nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒10‒17
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. 100 years of rising corporate concentration By Kwon, Spencer Y.; Ma, Yueran; Zimmermann, Kaspar
  2. Price-Directed Search, Product Differentiation and Competition By Martin Obradovits; Philipp Plaickner
  3. Competition with limited attention to quality differences By Schmitt, Stefanie Y.
  4. Vertical Control Change and Platform Organization under Network Externalities By Jorge Padilla; Salvatore Piccolo; Shiva Shekhar
  5. Platform Liability and Innovation By Doh-Shin Jeon; Yassine Lefouili; Leonardo Madio
  6. Externality Control and Endogenous Market Structure under Uncertainty: the Price vs. Quantity dilemma By Luca Di Corato; Yishay D. Maoz
  7. Aspects of Measuring Firm-Level Multinationality By Patrik Vanek

  1. By: Kwon, Spencer Y.; Ma, Yueran; Zimmermann, Kaspar
    Abstract: We collect data on the size distribution of all U.S. corporate businesses for 100 years. We document that corporate concentration (e.g., asset share or sales share of the top 1%) has increased persistently over the past century. Rising concentration was stronger in manufacturing and mining before the 1970s, and stronger in services, retail, and wholesale after the 1970s. Furthermore, rising concentration in an industry aligns closely with investment intensity in research and development and information technology. Industries with higher increases in concentration also exhibit higher output growth. The long-run trends of rising corporate concentration indicate increasingly stronger economies of scale.
    Keywords: Corporate concentration,economies of scale
    JEL: E23 E01 N12
    Date: 2022
  2. By: Martin Obradovits; Philipp Plaickner
    Abstract: Especially in many online markets, consumers can readily observe prices, but may need to further inspect products to assess their suitability. We study the effects of product differentiation and search costs on competition and market outcomes in a tractable model of price-directed consumer search. We find that (i) firms' equilibrium pricing always induces efficient search behavior, (ii) for relatively large product differentiation, welfare distortions still occur because some consumers (may) forgo consumption, and (iii) lower search costs lead to stochastically higher prices, increasing firms' expected profits and decreasing their frequency of sales. Consumer surplus often falls when search costs decrease.
    Keywords: Consumer Search, Price-Directed Search, Product Differentiation, Price Competition, Mixed-Strategy Pricing, Search Costs
    JEL: D43 D83 L13
    Date: 2022
  3. By: Schmitt, Stefanie Y.
    Abstract: I analyze the implication of consumers' limited attention to quality differences on market outcomes and welfare. I model this limited attention to quality differences with a perception threshold: Consumers only perceive quality differences between goods that exceed the consumers' perception threshold. The model allows for two types of equilibria: equilibria with distinguishable and equilibria with indistinguishable qualities. I show that horizontal product differentiation, which gives firms market power, affects equilibrium selection. If firms are horizontally differentiated, firms produce goods with indistinguishable qualities. Then, limited attention harms consumers and benefits firms. In contrast, if firms are not horizontally differentiated, firms produce goods with distinguishable qualities. Then, limited attention has no effect on consumers' welfare or firms' profits.
    Keywords: Limited Attention,Perception Threshold,Product Differentiation,Product Quality
    JEL: D43 D91 L13
    Date: 2022
  4. By: Jorge Padilla; Salvatore Piccolo; Shiva Shekhar
    Abstract: In this paper, we examine how the introduction of network externalities impact an open and vertically integrated platform’s post-merger contractual relationship with third-party sellers distributing through its marketplace. Regardless of whether the platform uses linear contracts or two-part tariffs, we find that, provided these contracts are public, the platform has no incentive to exclude its non-integrated rivals and that the latter’s market share rises as network effects gain importance. Vertical integration serves as a commitment device that open platforms can use to convince potential users (e.g., consumers and developers) that their ecosystem will be large and compelling. Interestingly, when the open platform competes with a closed rival, i.e., with a fully integrated ecosystem, it may find it profitable to subsidize independent third-party sellers to strategically steer demand away from the competing ecosystem. These results have novel managerial implications on the incentives of a platform to open up its ecosystem to third-party sellers, as well as for the regulation of vertical integration in the presence of network effect and when different platforms operate alternative business models.
    Keywords: open ecosystems, network externalities, platforms, vertical integration
    JEL: L22 L41 L51
    Date: 2022
  5. By: Doh-Shin Jeon (Toulouse School of Economics, University of Toulouse Capitole and CEPR); Yassine Lefouili (Toulouse School of Economics, University of Toulouse Capitole); Leonardo Madio (Department of economics and management †Marco Fanno†, University of Padova and CESifo)
    Abstract: We study a platformâs incentives to delist IP-infringing products and the effects of holding the platform liable for the presence of such products on innovation and consumer welfare. For a given number of buyers, platform liability increases innovation by reducing the competitive pressure faced by innovative products. However, there can be a misalignment of interests between innovators and buyers. Furthermore, platform liability can have unintended consequences, which overturn the intended effect on innovation. Platform liability tends to increase (decrease) innovation and consumer welfare when the elasticity of participation of innovators is high (low) and that of buyers is low (high).
    Keywords: platform, liability, intellectual property, innovation
    JEL: K40 K42 K13 L13 L22 L86
    Date: 2022–09
  6. By: Luca Di Corato (Department of Economics, University Of Venice CÃ Foscari); Yishay D. Maoz (The Open University of Israel)
    Abstract: In a competitive industry where production entails a negative externality, a welfare-maximizing regulator considers, as control instruments, setting a cap on the industry output or levying an output tax. We embed this scenario within a dynamic setup where market demand is stochastic and market entry is irreversible. We firstly determine the industry equilibrium under each policy and then determine the cap level and the tax rate which maximize welfare in each case. We show that a first-best outcome can be achieved through the tax policy while the cap policy may only qualify as a second-best alternative.
    Keywords: Investment, Uncertainty, Caps, Taxes, Competition, Externalities, Welfare
    JEL: C61 D41 D62
    Date: 2022
  7. By: Patrik Vanek (Department of Economics, Faculty of Business and Economics, Mendel University in Brno, Zemedelska 1, 613 00 Brno, Czech Republic)
    Abstract: This paper explores the ambiguity of the methods of measuring firm-level multinationality. The focus is on identifying the main criteria for evaluating the quality of methods for measuring the multinationality of multinational enterprises (MNEs), as it is practical to map the discrepancies and differences. The evaluation is structured to highlight the advantages and limitations of methods proposed by other authors in the international business (IB) literature. The main finding is the recognition of seven key aspects in measuring firm-level multinationality defined as follows: (1) aggregation, (2) complexity, (3) indicators, (4) geography, (5) robustness, (6) country effects, and (7) flexibility. The proposed list can serve as grounds for selecting which methods to use for research, evaluation of the quality of proposed methods, and development of an entirely new method of measuring firm-level multinationality. The main contribution of this paper is its proposal of an optimal approach to each of the seven aspects.
    Keywords: MNE, multinationality classification, firm internationalisation, measurement
    JEL: F23 L25
    Date: 2022–09

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