nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒10‒03
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Artificial Collusion: Examining Supracompetitive Pricing by Q-learning Algorithms By Arnoud V. den Boer; Janusz M. Meylahn; Maarten Pieter Schinkel
  2. Product Lotteries and Loss Aversion By Schäfers, Sebastian
  3. Sharing cost of network among users with differentiated willingness to pay By Panova, Elena
  4. Targeted Incentives, Broad Impacts: Evidence from an E-commerce Platform By Xiang Hui; Meng Liu; Tat Chan
  5. Trade Secret Protection and R&D Investment of Family Firms By Katrin Hussinger; Wunnam Basit Issah
  6. Empirical Analysis of the Codeshare Effect on Airline Market Competition and Product Quality By KO Ryuya; OHASHI Hiroshi
  7. Japanese Firms' Markups and Firm-to-firm Transactions By NAKAMURA Tsuyoshi; OHASHI Hiroshi
  8. (Lack of) Competition, Coordination, and Information Sharing in the Pork Industry: United States, 2009-2020 By Javier D. Donna; Anita N. Walsh

  1. By: Arnoud V. den Boer (University of Amsterdam); Janusz M. Meylahn (University of Twente); Maarten Pieter Schinkel (University of Amsterdam)
    Abstract: We examine recent claims that a particular Q-learning algorithm used by competitors ‘autonomously’ and systematically learns to collude, resulting in supracompetitive prices and extra profits for the firms sustained by collusive equilibria. A detailed analysis of the inner workings of this algorithm reveals that there is no immediate reason for alarm. We set out what is needed to demonstrate the existence of a colluding price algorithm that does form a threat to competition.
    Keywords: keywords
    JEL: C63 L13 L44 K21
    Date: 2022–09–21
  2. By: Schäfers, Sebastian (University of Basel)
    Abstract: Product lotteries are a sales strategy where companies hide features of differentiated products from consumers until the purchase is complete. I identify loss aversion as an important factor explaining the existence of vertical product lotteries. I consider a profit-maximizing monopolist serving loss-averse consumers with rational expectations about the lottery. I find that the optimal strategy consists of offering a premium product with high and deterministic quality and a lottery with stochastic and lower expected quality. When consumers are reasonably loss averse, I show that the profit increase from adding a quality lottery exceeds 10% compared to the case without a lottery.
    Keywords: Product lotteries, Probabilistic selling, Reference-dependent preferences, Loss aversion
    JEL: D42 D81 D91 L12
    Date: 2022–08–22
  3. By: Panova, Elena
    Abstract: We consider the problem of sharing the cost of efficient uncongested tree-network among users with differentiated willingness to pay for the good supplied through the network. We nd that the associated value sharing problem is convex, hence, the core is large and we axiomatize a new, computationally simple core selection based on the idea of proportionality.
    Keywords: sharing network cost; core; proportional allocation
    JEL: C71
    Date: 2022–09–06
  4. By: Xiang Hui; Meng Liu; Tat Chan
    Abstract: Digital platforms sometimes offer incentives to a subset of sellers to nudge behavior, possibly affecting the behavior of all sellers in the equilibrium. In this paper, we study a policy change on a large e-commerce platform that offers financial incentives only to platform-certified sellers when they provide fast handling and generous return policies on their listings. We find that both targeted and non-targeted sellers become more likely to adopt the promoted behavior after the policy change. Exploiting a large number of markets on the platform, we find that in markets with a larger proportion of the targeted population—hence more affected by the policy change—non-targeted sellers are more likely to adopt the promoted behavior and experience a larger increase in sales and equilibrium prices. This finding is consistent with our key insight that a targeted incentive may increase demand for non-targeted sellers when both platform certificates and the promoted behaviors are quality signals. Our results have managerial implications for digital platforms that use targeted incentives.
    Keywords: targeted incentives, quality provision, signalling, demand expansion
    Date: 2022
  5. By: Katrin Hussinger (Université du Luxembourg); Wunnam Basit Issah (University of Leicester)
    Abstract: Family firms are known for their reluctance to invest in research and development. We show that strengthened trade secret protection is associated with higher R&D investment by family firms. More specifically, we show that the association between the strength of trade secret protection through the U.S. Uniform Trade Secrets Act and R&D investment is positively moderated by family control. Our results further show that the positive moderation of family control on the association between the strength of trade secret protection and R&D investment varies with the industry context, being stronger in high tech industries and weaker in discrete product industries.
    Keywords: Family firms; intellectual property protection; trade secret protection; UTSA; R&D investments; socioemotional wealth.
    Date: 2022
  6. By: KO Ryuya; OHASHI Hiroshi
    Abstract: This paper examines the economic consequences of code-sharing agreements (CSA) in the airline market. CSA can be viewed as a vertical contract between airlines, which sometimes co-own the code-shared flights. Our structural model aims to understand how and to what extent CSA distorts market competition among airlines. With an application to Japanese domestic airlines, structural estimates of our demand and supply models indicate that CSA would significantly lessen market competition, by sharing increased revenues from raised fares. We further extend our model to consider endogenous product quality. Although the loss of consumer welfare due to CSA is alleviated by enhanced product quality, the anti-competitive effect of CSA is persistent.
    Date: 2022–08
  7. By: NAKAMURA Tsuyoshi; OHASHI Hiroshi
    Abstract: Markup, or the ratio of price to cost, depends on the firm's attributes and the market environment where the firm operates. This paper empirically studies the relationship between the markups of firms and their firm-to-firm transactional status. More specifically, we analyze the correlation between markups and the number and variety of the firm’s transactional partners. Based on a comprehensive panel dataset of Japanese firms derived from the Basic Survey of Japanese Business Structure and Activities, provided by METI, and the Firm Relation File of TSR (Tokyo Shoko Research) for 2007-2018, we find that a firm's markup level decreases as the number of suppliers (upstream transactional partners) increases, after controlling for firm attributes such as size and age, and industry-specific time effects. This empirical pattern is observed for both manufacturing and non-manufacturing sectors. As for the firm’s number of customers (downstream transactional partners), the empirical results differ between manufacturing and non-manufacturing sectors. We further examine the correlation between the number of transactional partners a firm has and the characteristics of those transactional partners.
    Date: 2022–08
  8. By: Javier D. Donna (University of Florida/The Rimini Centre for Economic Analysis); Anita N. Walsh (TBA)
    Abstract: In 2020, an antitrust lawsuit was filed against the Pork Integrators alleging a §1 Sherman Act violation. At the center of the Lawsuit, there is an alleged exchange of atomistic information about the Pork integrators’ operations using Agri Stats, Inc. as a clearinghouse. We use the Supreme Court benchmark in American Column & Lumber to discuss two questions that arise from the Lawsuit. The first is whether the association of Pork Integrators and Agri Stats, Inc. resulted in the restraint of interstate commerce, the main specific issue at stake in the pork Lawsuit. The second is whether information-exchange agreements using clearinghouses like Agri Stats, Inc. lessen competition and offend United States antitrust law, a more general issue beyond the pork Lawsuit. We find that there appears to be ample evidence in the Lawsuit to merit prosecution regarding both trade restraints and information-sharing agreements. We conclude by discussing the role of the Agencies in setting the standards in informationexchange agreements.
    Keywords: Antitrust, Price-fixing, Competition, Information Sharing, Cartel, Pork Industry.
    JEL: K21 L12 L13 L41 L42 L66
    Date: 2022–09

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