nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒03‒20
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers By Sergey Kokovin; Alina Ozhegova; Shamil Sharapudinov; Alexander Tarasov; Philip Ushchev; Sergey G. Kokovin
  2. Self-Efficacy and Entrepreneurial Performance of Start-Ups By Marco Caliendo; Alexander S. Kritikos; Daniel Rodriguez; Claudia Stier
  3. Downstream Cross-Holdings and Upstream Collusion By Konstantinos Charistos; Ioannis Pinopoulos; Panagiotis Skartados
  4. Cartel Damages Claims, Passing-On and Passing-Back By Garrod, Luke; Han, Tien-Der Jerry; Harvey, James; Olczak, Matthew
  5. Quality, Vertical Integration and Adaptability By Nicolás Depetris-Chauvin; Marta Fernández Olmos; Juan Carlos Hallak; José Santiago Mosquera
  6. Electricity Markets in Transition and Crisis: Balancing Efficiency, Equity, and Security By Jamasb, Tooraj; Nepal, Rabindra; Davi-Arderius, Daniel
  7. The Welfare Effect of Gender-Inclusive Intellectual Property Creation: Evidence from Books By Joel Waldfogel

  1. By: Sergey Kokovin; Alina Ozhegova; Shamil Sharapudinov; Alexander Tarasov; Philip Ushchev; Sergey G. Kokovin
    Abstract: Our novel approach to modeling monopolistic competition with heterogeneous firms and consumers involves spatial product differentiation. Space can be interpreted either as a geographical space or as a space of characteristics of a differentiated good. In addition to price setting, each firm also chooses its optimal location in this space. We formulate conditions for positive sorting: more productive firms serve larger market segments and face tougher competition; and for the existence and uniqueness of the equilibrium. To quantify the role of the sorting mechanism, we calibrate the model using cross-sectional haircut market data and perform counterfactual analysis. We find that inequality in the distribution of the gains among consumers caused by positive market shocks can be substantial: the gains of consumers from more populated locations are 3-4 times higher.
    Keywords: firm heterogeneity, geographical space, product space, positive sorting, product niches
    JEL: F10 L11 L13
    Date: 2023
  2. By: Marco Caliendo; Alexander S. Kritikos; Daniel Rodriguez; Claudia Stier
    Abstract: Self-efficacy reflects the self-belief that one can persistently perform difficult and novel tasks while coping with adversity. As such beliefs reflect how individuals behave, think, and act, they are key for successful entrepreneurial activities. While existing literature mainly analyzes the influence of the task-related construct of entrepreneurial self-efficacy, we take a different perspective and investigate, based on a representative sample of 1, 405 German business founders, how the personality characteristic of generalized self-efficacy influences start-up performance as measured by a broad set of business outcomes up to 19 months after business creation. Outcomes include start-up survival and entrepreneurial income, as well as growthoriented outcomes such as job creation and innovation. We find statistically significant and economically important positive effects of high scores of self-efficacy on start-up survival and entrepreneurial income, which become even stronger when focusing on the growth-oriented outcome of innovation. Furthermore, we observe that generalized self-efficacy is similarly distributed between female and male business founders, with effects being partly stronger for female entrepreneurs. Our findings are important for policy instruments that are meant to support _rm growth by facilitating the design of more target-oriented offers for training, coaching, and entrepreneurial incubators.
    Keywords: Entrepreneurship, firm performance, general self-efficacy, survival, job creation, innovation
    JEL: L26 M13 D91
    Date: 2023
  3. By: Konstantinos Charistos; Ioannis Pinopoulos; Panagiotis Skartados
    Abstract: We examine the effects of (passive) cross-holdings in the downstream market on the sustainability of upstream collusion. We consider two competing vertical chains with downstream Cournot and homogeneous goods. Each downstream firm holds a (symmetric) non-controlling share of its rival.
