nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒09‒04
nine papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. Bertrand-Edgeworth game under oligopoly. General results and comparisons with duopoly By De Francesco, Massimo A.; Salvadori, Neri
  2. Imperfect Price Information, Market Power, and Tax Pass-Through By Felix Montag; Robin Mamrak; Alina Sagimuldina; Monika Schnitzer
  3. Ad Blocking, Whitelisting, and Advertiser Competition By Martin Peitz; Anton Sobolev; Paul Wegener
  4. Cost Based Nonlinear Pricing By Dirk Bergemann; Tibor Heumann; Stephen Morris
  5. An anatomy of monopsony : Search frictions, amenities and bargaining in concentrated markets By David Berger; Kyle Herkenhoff; Andreas R. Kostol; Simon Mongey
  6. Insider Trading with Semi-Informed Traders and Information Sharing: The Stackelberg Game By Daher, Wassim; Karam, Fida; Ahmed, Naveed
  7. Mergers, Foreign Competition, and Jobs: Evidence from the U.S. Appliance Industry By Felix Montag
  8. Merger control in Ireland after the Uniphar/NaviCorp transaction: state of play meetings and market testing remedies By Gorecki, Paul
  9. Whom to Inform about Prices? Evidence from the German Fuel Market By Felix Montag; Alina Sagimuldina; Christoph Winter

  1. By: De Francesco, Massimo A.; Salvadori, Neri
    Abstract: This paper studies price competition among a given number of capacity-constrained producers of a homogeneous commodity under the efficient rationing rule and constant (and identical) marginal cost until full capacity, when demand is a continuous, non-increasing, and non-negative function defined on the set of non-negative prices and is positive, strictly decreasing, twice differentiable and (weakly) concave when positive. The focus is on general properties of equilibria in the region of the capacity space in which no pure strategy equilibria exist. We study how the properties that are known to hold for the duopoly are generalized to the oligopoly and, on the contrary, what properties do not need to hold in oligopoly. Our inquiry reveals, among other properties, the possibility of an atom in the support of a firm smaller than the largest one and the properties that such an atom entails. Although the characterization of equilibria is far from being complete, this paper provides substantial elements in this direction.
    Keywords: Bertrand-Edgeworth; Price game; Oligopoly; Duopoly; Mixed strategy equilibrium.
    JEL: C72 D43 L13
    Date: 2023–08–08
  2. By: Felix Montag (Tuck School at Dartmouth College); Robin Mamrak (LMU Munich); Alina Sagimuldina (LMU Munich); Monika Schnitzer (LMU Munich)
    Abstract: Pass-through determines how consumers respond to taxes. We investigate the impact of imperfect price information on pass-through of commodity taxes. Our theoretical model predicts that the pass-through rate increases with the share of well-informed consumers. Pass-through is higher for the minimum price, paid by well-informed consumers, than for the average price, paid by uninformed consumers. Moreover, pass-through to the average price is non-monotonic with respect to the number of sellers. An empirical analysis of multiple recent tax changes in the German and French retail fuel markets confirms our theoretical predictions. Our results have implications for tax policy and shed light on the relative effectiveness of Pigouvian taxes versus regulation.
    Keywords: pass-through ; taxes; imperfect information; competition;
    Date: 2023–08–09
  3. By: Martin Peitz; Anton Sobolev; Paul Wegener
    Abstract: Advertisers post ads on publishers’ websites to attract the attention of consumers (who visit both available publishers). Since advertisers are competing in the product market, an advertiser may have an incentive to foreclose its competitor through excessive advertising. An ad blocker may be present and charge publishers for whitelisting. We fully characterize the equilibrium in which ad blocker, publishers, and advertisers make strategic pricing decisions. Under some conditions, the ad blocker sells whitelisting to one publisher and both publishers are strictly better off than without the ad blocker. Under other conditions, not only publishers but also advertisers or consumers are worse off.
    Keywords: advertising, advertiser competition, ad blocker, whitelisting, imperfect competition
    JEL: L12 L13 L15 M37
    Date: 2023–08
  4. By: Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Stephen Morris (Massachusetts Institute of Technology)
    Abstract: How should a seller offer quantity or quality differentiated products if they have no information about the distribution of demand? We consider a seller who cares about the "profit guarantee" of a pricing rule, that is, the minimum ratio of expected profits to expected social surplus for any distribution of demand. We show that the profit guarantee is maximized by setting the price markup over cost equal to the elasticity of the cost function. We provide profit guarantees (and associated mechanisms) that the seller can achieve across all possible demand distributions. With a constant elasticity cost function, constant markup pricing provides the optimal revenue guarantee across all possible demand distributions and the lower bound is attained under a Pareto distribution. We characterize how profits and consumer surplus vary with the distribution of values and show that Pareto distributions are extremal. We also provide a revenue guarantee for general cost functions. We establish equivalent results for optimal procurement policies that support maximal surplus guarantees for the buyer given all possible cost distributions of the sellers.
