nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒08‒28
nine papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. The Anatomy of Cyber Risk By Rustam Jamilov; Helene Rey; Ahmed Tahoun
  2. Price Equilibrium with Selling Constraints By José L. Moraga-González; Makoto Watanabe; José Luis Moraga Gonzalez
  3. Datalism and Data Monopolies in the Era of A.I.: A Research Agenda By Catherine E. A. Mulligan; Phil Godsiff
  4. The Heterogeneous Effects of Entry on Prices By Kai Fischer; Simon Martin; Philipp Schmidt-Dengler
  5. Winners and losers of gatekeeper-induced consumer preference distortion in promoting personalized pricing by asymmetric firms By Rosa-Branca Esteves; Nicolas Pasquier
  6. Do hospital mergers reduce waiting times? Theory and evidence from the english NHS By Vanessa Cirulli; Giorgia Marini; Marco A. Marini; Odd Rune Straume
  7. Concentration and Competition in U.S. Agribusiness By MacDonald, James M.; Dong, Xiao; Fuglie, Keith O.
  8. Fuel Price Caps in the Australian National Wholesale Electricity Market By Armin Pourkhanali; Peyman Khezr; Rabindra Nepal; Tooraj Jamasb
  9. Volatility Spillovers and Carbon Price in the Nordic Wholesale Electricity Markets By Chenyan Lyu; Hung Xuan Do; Rabindra Nepal; Tooraj Jamasb

  1. By: Rustam Jamilov (All Souls College, University of Oxford); Helene Rey (London Business School); Ahmed Tahoun (London Business School)
    Abstract: This paper employs computational linguistics to introduce a novel text-based measure of firm-level cyber risk exposure based on quarterly earnings conference calls of listed firms. Our quarterly measures are available for more than 13, 000 firms from 85 countries over 2002-2021. We document that cyber risk exposure predicts cyber attacks, affects stock returns and profits, and is priced in the equity option market.The cost of option protection against price, variance, and tail risks is greater for more cyber-exposed firms. Cyber risks spill over across firms and persist at the sectoral level. The geography of cyber risk exposure is well approximated by a gravity model extended with cross-border portfolio flows. Back-of-the-envelope calculations suggest that the global cost of cyber risk is over $200 billion per year.
    Keywords: Cyber risk, textual analysis, earnings calls
    JEL: D22 L10
    Date: 2023–05–10
  2. By: José L. Moraga-González; Makoto Watanabe; José Luis Moraga Gonzalez
    Abstract: This paper studies how selling constraints, which refer to the inability of firms to attend to all the buyers who want to inspect their products, affect the equilibrium price and social welfare. We show that the price that maximizes social welfare is greater than the marginal cost. This is because with selling constraints, a higher price, despite reducing the probability of trade (fewer buyers are willing to pay a higher price) increases the value of trade (only trades generating positive surplus are consummated). We show that the equilibrium price is inefficiently high except in the limit when firms’ selling constraints vanish and consumers observe prices before they visit firms. Thus, selling constraints constitute a source of market power.
    Keywords: price competition, market power, capacity- and selling-constrained firms
    JEL: D40 J60 L10 L80 R30
    Date: 2023
  3. By: Catherine E. A. Mulligan; Phil Godsiff
    Abstract: The increasing use of data in various parts of the economic and social systems is creating a new form of monopoly: data monopolies. We illustrate that the companies using these strategies, Datalists, are challenging the existing definitions used within Monopoly Capital Theory (MCT). Datalists are pursuing a different type of monopoly control than traditional multinational corporations. They are pursuing monopolistic control over data to feed their productive processes, increasingly controlled by algorithms and Artificial Intelligence (AI). These productive processes use information about humans and the creative outputs of humans as the inputs but do not classify those humans as employees, so they are not paid or credited for their labour. This paper provides an overview of this evolution and its impact on monopoly theory. It concludes with an outline for a research agenda for economics in this space.
    Date: 2023–07
  4. By: Kai Fischer; Simon Martin; Philipp Schmidt-Dengler
    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
  5. By: Rosa-Branca Esteves (NIPE/Center for Research in Economics and Management, University of Minho, Portugal); Nicolas Pasquier (Bordeaux School of Economics (BSE) and Grenoble Applied Economics Lab (GAEL))
    Abstract: We present a model of duopoly competition in a marketplace with a Hotelling segment of consumers, where two business users (firms) have access to raw consumer data. The firms can choose between personalized prices (PP), using a costly personalized program device provided by the marketplace, or uniform prices at no additional cost. One firm has a higher level of experience in utilizing consumer data, resulting in a lower cost of price personalization (PP device cost). In order to promote its personalized program device, the marketplace may have an incentive to distort consumer preferences from a uniform to a triangular distribution. Our findings indicate that the marketplace is more likely to distort consumer preferences under specific conditions. This occurs when there is moderate asymmetry in experience between the firms and a high tariff for the program, or when there is weak asymmetry and a moderate program tariff. In these parameter regions, the distortion of consumer preferences negatively impact the profits of the sellers while benefiting the consumers. These insights contribute to a better understanding of the dynamics of digital marketplaces and have implications for policymakers and competition authorities.
