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on Industrial Organization |
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Issue of 2023‒07‒17
fourteen papers chosen by |
| By: | Rey, Patrick; Chen, Zhijun |
| Abstract: | We present a theory of conglomerate mergers and explore the effect of portfolio differentiation due to the heterogeneity of consumption synergy derived from product bundling. The differentiation of product portfolios reduces competition and leads to higher prices for stand- alone products in highly concentrated markets. As a result, conglomerate mergers benefit consumers who purchase bundled products from the merged entity but can harm those who prefer to mix-and-match standalone products. We demonstrate that a conglomerate merger increases total consumer surplus if the merged firm continues to sell standalone products, but it can be detrimental to consumers if the firm commits to pure bundling. Our analysis provides important policy implications for assessing conglomerate merger cases. |
| Keywords: | Conglomerate mergers; Portfolio differentiation; Bundling |
| Date: | 2023–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128159&r=ind |
| By: | Flavien Moreau (IMF); Ludovic Panon (Bank of Italy) |
| Abstract: | We study the cost of cartels in an oligopoly model with heterogeneous firms, endogenous markups, and collusion. Cartels can amplify or dampen misallocation, by charging supracompetitive markups and reallocating demand towards non-colluding firms. We find that standard competitive oligopoly models understate the cost of markups under reasonable values for the intensity of collusion and cartel composition configurations. Using French micro data, our baseline calibration suggests that breaking down cartels would increase aggregate productivity by 1.1% and welfare by 2%. These numbers shed light on the aggregate importance of collusion. |
| Keywords: | competition, cartels, collusion, productivity, welfare, misallocation |
| JEL: | D43 K21 L13 L41 O47 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1413_23&r=ind |
| By: | Saglam, Ismail |
| Abstract: | This paper studies the optimal antitrust policies for vertical price restraints in an infinitely-lived non-green supply chain channel that emits air pollution during production. The channel involves a supplier and a retailer that can either engage in sequential (Stackelberg) price competition where the supplier moves first or engage in vertical price coordination where they choose the retail price to maximize their joint profits and choose the wholesale price using the generalized Nash bargaining. We first consider the absence of an antitrust authority and characterize a necessary and sufficient condition for the stability of coordination, which we call internal stability. Then, we characterize the socially optimal antitrust policies. The policies we consider involve the costly auditing of the channel to detect coordination at a fixed probability in each period and a penalty fee charged to the channel members in case coordination is detected. When coordination is internally unstable, it is socially optimal to prevent its formation if the relative abatement cost of collusive emissions is sufficiently large or if the minimum cost of auditing is sufficiently small. In the case where coordination is internally stable, destabilization is also an option for the antitrust authority. In this case, our necessary and sufficient conditions characterizing the optimal antitrust decisions imply that it is socially optimal to destabilize (allow) the vertical price coordination of the channel if both the minimum cost of auditing and the relative abatement cost of collusive emissions are sufficiently small (large) and to prevent it otherwise. |
| Keywords: | Supply chain; vertical price coordination; vertical price restraints; antitrust policy. |
| JEL: | D43 L11 L22 L42 Q52 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117587&r=ind |
| By: | Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Naoshi Doi (Otaru University of Commerce- Economics) |
| Abstract: | This article examines menu-pricing and quality decisions of a platform monopolist for two types of sellers and buyers on a two-sided market. Under the GPD (general Pareto distribution) valuation of buyers for transaction services, we show that unique optimal services fees exist for sellers and buyers. The two types of services (premium and spot) are offered to both sellers and buyers. An optimal premium membership fee and the quality service level are considered for the premium type of buyers in a platform optimization problem. Assuming that the unit cost of the product is fixed, we show that the optimal membership fee/the level of quality service for premium-type buyers decreases/increases as the service cost for premium-type sellers increases. However, if delivery fees charged by transport companies for spot-type sellers increase, the optimal membership fee/level of quality service increases/decreases. However, if the demand for services of the platform for both types of buyers increases, both the optimal membership fee and quality level of services increase. |
| Keywords: | Platform monopoly; Menu-pricing; Quality decisions; Two-sided market. |
| JEL: | D21 D43 L13 L15 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:252&r=ind |