    Keywords: competing vertical chains; cross-holdings; passive ownership; tacit collusion
    JEL: D43 L13 L40 L81
    Date: 2023–02–05
  4. By: Garrod, Luke; Han, Tien-Der Jerry; Harvey, James; Olczak, Matthew
    Abstract: Firms can mitigate the harm of an input cartel by passing on some of the overcharge to their customers through raising their own prices. Recent claims for damages have highlighted that firms may also respond by negotiating lower prices with their suppliers of other complementary inputs, thereby passing back some of the harm upstream. By analysing a model where downstream supply requires two inputs, we derive the equilibrium `passing-on' and `passing-back' effects when one input is cartelised. We show that the cartel causes a larger passing-back effect when there is greater market power in the complementary input sector. This reduces the passing-on effect. We find that the passing-back effect can inflict substantial harm on the complementary input suppliers and reduce the harm inflicted on direct and/or indirect purchasers.
    Keywords: damages, cartel overcharge, pass-on, complements, negotiation
    JEL: D4 K21 L13 L40
    Date: 2023
  5. By: Nicolás Depetris-Chauvin (HES-SO, HEG Genève); Marta Fernández Olmos (Universidad de Zaragoza); Juan Carlos Hallak (CONICET-IIEP); José Santiago Mosquera (Universidad de San Andrés)
    Abstract: As global competition increasingly focuses on product quality, firms need to ensure the quality of their inputs. A central question is then which organizational structure best enables them to achieve this objective. Numerous papers have found that firms that produce higher quality are more likely to integrate with their suppliers. However, their focus so far has been placed on quality unobservability as the driver of integration. In this paper, we confirm the empirical relationship between quality and vertical integration but uncover an alternative mechanism in a set up where quality unobservability is not relevant: a stronger need for high quality producers to adapt efficiently to uncertain events. Based on a survey of 688 Spanish wineries and using the probability of hail as a proxy measure of uncertainty and need for adaptation, we find that the relationship between product quality and vertical integration is stronger for wineries in locations subject to more climatic uncertainty. In those cases, vertical integration comes out as an organizational form that provides high quality producers with more adaptability to preserve input quality in response to unforseen events
    Keywords: Vertical Integration, Quality, Adaptation
    JEL: L14 L15 L22
    Date: 2023–03
  6. By: Jamasb, Tooraj (Department of Economics, Copenhagen Business School); Nepal, Rabindra (University of Wollongong); Davi-Arderius, Daniel (University of Barcelona)
    Abstract: Two electricity market crises following the lifting of post-Covid restrictions in 2021 and the natural gas supply interruptions in 2022, challenged the functioning of the EU electricity market and its design. This paper argues that the market design was already ripe for an overhaul as the efficient market paradigm has gradually given way to as instrument of cost-effective attainment of green targets and balancing of the elements of energy trilemma. We discuss the linkages between the long-term and short-term markets. While policy interventions to alleviate short-term affordability are important, they cannot constraint the long-term sustainability and security of supply. Short-term electricity markets have, technically, worked according to design. However, the distributional implications of them call for revisiting how resources are allocated to and operate in the market. We revisit several dimensions of market design with a view to the recent calls and to review and overhaul them such as windfall tax, contract for differences, market decoupling etc.
    Keywords: Electricity; Market design; Energy markets; Natural gas; Energy reform; Affordability; Security of supply; Sustainability
    JEL: D20 D30 D60 L10 L50
    Date: 2023–02–15
  7. By: Joel Waldfogel
    Abstract: Women have traditionally participated in intellectual property creation at depressed rates relative to men. Book authorship is now an exception. In 1970, women published a third as many books as men. By 2020, women produced the majority of books. Adding new products can have significant welfare benefits, particularly when product quality is unpredictable. Using data on sales of 8.9 million individual titles at Amazon, 2018-2021, along with information on 200 million ratings of 1.8 million books by 800, 000 Goodreads users, I develop measures of both the supply of new books by male and female authors, as well as their usage by heterogeneous consumers. I show that growth in female-authored books has delivered a roughly equal proportionate increase in the female-authored shares of consumption, book awards, and other measures of success, indicating both that the additional female-authored books are useful to consumers and that product quality is unpredictable. I calibrate a simple structural model of demand with unpredictable product quality to quantify the welfare benefit from the additional female-authored books. While revenue gains to female authors come partly at the expense of male authors, gains to consumers from inclusive innovation are experienced by a wide range of consumers.
    JEL: J16 L82 O3
    Date: 2023–02

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