nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒11‒21
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Privatization, Entry and Corporate Social Responsibility with Consumer Cognition By Wen, Jun; Diao, Yu; Wang, Leonard F. S.; Sun, Ji
  2. How a Brand's Social Activism Impacts Consumers' Brand Evaluations: The Role of Brand Relationship Norms By Jingjing Li; Nicole Montgomery; Reza Mousavi
  3. A Theory of Stable Market Segmentations By Nima Haghpanah; Ron Siegel
  4. Foreclosure and Tunneling with Partial Vertical Ownership By Matthias Hunold; Vasilisa Petrishcheva

  1. By: Wen, Jun; Diao, Yu; Wang, Leonard F. S.; Sun, Ji
    Abstract: In this paper, we formulate a mixed triopoly with product differentiation and consumer cognition in which a welfare-maximizing public firm and CSR-concerned private firms conduct quantities competition. The government decides the optimal degree of privatization of public firm. We find that the privatization degree of public firm is closely related to product differentiation and consumer cognition. When private firm enters, whether CSR efforts are made or not, the degree of privatization will be higher. Furthermore, if the public firm is the leader of the industry, government’s optimal choice of privatization is not to privatize. The total output level, consumer surplus and social welfare are lower than those of Cournot competitors.
    Keywords: Privatization; Corporate Social Responsibility; Mixed Triopoly; Consumer Cognition
    JEL: D43 L13 L21 L31 M14
    Date: 2022–10–26
  2. By: Jingjing Li; Nicole Montgomery; Reza Mousavi
    Abstract: Brands are facing heightened pressure from consumers to address social justice issues via social media channels. However, little guidance has been provided about whether and how a brand should engage in such conversations online. We use a multi-discipline, multi-data, and multi-method approach to clarify the conditions under which social justice activism impacts consumers' brand evaluations, as well as the effective social media response strategies that brands can use. Through secondary data analysis on Twitter and two randomized experiments, we find that social justice activism and brand type (low communal, high communal) interact to affect consumers' brand evaluations. In online contexts that feature social justice activism, consumers evaluate high (vs. low) communal brands less favorably. Yet, in online contexts devoid of social justice activism, these evaluation differences are attenuated. We attribute these findings to differences in the extent to which high versus low communal brands are perceived to comply with relationship norms in a social justice activism context. We show that such differences can be attenuated when brands utilize a high empathy response on social media to engage in social justice conversations. Our findings contribute to the literature on social justice and IS, brand relationships, and crisis communication.
    Date: 2022–10
  3. By: Nima Haghpanah; Ron Siegel
    Abstract: We consider a monopolistic seller in a market that may be segmented. The surplus of each consumer in a segment depends on the price that the seller optimally charges, which depends on the set of consumers in the segment. We study which segmentations may result from the interaction among consumers and the seller. Instead of studying the interaction as a non-cooperative game, we take a reduced-form approach and introduce a notion of stability that any resulting segmentation must satisfy. A stable segmentation is one that, for any alternative segmentation, contains a segment of consumers that prefers the original segmentation to the alternative one. Our main result characterizes stable segmentations as efficient and saturated. A segmentation is saturated if no consumers can be shifted from a segment with a high price to a segment with a low price without the seller optimally increasing the low price. We use this characterization to constructively show that stable segmentations always exist. Even though stable segmentations are efficient, they need not maximize average consumer surplus, and segmentations that maximize average consumer surplus need not be stable. Finally, we relate our notion of stability to solution concepts from cooperative game theory and show that stable segmentations satisfy many of them.
    Date: 2022–10
  4. By: Matthias Hunold (University of Siegen); Vasilisa Petrishcheva (University of Potsdam)
    Abstract: We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target (tunneling). Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.
    Keywords: Backward ownership, Entry deterrence, Foreclosure, Minority shareholdings, Partial ownership, Uniform pricing, Vertical integration
    JEL: G34 L22 L40
    Date: 2022–11

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