nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒03‒06
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Product Differentiation and Oligopoly: A Network Approach By Bruno Pellegrino
  2. Entry in a homogeneous Cournot-oligopoly is excessive if there is business stealing. This prediction assumes that production costs reduce profits and welfare equally. However, this need not be the case. If there is asymmetric information, suppliers or employees can utilize their superior knowledge to extract informational rents. Rent payments reduce profits and deter entry, but affect neither the optimal number of firms nor welfare directly. Therefore, entry becomes insufficient if informational rents are large enough. In the context of a moral hazard model, we show that insufficient entry occurs if entry costs are sufficiently high. Such costs lower the number of firms and, thereby, raise informational rents. By Marco de Pinto; Lazlo Goerke; Alberto Palermo
  3. Digital Hermits By Jeanine Miklós-Thal; Avi Goldfarb; Avery M. Haviv; Catherine Tucker
  4. The role of market concentration in the agrifood industry By Hernandez, Manuel A.; Espinoza, Alvaro; Berrospi, Maria Lucia; Deconinck, Koen; Swinnen, Johan; Vos, Rob
  5. Bitcoin Mining Meets Wall Street: A Study of Publicly Traded Crypto Mining Companies By Hanna Halaburda; David Yermack
  6. What may future electricity markets look like? By Pierre Pinson
  7. Measuring distortions in international markets: The rolling-stock value chain By OECD

  1. By: Bruno Pellegrino
    Abstract: This paper develops a theory of oligopoly and markups in general equilibrium. Firms compete in a network of product market rivalries that emerges endogenously out of the characteristics of the products and services they supply. My model embeds a novel, highly tractable and scalable demand system (GHL) that can be estimated for the universe of public corporations in the USA, using publicly-available data. Using the model, I compute firm-level markups and decompose them into: 1) a new measure of firm productivity that accounts for product quality; 2) a metric of network centrality, which captures the extent of competition from substitute products. I estimate that, in 2019, public corporations produced consumer surplus in excess of 10 US$ trillions (against $3 trillions of profits). Oligopoly lowers total surplus by 11.5% and depresses consumer surplus by 31%. My analysis also suggests that both numbers were significantly lower in the mid-90s (7.9% and 21.5%, respectively). These results should be interpreted with care due to data limitations.
    Keywords: competition, concentration, general equilibrium, market power, markups, mergers, monopoly, networks, oligopoly, text analysis
    JEL: D20 D40 D60 E20 L10 O40
    Date: 2023
  2. 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)
    Keywords: Oligopoly, excessive entry, informational rents, moral hazard
    JEL: D43 D82 L51
  3. By: Jeanine Miklós-Thal; Avi Goldfarb; Avery M. Haviv; Catherine Tucker
    Abstract: When a user shares multi-dimensional data about themselves with a firm, the firm learns about the correlations of different dimensions of user data. We incorporate this type of learning into a model of a data market in which a firm acquires data from users with privacy concerns. User data is multi-dimensional, and each user can share no data, only non-sensitive data, or their full data with the firm. As the firm collects more data and becomes better at drawing inferences about a user’s privacy-sensitive data from their non-sensitive data, the share of new users who share no data (“digital hermits”) grows. At the same time, the share of new users who share their full data also grows. The model therefore predicts a polarization of users’ data sharing choices away from non-sensitive data sharing to no sharing and full sharing.
    JEL: L5 L51 L86 M3
    Date: 2023–02
  4. By: Hernandez, Manuel A.; Espinoza, Alvaro; Berrospi, Maria Lucia; Deconinck, Koen; Swinnen, Johan; Vos, Rob
    Abstract: The role of market concentration and potential market power exertion in the agri-food industry is a topic of longstanding interest and concern to policymakers, stakeholders, and researchers. This study provides a comprehensive overview of recent trends in market concentration upstream, midstream, and downstream the agri-food industry at the global, regional, and country level, and assesses how and to what extent concentration could be affecting market conduct and performance of food systems in developed and developing countries. The analysis additionally discusses, to the extent detectable, implications of concentration, including vertical and horizontal integration that favor concentration, for food security and nutrition and environmental sustainability. While market concentration in the agri-food industry has increased across most segments, the evidence on market power exertion is inconclusive. Several knowledge and data gaps are identified and additional research is necessary to derive more general conclusions and policy recommendations.
    Keywords: agricultural economics; agrifood sector; environment; food security; nutrition; sustainability; market concentration
    Date: 2023
  5. By: Hanna Halaburda; David Yermack
    Abstract: This paper studies the operations and financial valuations of 13 cryptocurrency mining companies that are listed on the NASDAQ stock exchange and have facilities in North America. We find that miners using Texas wind power are offline more than other miners, in a more erratic pattern, while receiving significant revenue augmentations from “curtailment” payments by electric utilities. Despite having relatively low activity levels, these Texas miners are more profitable than those using more stable sources of energy such as hyrdo power or solar power, as reflected in significantly higher enterprise values. We find a negative and significant beta between crypto mining stocks and an index of electric utilities, suggesting that ownership of a crypto mining company might provide a useful channel for risk management in the electric power industry.
    JEL: G23 L23 L94
    Date: 2023–02
  6. By: Pierre Pinson
    Abstract: Should the organization, design and functioning of electricity markets be taken for granted? Definitely not. While decades of evolution of electricity markets in countries that committed early to restructure their electric power sector made us believe that we may have found the right and future-proof model, the substantially and rapidly evolving context of our power and energy systems is challenging this idea in many ways. Actually, that situation brings both challenges and opportunities. Challenges include accommodation of renewable energy generation, decentralization and support to investment, while opportunities are mainly that advances in technical and social sciences provide with many more options in terms of future market design. We here take a holistic point of view, by trying to understand where we are coming from with electricity markets and where we may be going. Future electricity markets should be made fit for purpose by considering them as a way to organize and operate a socio-techno-economic system.
    Date: 2023–02
  7. By: OECD
    Abstract: Government support to producers of rolling stock is raising concerns about possible market distortions and unfair competition. This report aims to quantify both the scale of government support and to identify the various ways in which governments have been supporting local rolling-stock producers at the expense of foreign competitors. Over the period 2016-20, governments provided about USD 5 billion to the sector, much of it in the form of government grants and income tax concessions. While not quantified, discriminatory practices in government procurement and competition enforcement, forced technology transfers, as well as non-market export credits may have also distorted global competition in the rail-supply industry. Similar to earlier OECD studies of government support in the aluminium and semiconductor value chains, this report helps shed light on the magnitude and ways in which governments subsidise the producers of materials and equipment they view as strategic, with a view to informing efforts to revisit global trade rules.
    Keywords: Competition, Procurement, Rail, Signalling, Subsidies, Trade
    JEL: F13 F23 H25 H81 L52 L62 O25
    Date: 2023–02–15

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