| By: | MORIKAWA Masayuki |
| Abstract: | This study documents firms’ input and output price uncertainty over the past 20 years, using made-to-order aggregate data from the Short-Term Economic Survey of Enterprises in Japan (Tankan Survey). The results show that input and output price uncertainty increased markedly in the second half of 2008 when the Global Financial Crisis hit the economy, but subsequently, price uncertainty remained low, even during the COVID-19 pandemic. Output price uncertainty is strongly associated with input price uncertainty, and this relationship is more pronounced than its relationship with demand uncertainty. Input price uncertainty suppresses firms’ output prices, suggesting that uncertainty weakens price pass-through. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:23040&r=ind |
| By: | Mauro Caselli (School of International Studies & Department of Economics and Management, University of Trento); Arpita Chatterjee (UNSW School of Economics); Shengyu Li (UNSW School of Economics) |
| Abstract: | This paper proposes a novel method to estimate productivity and quality at the firm-product level, together with transformation function and demand parameters. The method relies on firm optimization conditions to obtain a one-to-one mapping between observed data and unobserved productivity and quality. It has the advantage of allowing for heterogeneous unobserved intermediate input prices and scalability to handle a large number of products, without imputing firm-product input shares or relying on productivity evolution. We apply this method to a set of Mexican manufacturing industries. We find that multi-product firms’ better performing products have both higher productivity and higher quality, with the former emerging as a stronger predictor of within-firm performance. However, firms face a trade-off between quality and productivity, which we refer to as the cost of quality. The cost of quality is higher for more differentiated products and declines with product age. In a counterfactual exercise, we show that a reduction in the cost of quality can lead to substantial firm-level productivity gains and that, on average, about 26.5 percent of these gains are due to the within-firm reallocation of production. Importantly, a larger product scope allows more room for intra-firm resource reallocation, leading to higher productivity gains. This reveals a new mechanism for enhancing the performance of multi-product firms. |
| Keywords: | multi-product firms, production function, productivity, output quality, intra- firm reallocation |
| JEL: | D24 L11 L15 O47 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2023-10&r=ind |
| By: | Olivier Kayser |
| Abstract: | Considering that firms have multiple consumer taste distributions, we introduce in the vertical differentiation framework an ambiguous demand in a duopoly. We investigate the effects of ambiguity aversion on product differentiation and pricing choices. By specifying these distributions by Heaviside functions we obtain results on the existence and form of several Subgame-Perfect Nash Candidate Equilibria. The associated equilibrium prices are decreasing with ambiguity aversion. Under the market coverage assumption, we show that the level of differentiation is always maximal whatever the degree of ambiguity aversion. Finally, we study which of the Subgame-Perfect Nash Candidate Equilibria is the solution of the game depending on the width of the taste distributions and the degree of ambiguity aversion. |
| Keywords: | Vertical differentiation, Ambiguous consumer tastes, Ambiguous demand, Ambiguity aversion |
| JEL: | C72 D43 L13 D8 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2023-20&r=ind |
| By: | Chiara Canta; Øivind A. Nilsen; Simen A. Ulsaker; Øivind Anti Nilsen |
| Abstract: | This paper studies empirically the relationship between competition and risk taking in banking markets. We exploit an unique dataset providing information about all bank loans to Norwegian firms over several years. Rather than relying on observed market shares, we use the distance between bank branches and firms to measure the competitiveness of local markets. The cross-sectional and longitudinal variation in competition in local markets are used to identify the relationship between competition and risk taking, which we measure by the non-performing loans and loss provision rates of the individual banks. We find that more competition leads to more risk taking. We also examine the effects of bank competition on the availability of loans. More competition leads to lower interest rates and higher loan volumes, but also makes it more difficult for small and newly established firms to obtain a loan. |
| Keywords: | banking, local competition, risk taking, firm behaviour |
| JEL: | G21 L11 L13 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10448&r=ind |
| By: | Çakir, Metin; Arita, Shawn; Cooper, Joseph C.; Dong, Xiao; Nemec Boehm, Rebecca L.; Perez Castaño, Ana Melissa M. |
| Keywords: | Marketing, Agricultural and Food Policy, Research Methods/Statistical Methods |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea22:335985&r=ind |
