nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒08‒21
twelve papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. Asymmetric Platform Oligopoly By Martin Peitz; Susumu Sato
  2. Non-price effects of mergers and acquisitions By Haucap, Justus; Stiebale, Joel
  3. Fair Gatekeeping in Digital Ecosystems By Tirole, Jean; Bisceglia, Michele
  4. Price and quality decision of a monopoly platform for transaction with shipping By Tetsuya Shinkai; Naoshi Doi
  5. A Stackelberg viral marketing design for two competing players By Olivier Lindamulage de Silva; Vineeth Varma; Ming Cao; Irinel-Constantin Morarescu; Samson Lasaulce
  6. The heterogeneous effects of entry on prices By Fischer, Kai; Martin, Simon; Schmidt-Dengler, Philipp
  7. The Impact of Compatibility on Incentives to Innovate in a Network Goods Market: A Duopoly Case By Tsuyoshi Toshimitsu
  8. Natural Gas Vehicles: Consequences to Fuel Markets and the Environment By Roberto Amaral-Santos; Ariaster Chimeli, Joao Paulo Pessoa
  9. E-commerce and price setting: evidence from Europe By Strasser, Georg; Wieland, Elisabeth; Macias, Paweł; Błażejowska, Aneta; Szafranek, Karol; Wittekopf, David; Franke, Jörn; Henkel, Lukas; Osbat, Chiara
  10. Pass-through of subsidies to prices under limited competition: Evidence from Canada’s Nutrition North program By Nicholas Li; Tracey Galloway
  11. Does Productivity Change at All in Swedish District Courts? Empirical Analysis Focusing on Horizontal Mergers By Xiaoqing Chen; Kristiaan Kerstens; Mike Tsionas
  12. Price Parallelism in the Greek Steel Market: Evidence of a False Cartel Accusation By Ivaldi, Marc; Katsoulacos, Yannis

  1. By: Martin Peitz; Susumu Sato
    Abstract: We propose a tractable model of asymmetric platform oligopoly in which users from two distinct groups are subject to within-group and cross-group network effects and decide which platform to join. We characterize the equilibrium when platforms manage user access by setting participation fees. We explore the effects of platform entry, change of incumbent platforms’ quality under free entry, and partial compatibility on market outcomes. We show how the analysis can be extended to partial user participation and zero fees for one of the user groups.
    Keywords: oligopoly theory, aggregative games, network effects, two-sided markets, two-sided single-homing, free entry, compatibility
    JEL: L13 L41 D43
    Date: 2023–05
  2. By: Haucap, Justus; Stiebale, Joel
    Abstract: In this paper, we summarize the economic literature on non-price effects of mergers and acquisitions (M&As). Specifically, we discuss the effects of M&As on innovation, product variety, and sustainability. Although the relationship is theoretically ambiguous, the vast majority of ex-post evaluations of horizontal M&As finds large negative effects on innovation inputs and outputs. Results are mixed for outcomes related to variety and product quality. Literature on merger effects on sustainability is still scarce and not conclusive so far. Overall, the existing literature indicates that non-price effects of horizontal mergers seem to amplify negative consequences for consumers from price increases through reduced competition. We derive a number of ideas and options for merger policy.
    Keywords: Merger, Competition Policy, Innovation, R&D, Product Variety, Sustainability
    JEL: L10 L11 L13 L19
    Date: 2023
  3. By: Tirole, Jean; Bisceglia, Michele
    Abstract: Do users receive their fair contribution to digital ecosystems? The frequent accusations of excessive platform fees and self-preferencing leveled at dominant gatekeepers raise the issue of the standard gatekeepers should be held to. The paper provides a framework to explain business strategies and assess regulatory proposals. It stresses the key role played by the zero lower bounds on core and app prices in the setting of privately and socially optimal platform fees. Finally, it derives a simple rule for regulating access conditions and analyses its implementation.
