nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒11‒28
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Trade and Selection with Heterogeneous Firms and Perfect Competition By Xue Bai; Arpita Chatterjee; Kala Krishna; Hong Ma
  2. Welfare effects of common ownership in an international duopoly By Liu, Yi; Matsumura, Toshihiro
  3. On the Welfare Effects of Adverse - Selection in Oligopolistic Markets By Marco de Pinto; Lazlo Goerke; Alberto Palermo
  4. Green Transformation in Oligopoly Markets under Common Ownership By Hirose, Kosuke; Matsumura, Toshihiro
  5. Cross-Border Mergers and Acquisitions By Isil Erel; Yeejin Jang; Michael S. Weisbach
  6. Global profit shifting, 1975-2019 By Ludvig Wier; Gabriel Zucman
  7. Oligopsony Power and Factor-Biased Technology Adoption By Michael Rubens
  8. Death squad or quality improvement? The impact of introducing post-grant review on U.S. patent quality By Arianna Martinelli; Julia Mazzei
  9. Regulating the Innovators: Approval Costs and Innovation in Medical Technologies By Rogers, Parker
  10. Efficient market versus regulatory capture: a political economy assessment of power market reform in China By Lin, Jiang Dr.; Xiang, Chenxi Ms

  1. By: Xue Bai; Arpita Chatterjee; Kala Krishna; Hong Ma
    Abstract: This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin-Samuelson setting. We show that trade need not make selection in the comparative advantage sector stricter as suggested by earlier work. Selection is driven by the capital intensity in entry costs relative to production costs. If trade raises (reduces) the wage rental ratio, and entry costs are more labor intensive than production costs in a sector, then the ratio of entry cost to production costs will rise (fall) and selection will become weaker (stricter) in this sector. Moreover, we show that the central theorems of the HOS model (as well as the standard generalizations using duality) carry over in our setting.
    JEL: F0 F11
    Date: 2022–11
  2. By: Liu, Yi; Matsumura, Toshihiro
    Abstract: We formulate an international oligopoly model in the presence of global common ownership. We theoretically investigate how common ownership affects the volume of international trade in an oligopoly market and global welfare. We find that welfare decreases (increases) with the degree of common ownership when the international transport costs are low (high)
    Keywords: overlapping ownership, transport cost, welfare-improving production substitution
    JEL: F12 K21 L13
    Date: 2022–10–13
  3. By: Marco de Pinto (University of Applied Labour Studies, Mannheim); Lazlo Goerke (Institute for Labour Law and Industrial Relations in the EC, University of Trier, IZA Bonn and CESifo Muenchen); Alberto Palermo (Institute for Labour Law and Industrial Relations in the EC, University of Trier)
    Abstract: We consider a principal-agent relationship with adverse selection. Principals pay informational rents due to asymmetric information and sell their output in a homogeneous Cournot-oligopoly. We find that asymmetric information may mitigate or more than compensate the welfare reducing impact of market power, irrespective of whether the number of firms is given exogenously or determined endogenously by a profit constraint. We further show that welfare in a setting with adverse selection may be higher than the maximized welfare level attainable in a world with perfect observability.
    Keywords: Adverse Selection, Oligopoly, Welfare
    JEL: D43 D82 L51
  4. By: Hirose, Kosuke; Matsumura, Toshihiro
    Abstract: A theoretical investigation is conducted on how common ownership (or the extent of cooperation in an industry) affects firms' incentives to adopt green fuel in an oligopoly. The findings show that common ownership hinders the switch from brown to green fuels in two ways. First, an increase in the degree of common ownership reduces a firm's incentive to adopt green fuel. Second, an increase in the degree of common ownership induces a production substitution from green to brown fuel firms. Both these effects reduce the share of green fuel.
    Keywords: green transition; green fuel; brown fuel; competition restricting effect; production substitution
    JEL: L13 M14 Q57
    Date: 2022–11–01
  5. By: Isil Erel; Yeejin Jang; Michael S. Weisbach
    Abstract: One of the most consequential events in any firm’s lifetime is a major acquisition. Because of their importance, mergers and acquisitions (M&As) have been an enormous area of research. However, the vast majority of this research and survey papers summarizing this research have focused on domestic deals. Cross-border ones, however, constitute about 30% of the total number and 37% of the total volume of M&As around the world since the early 1990s. We survey the literature on cross-border M&As, focusing on international factors that can lead firms to acquire a firm in another country. Such factors include differences in economic development, laws, institutions, culture, labor rights, protection of intellectual property, taxes, and corporate governance.
