nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒01‒02
eight papers chosen by

  1. The Inverse Product Differentiation Logit Model By Mogens Fosgerau; Julien Monardo; André de Palma
  2. Shifting to Telework and Firms' Location: Does Telework Make Our Society Efficient? By Kazufumi Tsuboi
  3. Internal Adjustment Costs of Firm-Specific Factors and the Neoclassical Theory of the Firm By V.K. Chetty; James J. Heckman
  4. Competitive Effects of Resale Price Maintenance Through Inventory: Evidence from Publishing Industry By Kawaguchi, Kohei; Qiu, Jeff; Zhang, Yi
  5. Redesigning Automated Market Power Mitigation in Electricity Markets By Jacqueline Adelowo; Moritz Bohland
  6. Price setting before and during the pandemic: evidence from Swiss consumer prices By Barbara Rudolf; Pascal Seiler
  7. Supply Chain Resilience: Evidence from Indian Firms By Gaurav Khanna; Nicolas Morales; Nitya Pandalai-Nayar
  8. Market Structure, Efficiency and Performance: Empirical evidence from South Africa’s Healthcare Insurer Market. By Ndlovu, Thabang

  1. By: Mogens Fosgerau; Julien Monardo; André de Palma (Université de Cergy-Pontoise, THEMA)
    Abstract: We introduce the inverse product differentiation logit (IPDL) model, a micro-founded inverse market share model for differentiated products that captures market segmentation according to one or more characteristics. The IPDL model generalizes the nested logit model to allow richer substitution patterns, including complementarity in demand, and can be estimated by linear instrumental variables regression using market-level data. Furthermore, we provide Monte Carlo experiments that compare the IPDL model to the workhorse empirical models of the literature. Lastly, we show the empirical performance of the IPDL model using a well-known dataset on the ready-toeat cereals market.
    Keywords: Demand estimation, Inverse demand, Logit, Consumer model, Differentiated products.
    JEL: C26 D11 D12 L
    Date: 2022
  2. By: Kazufumi Tsuboi
    Abstract: Although it has been suggested that the shift from on-site work to telework will change the city structure, the mechanism of this change is not clear. This study clarifies how the location of firms changes when the cost of teleworking decreases and how this affects the urban economy. The two main results obtained are as follows. (i) The expansion of teleworking causes firms to be located closer to urban centers or closer to urban fringes. (ii) Teleworking makes urban production more efficient and cities more compact. This is the first paper to show that two empirical studies can be represented in a unified theoretical model and that existing studies obtained by simulation can be explained analytically.
    Date: 2022–12
  3. By: V.K. Chetty; James J. Heckman
    Abstract: This paper considers the consequences of a two-sector vertically-integrated model of firms producing output using firm-specific capital with a second sector producing firm-specific capital by adapting raw capital purchased in the market. Analysts rarely observe each sector separately. Aggregating over both sectors produces short-run and long-run factor demand functions that appear to be perverse, but when disaggregated obey standard neoclassical properties. Adjustment costs create the appearance of static inefficiency in the presence of dynamic efficiency.
    JEL: D21 E13 L11
    Date: 2022–11
  4. By: Kawaguchi, Kohei; Qiu, Jeff; Zhang, Yi
    Abstract: This paper examines the competitive effects of resale price maintenance (RPM) through inventory decisions under demand uncertainty. We focus on the Japanese publishing industry where RPM is allowed. We develop and estimate a model of RPM in which price and inventory are determined before demand is realized. Counterfactual simulations show that the RPM model would yield a higher consumer surplus than a wholesale model due to a sufficient inventory and a lower price of new titles. Moreover, we show that the price ceiling due to RPM plays a welfare-enhancing role, whereas the price floor is irrelevant in the industry.
    Date: 2022–11–29
  5. By: Jacqueline Adelowo; Moritz Bohland
    Abstract: Electricity markets are prone to the abuse of market power. Several US markets employ algorithms to monitor and mitigate market power abuse in real time. The performance of automated mitigation procedures is contingent on precise estimates of firms’ marginal production costs. Currently, marginal cost are inferred from the past offers of a plant. We present new estimation approaches and compare them to the currently applied benchmark method. We test the performance of all the approaches on auction data from the Iberian power market. The results show that our novel approaches outperform the benchmark approach significantly, reducing the mean absolute estimation error from 11.53 €/MWh to 2.77 €/MWh for our most precise alternative approach. Applying this result to a market mitigation simulation we find sizeable overall welfare gains and welfare transfers from supplier to buyer surplus. Our research contributes to accurate monitoring of market power and improved automated mitigation. Although we focus on power markets, our findings are applicable to monitoring of renewable energy tenders or market power surveillance in rail and air traffic.
    Keywords: Regulation, automated mitigation procedure, best-response pricing, market power, Electricity, mark-up
    JEL: D22 D43 D44 D47 L13 L94
    Date: 2022
  6. By: Barbara Rudolf; Pascal Seiler
    Abstract: We provide new evidence on price rigidity at the product level based on microdata underlying the Swiss consumer price index from 2008 to 2020. We find that the frequency of price changes has increased over the last decade, particularly among products where collection switched to online prices, reflecting the rise of e-commerce. Furthermore, price changes tend to be synchronized within rather than across stores. Time variations in inflation can be attributed mainly to variations in the frequency of both price increases and price decreases. In the first year of the pandemic, the frequency of price adjustments changed little on average, while temporary sales responded countercyclically to the respective demand conditions across sectors.
    Keywords: Price rigidity, price-setting behavior, consumer prices, inflation, COVID-19 pandemic
    JEL: E31 E5 L11
    Date: 2022
  7. By: Gaurav Khanna; Nicolas Morales; Nitya Pandalai-Nayar
    Abstract: We characterize what features make supply chains more resilient. Using new data on the universe of firm-to-firm transactions from an Indian state, we identify firms with larger supplier risk following the Covid-19 lockdowns. Using an event-study design we find firms with suppliers in strict-lockdown districts experienced 4.5pp higher separation rates (a 15% increase relative to baseline). We study which characteristics increase supply-chain resilience. Firms that buy more complex products, with fewer available suppliers, are less likely to break links. We explore how firms change post-shock supplier composition. Firms with higher supplier risk form new links with larger and better-connected suppliers.
    JEL: F14 L14
    Date: 2022–11
  8. By: Ndlovu, Thabang
    Abstract: This study assessed the relationship between market structure, conduct and performance in the South African healthcare insurer market for the period 2011 to 2017 using data obtained from the Council of Medical Schemes. Three hypotheses were tested: the structure-conduct-performance (SCP) paradigm, the relative market power (RMP) paradigm and the efficient structure (ES) hypothesis. The empirical evidence reveals that both the SCP and ES hypotheses can be rejected in relation to South African medical schemes. The empirical evidence reveals support for differing hypotheses for open and restricted medical schemes. Moreover, the empirical results suggest that the market for restricted medical schemes is highly concentrated and operating under a reduced efficiency level which produces less than desirable outcomes. In regard to open medical schemes, the empirical results reveal strong support for the RMP hypothesis which suggests that open medical schemes with more differentiated product and/or service offerings will achieve higher market share, be in a position to exercise market power and thus able to set higher prices and earn higher profit.
    Keywords: Healthcare Insurance, DEA, Competition, Market Structure, Market Conduct, Market Performance, South Africa
    JEL: L00 L11 L22
    Date: 2022–11–30

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