    Keywords: Platforms; ecosystems; fair access; price and non-price foreclosure; zero lower bounds
    JEL: L12 L4
    Date: 2023–06–30
  4. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Naoshi Doi (Otaru University of Commerce- Economics)
    Abstract: This paper theoretically examines pricing and quality decisions of a monopoly platform facilitating transactions that involve physical shipping. In our model, the platform provides two types of transaction services (a standard service and a "premium" service with high-quality delivery of a transacted item) and decides a membership fee, transaction fees, and the quality of the premium service. We conduct comparative statics with respect to shipping costs. It is shown that when shipping costs are increased, the directions of changes in the platform's decision variables are ambiguous, depending on the nature of the increased shipping costs. For example, an increase in shipping costs may increase the quality and decrease the membership fee.
    Keywords: Platform monopoly; Menu-pricing; Quality decisions; Two-sided market.
    JEL: D21 D43 L13 L15
    Date: 2023–06
  5. By: Olivier Lindamulage de Silva (CRAN - Centre de Recherche en Automatique de Nancy - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Vineeth Varma (CRAN - Centre de Recherche en Automatique de Nancy - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Ming Cao (University of Groningen [Groningen]); Irinel-Constantin Morarescu (CRAN - Centre de Recherche en Automatique de Nancy - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Samson Lasaulce (CRAN - Centre de Recherche en Automatique de Nancy - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Stackelberg duopoly model in which two firms compete to maximize their market share is considered. The firms offer a service/product to customers that are spread over several geographical regions (e.g., countries, provinces, or states). Each region has its own characteristics (spreading and recovery rates) of each service propagation. We consider that the spreading rate can be controlled by each firm and is subject to some investment that the firm does in each region. One of the main objectives of this work is to characterize the advertising budget allocation strategy for each firm across regions to maximize its market share when competing. To achieve this goal we propose a Stackelberg game model that is relatively simple while capturing the main effects of the competition for market share. By characterizing the strong/weak Stackelberg equilibria of the game, we provide the associated budget allocation strategy. In this setting, it is established under which conditions the solution of the game is the so-called "winner takes all". Numerical results expand upon our theoretical findings and we provide the equilibrium characterization for an example.
    Keywords: Winner takes all, viral marketing, resource allocation, Stackelberg solution
    Date: 2023
  6. By: Fischer, Kai; Martin, Simon; Schmidt-Dengler, Philipp
    Abstract: We study the effect of entry on the price distribution in the German retail gasoline market. Exploiting more than 700 entries over five years in an event study design, we find that entry causes a persistent first-order stochastic shift in the price distribution. Prices at the top of the distribution change moderately only, but prices at the left tail decrease by up to 12% of stations' gross margins. Consumers with easy access to information on prices gain the most from entry. The reduction in transaction prices is 32-44% stronger for fully informed consumers than for uninformed consumers.
    Keywords: Entry, information frictions, price distribution, (unconditional) quantile treatment effects
    JEL: D22 L11 D83 L81 R32
    Date: 2023
  7. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Based on a horizontal product differentiation model associated with network externalities, we consider the impact of compatibility (interconnectivity) on incentives to innovate in a network goods industry in the cases of Cournot quantity and Bertrand price duopoly. We demonstrate that the effect of compatibility on incentives to innovate depends on network externalities and product substitutability. In particular, an increase in the degree of compatibility increases the incentives to innovate if the degree of network externalities is relatively large and if the degree of product differentiation is sufficiently large, irrespective of the mode of competition. Then, we then examine the same problem in a Hotelling-type unit-linear market and show that an increase in the degree of compatibility reduces the incentives to innovate.
    Keywords: innovation; network externality; compatibility; a fulfilled expectation; cost-reducing
    JEL: D43 L13 L15 O31
    Date: 2023–07
  8. By: Roberto Amaral-Santos; Ariaster Chimeli, Joao Paulo Pessoa
    Abstract: Policies to adopt cleaner fuels have become increasingly important, but their impacts on incumbent fuel prices and resulting greenhouse gas emissions are unclear. We use a panel dataset on weekly prices at the gas station level in a large Brazilian state to study how the growth of natural gas, a cheaper and less carbon-intensive alternative to traditional fuels, affected retail prices and profit margins of gasoline and ethanol. Applying an IV strategy, we estimate that prices and margins have fallen. The intensified competition in the fuel market boosted fuel demand, leading to higher emissions of GHGs and other pollutants.
