nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒05‒22
five papers chosen by

  1. A Unified Theory of Value: Oligopolistic Competition and Optimum Product Diversity By Cordoba, Juan Carlos; Liu, Xiying
  2. Causes of Excess Capacity By Samidh Pal
  3. Price Setting with Customer Capital: Sales, Teasers, and Rigidity By Leena Rudanko
  4. Business group heterogeneity and firm outcomes: Evidence from Korean chaebols By Ducret, Romain; Isakov, Dušan
  5. Industrial dynamics throughout the ICT innovation cycle: The rise and decline of business dynamism in Portugal during 1986-2018 By Ernesto Nieto-Carrillo; Carlos Carreira; Paulino Teixeira

  1. By: Cordoba, Juan Carlos; Liu, Xiying
    Abstract: We develop a tractable general equilibrium model of oligopolistic competition that allows for endogenous product differentiation and exhibits various forms of competition, ranging from perfect to monopolistic competition, simultaneously. Our unified framework provides a novel way to integrate industrial organization with other fields, such as macroeconomics and trade. Our key contribution is the introduction of ex-ante heterogeneity, in contrast to the ex-post heterogeneity typically assumed in the literature (Metlitz, 2003). As a result, most firms in our model prefer to engage in face-to-face competition rather than creating their own variety, in contrast to monopolistic models. We characterize the free entry Cournot equilibrium, as well as the efficient and constrained efficient allocations. Our unified approach enables us to generalize existing results, challenge others, andshed new light on several long-standing economic issues, such as the Kaldor-Chamberlin controversy, the competitive effects of trade, and the strengths and weaknesses of monopolistically competitive models.
    Date: 2023–03–23
  2. By: Samidh Pal
    Abstract: This study delves into the origins of excess capacity by examining the reactions of capital, labor, and capital intensity. To achieve this, we have employed a novel three-layered production function model, estimating the elasticity of substitution between capital and labor as a nested layer, alongside capital intensity, for all industry groups. We have then selectively analyzed a few industry groups for comparative purposes, taking into account the current government policies and manufacturing plant realities. Ultimately, we recommend that policymakers address the issue of excess capacity by stimulating the expansion of manufacturing plants with cutting-edge machinery. Our findings and recommendations are intended to appeal to academics and policymakers alike.
    Date: 2023–04
  3. By: Leena Rudanko
    Abstract: This paper studies price setting in an equilibrium search model of frictional product markets with long-term customer relationships. The theory gives rise to temporary sales when pricing is constrained to be anonymous across a firm’s customer base. Equilibrium prices are inefficiently high, giving rise to overselling and excess trade, and the emergence of sale pricing can improve allocations by limiting this overselling. Pricing is also characterized by an asymmetry involving a stable regular price and variable sale price when firms face idiosyncratic shocks. Absent anonymous pricing, the theory gives rise to teaser pricing, which attains efficient allocations. Teaser pricing is also characterized by a stable regular price and variable teaser price, but in this case the seeming rigidity is not allocative
    Keywords: Product Market Search; Customer Base; Sales; Teasers; Price Rigidity
    JEL: E30 D83 L11 L81
    Date: 2022–09–09
  4. By: Ducret, Romain (Faculty of Economics and Social Sciences); Isakov, Dušan
    Abstract: This paper examines the impact of business group affiliation on the performance and corporate policies of Korean listed firms over the period 2007-2019. This study proposes a novel approach allowing the observation of heterogeneity in the affiliation effects. Overall, we conclude that business group characteristics are reflected in firm outcomes. We find that investors perceive group membership positively as they pay a premium to hold affiliated firms. The premium is related to profitability and size of business groups, consistent with resourcebased theories. The analysis also identifies significant group specific effects on firm policies. These findings suggest that several business groups follow group-level strategies and apply homogeneous financial and investment policies to all their affiliates.
    Keywords: Business groups; performance; financing policies; investment; Korea
    JEL: G30 G32 G35 L22
    Date: 2023–04–07
  5. By: Ernesto Nieto-Carrillo (University of Coimbra, Centre for Business and Economics Research, CeBER and Faculty of Economics); Carlos Carreira (Univ of Coimbra, CeBER, Faculty of Economics); Paulino Teixeira (niversity of Coimbra, Centre for Business and Economics Research, CeBER and Faculty of Economics)
    Abstract: Increasing evidence shows that business dynamism has weakened in most developed economies. However, except for the US literature, most previous research has only portrayed the new century’s changes in firm dynamics. Instead, we focus on a longer period, 1986-2018, assembling an extensive longitudinal database with a time-consistent industry classification covering the population of Portuguese firmsin the manufacturing and service sectors. The BaiPerron estimate for unknown break dates in time series indicates two structural changes in industrial dynamics, one in its ascending wave (1993) and another in the declining phase (2003). Accordingly, our (HP) estimated trends show that, after an initial period of intense creative destruction, firm dynamics have become less turbulent since 2003, with lower entry, declined job reallocation, and decreased growth rates. Furthermore, survival and counterfactual firm-level regressions suggest that an otherwise-equal post-2003 start-up faced a significantly higher exit hazard than its pre-1993 counterpart (i.e., without any structural change). As a result, new and young companies have seen their share in aggregate employment and net job creation decline, notwithstanding the increasingly higher performance of young, high-growth firms. Lower labour and firm turnover suggest a weakened contribution of reallocation to productivity growth. On the other hand, decreased entry and the higher exit hazard have likely undermined the disruptive potential of transformative entrepreneurship
    Keywords: Firm dynamics; Entry; High-growth firms; Resource reallocation; Survival.
    Date: 2023–04

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