nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒01‒16
four papers chosen by

  1. Informational Intermediation, Market Feedback, and Welfare Losses By Wenji Xu; Kai Hao Yang
  2. The Simple Economics of Optimal Bundling By Frank Yang
  3. Strategic exporting in an international oligopoly By Kazuhiro Takauchi; Tomomichi Mizuno
  4. Acquisition-induced kill zone By Christopher Teh; Dyuti Banerjee; Chengsi Wang

  1. By: Wenji Xu (College of Business, City University of Hong Kong); Kai Hao Yang (Cowles Foundation and School of Management, Yale University)
    Abstract: This paper examines the welfare implications of third-party informational intermediation. A seller sets the price of a product that is sold through an informational intermediary. The intermediary can disclose information about the product to consumers and earns a fixed percentage of sales revenue in each period. The intermediary's market base grows at a rate that increases with past consumer surplus. We characterize the stationary equilibria and the set of subgame perfect equilibrium payoffs. When market feedback (i.e., the extent to which past consumer surplus affects future market bases) increases, welfare may decrease in the Pareto sense.
    Keywords: Informational intermediary, market size, market feedback, consumer surplus, Pareto-inferior outcomes, Markov perfect equilibrium, subgame perfect equilibrium.
    JEL: C73 D61 D82 D83 L15 M37
    Date: 2022–10
  2. By: Frank Yang
    Abstract: We study optimal bundling when consumers differ in one dimension. We introduce a partial order on the set of bundles defined by (i) set inclusion and (ii) sales volumes (if sold alone and priced optimally). We show that if the undominated bundles with respect to this partial order are nested, then nested bundling (tiered pricing) is optimal. We characterize which nested menu is optimal: Selling a given menu of nested bundles is optimal if a smaller bundle in (out of) the menu sells more (less) than a bigger bundle in the menu. We apply these insights to connect optimal bundling and quality design to price elasticities and cost structures: (i) when price elasticities are quasi-convex on the set of bundles, nested bundling is always optimal and the optimal mechanism simply creates nests in the order of price elasticities; (ii) when consumers' preferences are multiplicative, the optimal quality design can be characterized by the lower monotone envelope of the average cost curve.
    Date: 2022–12
  3. By: Kazuhiro Takauchi (Faculty of Business and Commerce, Kansai University); Tomomichi Mizuno (Graduate School of Economics, Kobe University)
    Abstract: In this paper, we build a model in which firms choose whether to export. We show that if the fixed export cost is small and the transport cost is high, the coexistence of exporters and non- exporters can appear. We also show that trade liberalization may reduce consumer and total surpluses. Because the competition authority often cherishes consumer welfare, our finding offers an important insight into the relation between export activity and competition policy.
    Keywords: Exporting; Fixed export cost; Transport cost; Trade liberalization; Oligopoly
    JEL: F12 F13
    Date: 2022–12
  4. By: Christopher Teh (UNSW Sydney); Dyuti Banerjee (Department of Economics, Monash University); Chengsi Wang (Department of Economics, Monash University)
    Abstract: We study the impact of a dominant incumbent’s acquisition on entry and R&D incentives in a model with multiple start-ups. The incumbent’s acquisition directly suppresses entry and can distort the non-target start-up’s R&D incentives by creating a kill zone. The reduced threat of entry can also cause the incumbent to shelve the acquired technology. Despite these negative effects, acquisitions generally affect consumer welfare ambiguously due to synergy benefits. We study the design of merger policies aimed at minimizing acquisition-related harms. We also show that entry-for-buyout may not be a valid defense for start-up acquisitions when accounting for non-target start-ups.
    Keywords: Acquisitions, Innovation, Start-ups, Merger Policy, Remedies
    JEL: G34 L12 L41 O31
    Date: 2022–12

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