    Date: 2023–08
  5. By: David Berger; Kyle Herkenhoff; Andreas R. Kostol; Simon Mongey
    Abstract: We contribute a theory in which three channels interact to determine the degree of monopsony power and therefore the markdown of a worker’s spot wage relative to her marginal product: (1) heterogeneity in worker-firm-specific preferences (non-wage amenities), (2) firm granularity, and (3) off- and on-the-job search frictions. We use Norwegian data to discipline each channel and then reproduce new reduced-form empirical relationships between market concentration, job flows, wages and wage inequality. In doing so we provide a novel method for clustering occupations into local labor markets. Our main exercise quantifies the contribution of each channel to income inequality and wage markdowns. The average markdown is 21 percent in our baseline estimation. Removing nonwage amenity dispersion narrows them by a third. Giving the next-lowest-ranked competitor a seat at the bargaining table narrows them by half, suggesting that granularity and strategic interactions in the bargaining process is an important source of markdowns. Removing search frictions narrows them by two-thirds. Each counterfactual reduces wage inequality and increases welfare.
    Keywords: Monopsony, Inequality.
    JEL: E2 J2 J42
    Date: 2023–06–15
  6. By: Daher, Wassim; Karam, Fida; Ahmed, Naveed
    Abstract: We study a generalization of the Kyle (1985) static model with two risk neutral insiders to the case where each insider is partially informed about the value of the stock and compete under Stackelberg setting. First, we characterize the linear Bayesian equilibrium. Then, we carry out a comparative statics analysis. Our findings reveal that partial information increases the insiders profits in a Stackelberg setting than in a Cournot setting. Finally we study the impact of the information sharing on equilibrium outcomes.
    Keywords: Insider trading, Risk neutrality, Partial Information, Stackelberg structure, Kyle model
    JEL: D82 G14
    Date: 2023–06–29
  7. By: Felix Montag (Tuck School at Dartmouth)
    Abstract: Policy choices often entail trade-offs between workers and consumers. I assess how foreign competition changes the consumer welfare and domestic employment effects of a merger. I construct a model accounting for demand responses, endogenous product portfolios, and employment. I apply this model to the acquisition of Maytag by Whirlpool in the household appliance industry. I compare the observed acquisition to one with a foreign buyer. While a Whirlpool acquisition decreased consumer welfare by $250 million, it led to 1, 300 fewer domestic jobs lost. Jobs need to be worth above $220, 000 annually for domestic employment effects to offset consumer harm.
    JEL: F61 L13 L40
    Date: 2023–08–09
  8. By: Gorecki, Paul
    Abstract: On 15 December 2022 the Competition and Consumer Protection Commission (CCPC), Ireland’s national competition authority, prohibited the acquisition by Uniphar plc of NaviCorp Limited. In the two decades in which the CCPC has been responsible for merger control this was the first instance in which the agency had prohibited a notifiable transaction in which there had been remedy proposals. The paper argues that the CCPC did not follow international best practice with respect to state of play meetings with the parties and the market testing of remedies. Timelines were compressed. Options – withdrawing the merger notification and offering remedy proposals – were narrowed, biasing the outcome of the CCPC’s merger investigation towards prohibition. The CCPC should reform its state of play/market testing procedures such that they are consistent with the timely and transparent processes employed in international best practice.
    Keywords: Merger control; state of play meetings; remedies; Competition & Consumer Protection Commission; administrative procedures; market testing remedies; and Competition Act 2002.
    JEL: G34 K21
    Date: 2023–08–04
  9. By: Felix Montag (Tuck School at Dartmouth College); Alina Sagimuldina (LMU Munich); Christoph Winter (EY-Parthenon)
    Abstract: Combining a theoretical model of imperfect information with empirical evidence, we show how the effect of providing price information to consumers depends on how well informed they are beforehand. Theoretically, an increase in consumer information decreases prices more, the fewer ex ante informed consumers there are. Empirically, we study mandatory price disclosure in the German fuel market for two fuel types that differ in ex ante consumer information. The decline in prices is stronger when there are fewer ex ante informed consumers. The magnitude of the treatment effect declines over time but is intensified by local follow-on information campaigns.
    Keywords: mandatory price disclosure; consumer information; retail fuel market;
    JEL: D83 L41
    Date: 2023–08–09

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