    Keywords: Gasoline; Ethanol; Price Competition; Emissions; Brazil
    JEL: L11 L13 Q31 Q41 Q42 Q48 Q53 Q55 Q58
    Date: 2023–07–19
  9. By: Strasser, Georg; Wieland, Elisabeth; Macias, Paweł; Błażejowska, Aneta; Szafranek, Karol; Wittekopf, David; Franke, Jörn; Henkel, Lukas; Osbat, Chiara
    Abstract: E-commerce has become more prevalent throughout Europe in the last decade. The coronavirus (COVID-19) pandemic accelerated this trend, particularly in the retail sector. This paper focuses on the implications of increasing business-to-consumer e-commerce for prices and inflation in the euro area. It highlights three key results. First, whether online prices and inflation are higher or lower than their offline counterparts depends on the distribution model, the sector and the country. Moreover, properly selected online prices track official inflation indices even in real time. Second, the effect of e-commerce on inflation appears to be transient and differs between countries. However, as the penetration of some markets is still low, these transitory effects will likely persist at the euro area level for several years. Third, online prices change more frequently than offline prices. This might lead to greater price flexibility overall as online trade gains market share in a growing number of sectors. JEL Classification: D4, E31, L11
    Keywords: consumer prices, e-commerce, inflation, microdata, price rigidity
    Date: 2023–07
  10. By: Nicholas Li (Department of Economics, Toronto Metropolitan University, Toronto, Canada); Tracey Galloway (Department of Anthropoly, University of Toronto, Mississauga, Canada)
    Abstract: We study the pass-through of Canada’s Nutrition North food subsidy in remote, mainly Indigenous communities with limited competition. Reforms to the program in 2016 and 2019 provide exogenous changes in retailer marginal costs and we show that on average, retail prices were lowered by 67 cents for every additional dollar of subsidy, well below the full pass-through expected under perfect competition. We can precisely characterize the competitive environment for each community, which is typically a retail monopoly or duopoly, and find that the low average pass-through is mostly driven by monopoly communities. Our findings show that resources intended for marginalized communities can be partly captured by local firms with market power.
    Keywords: pass-through; Subsidies; retail; Competition; monopoly; prices; Canada; Nutrition; North;
    JEL: H20 H22 L11 L12 L13 L81 F14
    Date: 2023–08
  11. By: Xiaoqing Chen (School of Management Science and Engineering, Nanjing University of Information Science and Techno- logy, Nanjing, Jiangsu, China, and IESEG School of Management, 3 rue de la Digue, F-59000 Lille, France,); Kristiaan Kerstens (Univ. Lille, CNRS, IESEG School of Management, UMR 9221 - LEM - Lille Economie´ Management, F-59000 Lille, France); Mike Tsionas (Montpellier Business School, France & Lancaster University Management School, UK)
    Abstract: This contribution is the first to compare the Malmquist and Hicks-Moorsteen pro- ductivity indices in the context of horizontal mergers of Swedish district courts during the period 2000-2017. It is also the first to calculate these productivity indices for con- vex and nonconvex nonparametric frontier specifications in courts under both constant and variable returns to scale. Moreover, a one-sample symmetric Wilcoxon test and a t-test are performed on the average productivity index to determine whether it is significantly different from unity. Also Li-test statistics examine the differences in pro- ductivity between these two indices or between convexity and nonconvexity for a given index. Furthermore, we compare these two productivity indices before and after the mergers to investigate the impact of the horizontal merger activity. The empirical res- ults indicate that overall there is no significant technical change at all. Furthermore, horizontal mergers overall do neither result in technical change, nor in post-merger productivity gains.
    Keywords: Horizontal mergers; Malmquist productivity index; Hick-Moorsteen productivity index; Convex and Nonconvex Nonparametric Technologies
    Date: 2023–06
  12. By: Ivaldi, Marc; Katsoulacos, Yannis
    Date: 2023–06

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