nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒08‒14
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Oligopolistic Competition, Price Rigidity, and Monetary Policy By Kozo Ueda; Kota Watanabe
  2. Complex dynamics in a nonlinear duopoly model with heuristic expectation formation and learning behavior By Mignot, Sarah; Tramontana, Fabio; Westerhoff, Frank H.
  3. Concentration, Market Power, and Misallocation: The Role of Endogenous Customer Acquisition By Hassan Afrouzi; Andres Drenik; Ryan Kim
  4. Uncertainty and Market Power: An Empirical Investigation By Kazakis, Pantelis
  5. Innovation and Appropriability: Revisiting the Role of Intellectual Property By Filippo Mezzanotti; Timothy Simcoe
  6. Cross-Platforms Merger Effects By Paudel, Ujjwol
  7. Supplier Encroachment with Mutual Outsourcing By Chrysovalantou Milliou; Konstantinos Serfes

  1. By: Kozo Ueda (Waseda University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo)
    Abstract: This study investigates how strategic and heterogeneous price setting influences the real effect of monetary policy. Japanese data show that firms with larger market shares exhibit more frequent and larger price changes than those with smaller market shares. We then construct an oligopolistic competition model with sticky prices and asymmetry in terms of competitiveness and price stickiness, which shows that a positive cross superelasticity of demand generates dynamic strategic complementarity, resulting in decreased price adjustments and an amplified real effect of monetary policy. Whether a highly competitive firm sets its price more sluggishly and strategically than a less competitive firm depends on the shape of the demand system, and the empirical results derived from the Japanese data support Hotelling's model rather than the constant elasticity of substitution preferences model. Dynamic strategic complementarity and asymmetry in price stickiness can substantially enhance the real effect of monetary policy.
    Date: 2023–07
  2. By: Mignot, Sarah; Tramontana, Fabio; Westerhoff, Frank H.
    Abstract: We develop a nonlinear duopoly model in which the heuristic expectation formation and learning behavior of two boundedly rational firms may engender complex dynamics. Most importantly, we assume that the firms employ different forecasting models to predict the behavior of their opponent. Moreover, the firms learn by leaning more strongly on forecasting models that yield more precise predictions. An eight-dimensional nonlinear map drives the dynamics of our approach. We analytically derive the conditions under which its unique steady state is locally stable and numerically study its out-of-equilibrium behavior. In doing so, we detect multiple scenarios with coexisting attractors at which the firms' behavior yields distinctively different market outcomes.
    Keywords: Duopoly model, heuristic expectation formation, learning behavior, nonlinear dynamics, stability and bifurcation analysis, coexisting attractors
    JEL: C73 D43 L12
    Date: 2023
  3. By: Hassan Afrouzi; Andres Drenik; Ryan Kim
    Abstract: This paper explores how different margins of market share are related to markups. Using merged microdata on producers and consumers, we document that a firm’s market share is mainly related to its number of customers, while its price-cost markup is associated only with its average sales per customer. We develop a new model that reflects this empirical evidence and the endogenous nature of customer acquisition. When calibrated, this model predicts a higher degree of markup dispersion, which suggests greater efficiency losses due to customer misallocation. An analysis of the efficient allocation in this model reveals that compared with the equilibrium, aggregate TFP and output are 10.8% and 14% higher, respectively.
    JEL: D24 D43 D61 E22
    Date: 2023–06
  4. By: Kazakis, Pantelis
    Abstract: Recent academic research documents a sharp increase in global market power. Using newly created and more precise data on aggregate market power (see De Loecker and Eeckhout, 2021), we add to the literature on the determinants of market power by investigating whether and how uncertainty may have played a role in its increase. Using a global sample of the world’s major economies, we find that uncertainty is associated with more market power. In addition, we find that higher levels of democracy and a better functioning political system, are negatively associated with market power.
    Keywords: uncertainty; economic fluctuations; market power; market share; barriers to entry
    JEL: D80 L10 L11
    Date: 2023–05–30
  5. By: Filippo Mezzanotti; Timothy Simcoe
    Abstract: It is more than 25 years since the authors of the Yale and Carnegie surveys studied how firms seek to protect the rents from innovation. In this paper, we revisit that question using a nationally representative sample of firms over the period 2008-2015, with the goal of updating and extending a set of stylized facts that has been influential for our understanding of the economics of innovation. There are five main findings. First, while patenting firms are relatively uncommon in the economy, they account for an overwhelming share of R&D spending. Second, firms consider utility patents less important on average than other forms of IP protection, like trade secrets, trademarks, and copyrights. Third, industry differences explain a great deal of the level of firms’ engagement with IP, with high-tech firms on average being more active on all forms of IP. Fourth, we find no significant differences in the use of IP strategies across firms at different points of their life cycle. Lastly, unlike age, firms of different size appear to manage IP significantly differently. On average, larger firms tend to engage much more extensively in the protection of IP, and this pattern cannot be easily explained by differences in the type of R&D or innovation produced by a firm. We also discuss the implications of these findings for innovation research and policy.
    JEL: D2 L25 O3
    Date: 2023–07
  6. By: Paudel, Ujjwol
    Keywords: Agribusiness, Productivity Analysis, Research Methods/Statistical Methods
    Date: 2023
  7. By: Chrysovalantou Milliou; Konstantinos Serfes
    Abstract: We examine the incentives and implications of supplier encroachment, when final good produc-tion requires the use of multiple complementary inputs and the entry of a supplier into the final good market gives rise to mutual outsourcing of inputs between the encroaching supplier and the incumbent. We show that, post encroachment, mutual outsourcing between the competing final good producers is indeed the equilibrium. We also show, contrary to existing results, that encroachment can raise the input price paid by the incumbent and reduce consumer surplus. Nevertheless, the incumbent can benefit from encroachment due to the generation of a new profits source: input sales to the encroaching supplier. It can benefit even without enjoying a cost or a first mover advantage. This would have been impossible in an environment with a single input and without mutual outsourcing. Our analysis yields novel managerial, empirical and policy implications.
    Keywords: supplier encroachment, complementary inputs, mutual outsourcing, outsourcing, input pricing, market entry
    JEL: D43 L11 L21 L22 L23
    Date: 2023

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