    Keywords: Competitive price discrimination; Uniform and triangular distribution of consumer preferences; Digital markets, Platform cloud services, European Digital Market Act.
    JEL: D43 D80 L13 L40
    Date: 2023
  6. By: Vanessa Cirulli (Italian Agency for Development Cooperation, Italy); 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 (NIPE/Center for Research in Economics and Management, University of Minho, Portugal; and Department of Economics, University of Bergen, Norway)
    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-in-differences methodology applied to a long panel of data on hospital merger 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
  7. By: MacDonald, James M.; Dong, Xiao; Fuglie, Keith O.
    Abstract: Market concentration, and its impact on competition, has attracted growing public scrutiny as well as several Federal policy initiatives. Critics argue that increased concentration has led to higher consumer prices, lower prices paid for farm commodities, increased corporate profits, reduced wages, less innovation, and waning productivity growth. The issues surrounding concentration extend to agribusiness, particularly to three agribusiness sectors where concentration has increased over time: seeds, meatpacking, and food retailing. This report details how consolidation proceeded in each sector—with attention to the important driving forces—and the effects on prices and innovation. Because mergers among firms have played a role in each sector’s consolidation, the report also describes Federal antitrust policy regarding mergers and its implementation in these sectors.
    Keywords: Agribusiness, Agricultural and Food Policy, Crop Production/Industries, Demand and Price Analysis, Industrial Organization, Livestock Production/Industries, Marketing, Research and Development/Tech Change/Emerging Technologies
    Date: 2023–06
  8. By: Armin Pourkhanali; Peyman Khezr; Rabindra Nepal; Tooraj Jamasb
    Abstract: Fuel price caps are one of the potential regulatory tools for controlling wholesale electricity prices when fuel prices are volatile. In this paper, we introduce a theoretical model to study the effects of such caps on firms’ bidding behavior and clearing prices in spot market auctions. We then use data from the Australian National Electricity Market (NEM), which recently implemented such caps, to empirically test and compare their effectiveness in three different states. Our theoretical findings suggest that fuel price caps can be binding, especially when electricity demand is lower and competition among generators is higher. When demand is high, alternative policy tools, such as market price caps, may be more effective in controlling auction prices. Our empirical analysis employs various techniques, such as Generalized Additive Models (GAM) and machine learning algorithms, to test the effectiveness of price caps in the NEM. We find mixed results regarding the effectiveness of fuel price caps in different states. Specifically, fuel price caps reduced wholesale electricity prices in Queensland and New South Wales, while they were not effective in controlling wholesale prices in Victoria.
    Keywords: electricity markets, price caps, fuel price
    JEL: L94 L51 D4
    Date: 2023–08
  9. By: Chenyan Lyu; Hung Xuan Do; Rabindra Nepal; Tooraj Jamasb
    Abstract: This paper investigates price volatility and spillover effects in the Nordic electricity wholesale markets, comprising Sweden, Finland, Denmark, and Norway. Utilizing both the Time-Varying Parameter Vector Autoregressive (TVP-VAR) and Rolling Window-based VAR (RW-VAR) approaches, we analyze the integration dynamics among these regional markets and the impact of carbon prices on volatility spillovers. The study employs a rich dataset of 107, 352 hourly prices spanning from January 2010 to March 2022. The novelty of this research is three-fold. Firstly, we adopt a connectedness approach to explore volatility interactions among the four Nordic markets, contributing to the scarce literature on volatility in this market. Secondly, we segment the Norwegian market into southern and northern regions, revealing differences in volatility spillover patterns. Lastly, we investigate the influence of carbon prices on volatility spillovers, shedding light on its role in market dynamics. We find significant connectedness between the Nordic markets, with an average volatility Total Connectedness Index of 52.4% and 50.9%. Sweden emerges as the sole net volatility spillover transmitter, while Denmark experiences the largest shocks from the system. We further find that carbon prices exert a 5% significant impact on the volatility spillover index, as estimated by the 200-days rolling window VAR.
    Keywords: Electricity Markets, Price Volatility, Nord Pool, Carbon Market, Renewable Energy
    JEL: D0 D5 L1 L9
    Date: 2023–07

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