nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒11‒14
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Economics of Transferable Patent Extensions By Dubois, Pierre; Moisson, Paul-Henri; Tirole, Jean
  2. Relative-Performance Delegation Destabilizes Upstream Collusion By Lee, Jen-Yao; Wang, Leonard F. S.; Sun, Ji
  3. A Dynamic Model of Predation By Rey, Patrick; Spiegel, Yossi; Stahl, Konrad
  4. Platform Liability and Innovation By Doh-Shin Jeon; Yassine Lefouili; Leonardo Madio
  5. Health-related activities of Big Tech By Retiene, Roman
  6. Recent Advances in the Theory of Third-Degree Price Discrimination: A Brief Survey By Takanori ADACHI
  7. Content Quality Assurance on Media Platforms with User-Generated Content By Xingzhen Zhu; Markus Lang; Helmut Dietl
  8. Dark commercial patterns By OECD
  9. Market Effects of Sponsored Search Auctions By Motta, Massimo; Penta, Antonio
  10. The Effect of Input Price Discrimination on Retail Prices: Theory and Evidence from France By Marie-Laure Allain; Claire Chambolle; Stéphane Turolla
  11. Price Discrimination in the Transport Industry and the Gains from Trade By Zheng, Han

  1. By: Dubois, Pierre; Moisson, Paul-Henri; Tirole, Jean
    Abstract: Faced with a scarcity of treatments for neglected diseases, experts and governmental organizations have lately proposed to build strong pull incentives around transferable vouchers. Inventors would be granted, and allowed to sell these vouchers to pharmas desiring to extend their exclusive IP rights. However, we know little about how such “Transferable Exclusivity Extensions” fare relative to prizes, who is likely to acquire them and at what cost for society, or how the burden is shared among nations. We shed light on these questions, both from a theoretical perspective and from an empirical analysis of European data.
    Keywords: Vouchers; pull mechanisms; burden sharing; administered drug prices; prizes;
    JEL: I18 L5 O3
    Date: 2022–11–02
  2. By: Lee, Jen-Yao; Wang, Leonard F. S.; Sun, Ji
    Abstract: This paper analyzes upstream firms’ collusive sustainability when downstream firms adopt the relative-performance delegation in an infinitely repeated Cournot or Bertrand game. We find that relative-performance delegation makes managers act more aggressive and upstream collusion more difficult to sustain compared to sales-revenue delegation. The driving force is that downstream relative-performance delegation makes more profits for the deviated firm. This result holds regardless of the competition modes.
    Keywords: Relative-performance delegation; Upstream collusion; Vertically related market; Competition modes
    JEL: D21 D43 L13 L21
    Date: 2022–08–17
  3. By: Rey, Patrick; Spiegel, Yossi; Stahl, Konrad
    Abstract: Growing concern about the market power of big tech giants has led to renewed interest in predatory behavior. We study the feasibility and prof- itability of predation in a dynamic environment, using a parsimonious infinite- horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to ac- commodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies.
    JEL: D43 L41
    Date: 2022–10–24
  4. By: Doh-Shin Jeon; Yassine Lefouili; Leonardo Madio
    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
  5. By: Retiene, Roman
    Abstract: While the German health sector has often been criticised for its slow uptake of novel digital products, other health systems have been significantly faster in adopting these products. In the course of this development, Big Tech companies have entered these health systems, particularly in the United States and the United Kingdom. But also in Germany, the involvement of Big Tech companies has become increasingly relevant in recent years. Among these Big Tech companies are the “Big Four” (i.e. Alphabet, Apple, Meta and Amazon) but also companies like Palantir and Oracle which have reinforced their activities in the health sector without much attention of the broader public. In this paper, these health-related activities of Big Tech are described in detail. Also providers of electronic health records and hospital information systems like Epic Systems and Cerner and German companies like the Deutsche Telekom and SAP are taken into account. All in all, fourteen companies are covered and their activities are divided into six categories to facilitate an overview and reveal the different focuses of the companies.
    Keywords: Big Tech, health data, eHealth
    JEL: I11 L00 L86 O30 O31 O33 O34
    Date: 2022–10–19
  6. By: Takanori ADACHI
    Abstract: This survey provides a selected review of the recent progress in the theory of third-degree price discrimination. First, I focus on two well-known results in the literature: (i) an increase in aggregate output is necessary for price discrimination to increase social welfare, and (ii) price discrimination leads to a Pareto welfare improvement if one of the two markets is not served under uniform pricing. I argue when these results hold and when they fail to hold. Second, I consider oligopolistic competition and stress that there is no great divide between monopoly and oligopoly because both situations can be treated systematically in terms of an index that governs the intensity of competition.
