidding in multi-unit auctions and construct demand curves from realized bids. We find that doubling inventory reduces willingness to pay by 7-15%. From the producer perspective, ignoring the value of rarity leads to substantial overproduction: auctioned quantities are 82% above the profit-maximizing level. From the consumer perspective however, the negative spillovers of restricting quantity more than offset the benefits of rarer goods.
    JEL: D12 D44 L81
    Date: 2022–08
  6. By: Ali Hortaçsu; Aniko Oery; Kevin R. Williams
    Abstract: We introduce a model of oligopoly dynamic pricing where firms with limited capacity face a sales deadline. We establish conditions under which the equilibrium is unique and converges to a system of differential equations. Using unique and comprehensive pricing and bookings data for competing U.S. airlines, we estimate our model and find that dynamic pricing results in higher output but lower welfare than under uniform pricing. Our theoretical and empirical findings run counter to standard results in single-firm settings due to the strategic role of competitor scarcity. Pricing heuristics commonly used by airlines increase welfare relative to estimated equilibrium predictions.
    JEL: C70 C73 D21 D22 D43 D60 L13 L93
    Date: 2022–08
  7. By: Po-Yi Liu; Chi-Hua Wang; Heng-Hsui Tsai
    Abstract: This paper presents a novel non-stationary dynamic pricing algorithm design, where pricing agents face incomplete demand information and market environment shifts. The agents run price experiments to learn about each product's demand curve and the profit-maximizing price, while being aware of market environment shifts to avoid high opportunity costs from offering sub-optimal prices. The proposed ACIDP extends information-directed sampling (IDS) algorithms from statistical machine learning to include microeconomic choice theory, with a novel pricing strategy auditing procedure to escape sub-optimal pricing after market environment shift. The proposed ACIDP outperforms competing bandit algorithms including Upper Confidence Bound (UCB) and Thompson sampling (TS) in a series of market environment shifts.
    Date: 2022–08
  8. By: Auriol, Emmanuelle; Biancini, Sara; Paillacar, Rodrigo
    Abstract: The paper proposes an empirical analysis of the determinants of the adoption of Intellectual Property Rights (IPR) and their impact on innovation in manufac- turing. The analysis is conducted with panel data covering 112 countries. First we show that IPR protection is U-shaped with respect to a country’s market size and inverse-U-shaped with respect to the aggregated market size of its trade partners. Second, reinforcing IPR protection reduces on-the-frontier and inside-the-frontier innovation in developing countries, without necessarily increasing innovation at the global level.
    Keywords: Intellectual Property Rights; Innovation; Developing Countries; Market Potential; Trade
    JEL: F12 F13 F15 L13 O31 O34
    Date: 2022–09–02

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