    JEL: F0 G15 G34
    Date: 2022–10
  6. By: Ludvig Wier; Gabriel Zucman
    Abstract: This paper constructs time series of global profit shifting covering the 2015-19 period, during which major international efforts were implemented to curb profit shifting. We find that (i) multinational profits grew faster than global profits, (ii) the share of multinational profits booked in tax havens remained constant at around 37 per cent, and (iii) the fraction of global corporate tax revenue lost due to profit shifting rose from 9 to 10 per cent.
    Keywords: Profit shifting, Multinational firms, Taxation, Corporate tax
    Date: 2022
  7. By: Michael Rubens
    Abstract: I show that buyer power of firms could either increase or decrease their technology adoption, depending on the direction of technical change and on which input markets are imperfectly competitive. I examine this relationship empirically in a setting that features both concentrated labor markets and a large technology shock: the introduction of mechanical cutters in the 19th century Illinois coal mining industry. Using a model of production and labor supply which is estimated with mine-level data, I find that oligopsony power over skilled miners reduced the usage of cutting machines, an unskill-biased technology. However, it would have increased the usage of counterfactual skill-biased and Hicks-neutral technologies.
    JEL: J42 L11 L13 N52
    Date: 2022–10
  8. By: Arianna Martinelli; Julia Mazzei
    Abstract: Increasing evidence indicates that a large share of granted patents are ''undeserved'' because they do not meet the criteria of novelty or non-obviousness. In recent decades, many jurisdictions introduced patent reforms to avoid weak patent applications and improve legal patent quality. In particular, the Leahy-Smith America Invents Act (AIA), enacted into law in 2011, introduced the post-grant validity challenge at the United States Patents and Trademarks Office (USPTO). This procedure allows any third party to question granted patents, possibly leading to patent revocation or scope reduction. This paper aims to provide evidence of the impact of such policy change on the legal quality of the patent system. To identify the policy effect we exploit the fact that the same invention is patented in different legislation and that not all of them have post-grant review procedures. In particular, we compare the same patent filed at the USPTO and the Canadian Intellectual Property Office (CIPO). In this setting, we apply standard Diff-in-Diff analysis to estimate the effect of the post-grant validity challenge on the patent scope. Our results indicate that the AIA reform contributed to a reduction of U.S. patent scope in the last decade, indeed increasing the legal quality of the patent system.
    Keywords: Patent opposition; patent quality; policy evaluation; patent scope.
    Date: 2022–11–16
  9. By: Rogers, Parker
    Abstract: How does FDA regulation affect innovation and market concentration? I examine this question by exploiting FDA deregulation events that affected certain medical device types but not others. I use text analysis to gather comprehensive data on medical device innovation, device safety, firm entry, prices, and regulatory changes. My analysis of these data yields three core results. First, these deregulation events significantly increase the quantity and quality of new technologies in affected medical device types relative to control groups. These increases are particularly strong among small and inexperienced firms. Second, these events increase firm entry and lower the prices of medical procedures that use affected medical device types. Third, the rates of serious injuries and deaths attributable to defective devices do not increase measurably after these events. Perhaps counterintuitively, deregulating certain device types lowers adverse event rates significantly, consistent with firms increasing their emphasis on product safety as deregulation exposes them to more litigation.
    Date: 2022–11–01
  10. By: Lin, Jiang Dr.; Xiang, Chenxi Ms
    Abstract: China began implementing market-based economic dispatch through power sector reform in 2015, but the reform has encountered some political and economic challenges. This paper identifies the reform’s efficiency changes and explores and quantifies the influences of market-driven and politically driven mechanisms behind these changes, employing a partial market equilibrium model integrating high-frequency data in southern China. We found that the dispatch transition improves the overall efficiency, but regulatory capture in provincial markets limits its full potential. The preference for local enterprises over central state-owned enterprises (SOEs) by local governments, in the form of allocated generation quotas, demonstrates the political challenge for market reform. The allocated generation quota protects small coal-fired and natural gas generators owned by local SOEs, lessening their motivation to improve generation efficiency, even after the reform. As a result, nearly half of the potential carbon dioxide emission reduction and social welfare gains through market reform is not realized.
    Keywords: Social and Behavioral Sciences, Economic dispatch, electricity market, Regulatory capture, Efficiency gains, China
    Date: 2022–11–11

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