    Date: 2022–09
  7. By: Xingzhen Zhu (School of Economics and Management, Nanjing University of Science and Technology); Markus Lang (Institute of Sport Sciences, University of Lausanne); Helmut Dietl (Department of Business Administration, University of Zurich)
    Abstract: This paper develops a duopoly model of user-generated content (UGC) platforms that compete for consumers and content producers in two-sided markets with network externalities. Each platform can choose the level of investment into a content quality assurance (CQA) system and the level of advertising. Our model shows that network effects are crucial in determining the platforms' optimal strategy and the behavior (single vs. multi-homing) of their users. Specifically, we find that consumers are multi-homing and producers are single-homing when the network effects obtained by producers are weak, while the opposite is true if these network effects are strong. Moreover, our model shows that the user behavior and the network effects determine whether a platform has incentives to place ads and/or invest into CQA. In general, weak network effects induce a platform to invest into a CQA system except when consumers and producers are multi-homing. The results in our model suggests the need for platform companies to assess the magnitude of network effects on their platform to predict the behavior of their users, which in turn will determine the optimal CQA and advertising strategy.
    Keywords: UGC platform; two-sided market; multi-homing; network externalities; platform investment
    JEL: C72 D85 L14
    Date: 2022–10
  8. By: OECD
    Abstract: There is mounting concern that dark commercial patterns may cause substantial consumer detriment. These practices are commonly found in online user interfaces and steer, deceive, coerce, or manipulate consumers into making choices that often are not in their best interests. This report proposes a working definition of dark commercial patterns, sets out evidence of their prevalence, effectiveness and harms, and identifies possible policy and enforcement responses to assist consumer policy makers and authorities in addressing them. It also documents possible approaches that consumers and businesses may take to mitigate dark commercial patterns.
    Date: 2022–10–26
  9. By: Motta, Massimo; Penta, Antonio
    Abstract: We investigate the market effects of brand search advertising, within a model where two firms simultaneously choose the price of their (differentiated) product and the bids for the advertising auction which is triggered by own and rival’s brand keywords search; and where there exist sophisticated/attentive consumers (who look for any available in-formation on their screen) and naive/inattentive consumers (who only look at the top link of their screen), both aware of either brand’s characteristics and price. Relative to a benchmark where only organic search exists, in any symmetric equilibrium each firm wins its own brand auction, and advertising has detrimental effects on welfare: (i) the sponsored link crowds out the rival’s organic link, thus reducing competition and choice, and leading to price increases; (ii) the payment of the rival’s bid (may) raise marginal cost, also contributing to raise market prices. Under extreme asymmetry (there is an incumbent and an unknown new entrant), we do find that the market effect of brand bidding might be beneficial, if the search engine does not list the entrant’s link in organic search, and the share of the sophisticated consumers in the economy is large enough for an equilibrium in which the entrant wins the advertising auction on the search for the incumbent’s brand to exist.
    Keywords: Digital advertising; auctions; oligopoly; search engines; brands; horizontal agreements
    Date: 2022–10–11
  10. By: Marie-Laure Allain; Claire Chambolle; Stéphane Turolla
    Abstract: We develop a model of vertical relations between national brand and private label producers and competing multi-product retailers to derive new predictions on the impact of input price discrimination on retail prices. A reform that lifted a ban on input price discrimination in France provides a natural experiment to test these predictions. Using household scanner data on food prices, we run a difference-in-differences analysis and show that the reform caused a significant decrease of the relative prices of national brand products. These results suggest a pro-competitive effect of authorizing input price discrimination.
    Keywords: input price discrimination, policy evaluation, food retail sector
    JEL: K21 L13 L42 L66 L81
    Date: 2022
  11. By: Zheng, Han
    Abstract: Shipping companies often charges nonlinear and discriminatory pricing for transportation. This paper shows that this nonlinear and discriminatory pricing in the shipping industry could hamper the welfare gains from trade due to withinindustry allocation across heterogeneous firms. I extend a standard heterogeneous firm trade model with variable markups by incorporating monopolistically competitive shipping companies that charge nonlinear and discriminatory pricing against manufacturers. In a standard setting, shipping companies optimally charge a higher transport price to the more productive firms, weakening within-industry reallocation toward productive firms. Elimination of this discriminatory practice could potentially increase the gains from trade.
    Keywords: Price discrimination, Shipping industry, Heterogeneous firms, The gains from trade
    JEL: F12 L91 R13 R41
    Date: 2022–10

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