| By: | Sourav Ray (Department of Marketing and Consumer Science, University of Guelph, Canada); Avichai Snir (Department of Economics, Bar-Ilan University, Israel); Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; International Centre for Economic Analysis; ISET, Tbilisi State University, Georgia; Rimini Centre for Economic Analysis) |
| Abstract: | We study the price rigidity of regular and sale prices, and how it is affected by pricing formats (i.e., pricing strategies). We use data from three large Canadian stores with different pricing formats (Every-Day-Low-Price, Hi-Lo, and Hybrid) that are located within a 1 km radius of each other. Our data contains both the actual transaction prices and actual regular prices as displayed on the store shelves. We combine these data with two “generated” regular price series (filtered prices and reference prices) and study their rigidity. Regular price rigidity varies with store formats because different format stores treat sale prices differently, and consequently define regular prices differently. Correspondingly, the meanings of price cuts and sale prices vary across store formats. To interpret the findings, we consider the store pricing format distribution across the US. |
| Keywords: | Price Rigidity, Sticky Prices, Regular Prices, Sale Prices, Filtered Prices, Reference Prices, Temporary Price Changes, Transaction Prices, Price Cuts, Pricing Format, Pricing Strategy, Every-Day-Low-Price (EDLP), Hi-Lo, Hybrid |
| JEL: | E31 E52 D22 D40 L11 L16 M30 M31 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:23-10&r=ind |
| 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. |
| JEL: | D24 D61 H57 L10 O40 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31311&r=ind |
| By: | Vanessa Cirulli (Italian Agency for Development Cooperation and Sapienza University of Rome); Giorgia Marini (Department of Juridical and Economic Studies (DSGE), Sapienza University of Rome); Marco A. Marini (Department of Social Sciences and Economics, Sapienza University of Rome); Odd Rune Straume (Department of Economics/NIPE, University of Minho) |
| Abstract: | We analyse – theoretically and empirically – the effect of hospital mergers on waiting times in healthcare markets where prices are fixed. Using a spatial modelling framework where patients choose provider based on travelling distance and waiting times, we show that the effect is theoretically ambiguous. In the presence of cost synergies, the scope for lower waiting times as a result of the merger is larger if the hospitals are more profit-oriented. This result is arguably confirmed by our empirical analysis, which is based on a conditional flexible difference-indifferences methodology applied to a long panel of data on hospital mergers in the English NHS, where we find that the effects of a merger on waiting times crucially rely on a legal status that can reasonably be linked to the degree of profit-orientation. Whereas hospital mergers involving Foundation Trusts tend to reduce waiting times, the corresponding effect of mergers involving hospitals without this legal status tends to go in the opposite direction. |
| Keywords: | Hospital merger, waiting times, profit-orientation |
| JEL: | I11 I18 L21 L41 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2023.14&r=ind |
| By: | (ENAC & Toulouse School of Economics, University of Toulouse Capitole, Toulouse, France.); Cristina Gualdani (Queen Mary University of London, London, United Kingdom); Kevin Remmy (University of Mannheim, Mannheim, Germany.) |
| Abstract: | We develop a two-stage game in which competing airlines first choose the networks of markets to serve in the first stage before competing in price in the second stage. Spillovers in entry decisions across markets are allowed, which accrue on the demand, marginal cost, and fixed cost sides. We show that the second-stage parameters are point identified, and we design a tractable procedure to set identify the first-stage parameters and to conduct inference. Further, we estimate the model using data from the domestic US airline market and find significant spillovers in entry. In a counterfactual exercise, we evaluate the 2013 merger between Amer-ican Airlines and US Airways. Our results highlight that spillovers in entry and post-merger network readjustments play an important role in shaping post-merger outcomes. |
| Keywords: | endogenous market structure, multiple equilibria, oligopoly, product reposition-ing, mergers, remedies, bankruptcy. |
| Date: | 2023–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:950&r=ind |
| By: | Juan Pablo Atal (University of Pennsylvania); Jose Ignacio Cuesta (Stanford University and NBER); Felipe Gonzalez (Queen Mary University of London); Cristobal Otero (University of California Berkeley) |
| Abstract: | We study the effects of competition by state-owned firms, leveraging the decentralized entry of public pharmacies to local markets in Chile. Public pharmacies sell the same drugs at a third of private pharmacy prices, because of stronger upstream bargaining and market power in the private sector, but are of lower quality. Public pharmacies induced market segmentation and price increases in the private sector, which benefited the switchers to the public option but harmed the stayers. The countrywide entry of public pharmacies would reduce yearly consumer drug expenditure by 1.6 percent. |
| JEL: | D72 H4 L3 |
| Date: | 2023–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:951&r=ind |