nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒06‒26
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Big Tech, the platform economy and the European digital markets By Brühl, Volker
  2. Antitrust issues raised by answer engines By Christophe Carugati
  3. Is Collusion-proof Procurement Expensive? By Gaurab Aryal; Maria Florencia Gabrielli
  4. Estimating the Effects of Regulation When Treated and Control Firms Compete: A New Method with Application to the EU ETS By Geoffrey Barrows; Raphael Calel; Martin Jégard; Hélène Ollivier
  5. Misallocation in Firm Production: A Nonparametric Analysis Using Procurement Lotteries By Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
  6. Automotive industry transformation and industrial policy in the EU and Germany: A critical perspective By Nettekoven, Zeynep Mualla
  7. The International Air Cargo Cartel By Zhiqi Chen
  8. Equity, Commodity, and Distillate Risk for Oil Upstream Producers and Downstream Consumers By Scott Alan Carson; Scott A. Carson

  1. By: Brühl, Volker
    Abstract: Digital platforms have become an important part of the digital economy by facilitating transactions between large numbers of users and by fostering innovation on collaborative platforms. In combination with technical platform services, some platform operators have managed to create powerful ecosystems that create network externalities and benefit from economies of scale and economies of scope. It is striking that, due to the specific economic drivers of the digital infrastructure, platform-based or platform-related services are dominated by a select number of global players. Most of the global platform operators are headquartered in the US, including Alphabet, Amazon, Apple, Meta and Microsoft, also known as the "Big 5". Some are located in Asia (e.g. Alibaba, Tencent). In Europe there are only a limited number of platform operators with a small market share. [...]
    JEL: L14 L22 L25
    Date: 2023
  2. By: Christophe Carugati
    Abstract: This paper outlines some early antitrust issues related to answer engines and the response competition authorities should adopt.
    Date: 2023–06
  3. By: Gaurab Aryal (University of Chicago); Maria Florencia Gabrielli (Universidad Nacional de Cuyo/CONICET)
    Abstract: Collusion adversely affects procurement cost and efficiency. It is hard to quantify just how prevalent collusion is, but it’s safe to assume that there’s a lot of collusion going on. Detecting collusion from (just) bid data is hard so the extent of the damages can never be known. A natural response would have been to use collusion-proof procurement, yet, such auctions are hardly used. Why? Using California highway procurements data, we estimate the extra cost of implementing a collusion-proof auction to be anywhere between 1.6% to 5%. Even after we factor in the marginal excess burden of taxes needed to finance the expenses, the cost ranges between 2.08% and 6.5%, which is too small to be the answer. Since other than cost there is no obvious answer, this shows that there is a lacuna in the empirical auction literature.
    Keywords: Procurements; Collusion-Proof Auction; Local Polynomial Estimator
    JEL: C1 C4 C7 D44 L4
    Date: 2023–06
  4. By: Geoffrey Barrows; Raphael Calel; Martin Jégard; Hélène Ollivier
    Abstract: This paper presents a method for estimating treatment effects of regulations when treated and control firms compete on the output market. We develop a GMM estimator that recovers reduced-form parameters consistent with a model of differentiated product markets with multi-plant firms, and use these estimates to evaluate counterfactual revenues and emissions. Our procedure recovers unbiased estimates of treatment effects in Monte Carlo experiments, while difference-in-differences estimators and other popular methods do not. In an application, we find that the European carbon market reduced emissions at regulated plants without undermining revenues of regulated firms, relative to an unregulated counterfactual.
    Keywords: regulation, spillovers, environment, energy, firms
    JEL: Q48 L10 L50
    Date: 2023
  5. By: Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
    Abstract: How costly is the misallocation of production that we might expect to result from distortions such as market power, incomplete contracts, taxes, regulations, or corruption? This paper develops new tools for the study of misallocation that place minimal assumptions on firms’ underlying technologies and behavior. We show how features of the distribution of marginal products can be identified from exogenous variation in firms’ input use, and how these features can be used both to test for misallocation and to quantify the welfare losses that it causes. We then consider an application in which thousands of firms experience demand shocks derived from a lottery-based assignment of public procurement contracts for construction services in Ecuador. Using administrative tax data about these firms, we reject the null of efficiency but estimate that the welfare losses resulting from misallocation are only 1.6% relative to the first-best. Standard parametric assumptions applied to the same setting would suggest losses that are at least an order of magnitude larger.
    Keywords: allocative efficiency, misallocation, aggregate productivity
    JEL: D24 D61 H57 L10 O40
    Date: 2023
  6. By: Nettekoven, Zeynep Mualla
    Abstract: The automotive industry in the European Union (EU) and Germany faces major challenges including decarbonisation, digitalisation and global competition. While the automotive industry has a significant economic role in terms of income and employment, it has immense ecological damages. The green and digital transition make certain occupations redundant, causing job losses, while it generates new occupations in new economic activities. These put the industry in the center of socioecological transformation debate in Germany and the EU. The vertical industrial policy with a focus on energy and technology-intensive areas has become important in the EU and Germany due to these challenges. The industrial policy in the EU and Germany follows an ecological modernisation approach with a "sustainable competitiveness" motto, whereby electromobility transformation is perceived as the ultimate route on the way to decarbonisation, digitalisation and global competitiveness. Alternative approaches see this differently. The democratic conversion approach and the degrowth approach, while having differences, both perceive electromobility as only one part of a comprehensive mobility system transformation needed; they view a decline in private automobility and a more democratic transformation with labour and environmental stakeholders as essential in the face of climate crisis.
    Keywords: Automotive industry, electromobility, climate crisis, industrial policy, Germany, European Union
    JEL: L50 L62 Q50
    Date: 2023
  7. By: Zhiqi Chen (Department of Economics, Carleton University)
    Abstract: This case study reviews the history and operation of the international air cargo cartel, in which over 20 airlines around the world colluded on the setting and implementation of fuel and other surcharges for international air cargo services from late 1999 to 2006. To an economist, this cartel has several interesting features, including the choice of a simple variable to collude on, the use of a fuel price index as a facilitating device, and the reliance on a complex web of contacts among the executives of different airlines to enforce the cartel. Most interesting of all is that the airlines colluded on the surcharges without coordinating on the freight rates. On the surface, this cartel seemed to be poorly designed because higher surcharges achieved through collusion could have simply been offset by lower freight rates as the airlines competed for customers. But the theoretical analyses by Chen (2017 and 2022) demonstrate that colluding on surcharges without coordination on base prices could be an effective way of raising the full price of a product.
    Keywords: cartels, collusion, surcharges
    JEL: L41
    Date: 2023–05–31
  8. By: Scott Alan Carson; Scott A. Carson
    Abstract: The oil and gas industry’s role in economic activity is hard to overstate. This study considers upstream, midstream, and downstream oil producer returns and risk compared to downstream oil consumers in airlines, ground-freight, railroads, and tire manufacturing. Between 2000 and 2020, the oil and gas industry had the lowest expected returns, greater risk, and only Integrated producer returns approached downstream oil and gas consumer risk-return profiles. Railroad companies were the least risky with the highest returns, followed by tire manufacturers, airlines, and freight companies. Equity, commodity, and distillate markets positively price risk into oil and gas producer returns, and upstream producers had greater project and equity market risk than downstream consumers. Most downstream oil consumer equity returns are positively related to equity and commodity market risk, while a few downstream commercial consumers have negative equity and commodity return variation, indicating that crude oil is an input to downstream consumers.
    Keywords: oil and gas, air transportation, ground freight, railroads, tire manufacturing
    JEL: L62 L72 L93 L91 L92
    Date: 2023

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