nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒10‒23
eight papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. The Expansion of Varieties in the New Age of Advertising By Salomé Baslandze; Jeremy Greenwood; Ricardo Marto
  2. Outsourcing without Cost Advantages By Chrysovalantou Milliou
  3. How Does Competition Affect Incentives for Market Research? By Ahmed, Rafayal; Shopp, Colin
  4. Patents, Innovation, and Market Entry By Dominik Jurek
  5. e-Commerce Platforms and Self-preferencing By Federico Etro
  6. Platform-Enabled Information Disclosure By Jacopo Gambato; Martin Peitz
  7. Platform Competition and Information Sharing By Georgios Petropoulos; Bertin Martens; Geoffrey Parker; Marshall Van Alstyne
  8. Empowering communities with platform cooperatives: A catalyst for local development By OECD

  1. By: Salomé Baslandze; Jeremy Greenwood; Ricardo Marto
    Abstract: The last decades have seen large improvements in digital advertising technology that allowed firms to better target specific consumer tastes. This research studies the relationship among digital advertising, the rise of varieties, and economic welfare. We develop a model of advertising and varieties where firms choose the intensity of digital ads directed at specific consumers as well as traditional ads that are undirected. The calibrated model shows that improvements in digital advertising have driven the rise in varieties over time. Empirical evidence is presented using detailed micro data on firms' products and advertising choices for the 1995–2015 period. Causal analysis using exogenous variation in consumers' differential access to the internet supports the suggested mechanism.
    Keywords: digital (directed) advertising; traditional (undirected) advertising; specialization; targeting; internet; varieties; welfare
    JEL: E13 L15 I31 M37 O14 O31
    Date: 2023–09–28
  2. By: Chrysovalantou Milliou
    Abstract: This paper explores why competing firms can choose to outsource to an external common supplier that does not have a cost advantage in input production. The supplier, through its contract offers, manages to generate asymmetry, to alter product market competition, and to extract profits from the competing .rms. Two-part tariffs and sequential contracting are both crucial for the emergence of outsourcing. The supplier purposefully avoids industry pro.t maximization to enlarge its profits share. Both consumer and total welfare benefit from the presence of an otherwise redundant supplier in the market.
    Keywords: outsourcing, strategic outsourcing, make-or-buy, two-part tariffs, common supplier, sequential contracting
    JEL: D43 L11 L22 L23 L24
    Date: 2023
  3. By: Ahmed, Rafayal; Shopp, Colin
    Abstract: We analyze firms’ incentives to acquire information about market demand in a differentiated goods duopoly setting. We find two distinct benefits of having better information. Firstly, with better information, each firm can better match its price to demand. This benefit is decreasing in the level of market competition. Secondly, better information allows each firm to coordinate their prices with each other in different states, and each firm can make better use of its own information if the other firm acquires better information. This benefit is inverse u-shaped in the level of competition. Based on which effect dominates, each firm’s total benefit from information can either be decreasing, or inverse u-shaped in the level of competition. Given endogenous information acquisition decisions by firms, the effect of competition on consumer welfare is ambiguous.
    Keywords: Information acquisition, Bertrand duopoly, signals, competition.
    JEL: D43 D81 D84 L13
    Date: 2022–06
  4. By: Dominik Jurek
    Abstract: Do patents facilitate market entry and job creation? Using a 2014 Supreme Court decision that limited patent eligibility and natural language processing methods to identify invalid patents, I find that large treated firms reduce job creation and create fewer new establishments in response, with no effect on new firm entry. Moreover, companies shift toward innovation aimed at improving existing products consistent with the view that patents incentivize creative destruction.
    Keywords: intellectual property rights, creative destruction, entry, job creation, Alice decision, natural language processing
    Date: 2023–09
  5. By: Federico Etro
    Abstract: I survey the literature on eCommerce platforms with particular emphasis on the antitrust debate on self-preferencing by Amazon. The business model of hybrid marketplaces is based on monetization through commissions on third party sellers hosted on the platform and direct margins on own products. Recent theoretical and empirical work on endogenous marketplace structures has analyzed the welfare impact of the dual mode and of recommendation algorithms that have been associated with self-preferencing strategies. The trade offs are complex and one cannot easily conclude that Amazon entry is biased to expropriate third party sellers or that a ban on dual mode, self-preferencing or copycatting would benefit consumers.
    Keywords: eCommerce, Endogenous marketplace structures, Business models, Self-preferencing.
    JEL: L1 L4
    Date: 2023
  6. By: Jacopo Gambato; Martin Peitz
    Abstract: We analyze consumers’ voluntary information disclosure in a platform setting. For given consumer participation, the platform and sellers tend to prefer limited disclosure of consumer valuations, in contrast to consumers. With endogenous consumer participation, seller and platform incentives may be misaligned, and sellers may be better off when consumers can disclose their valuations. A regulator acting in the best interest of consumers and/or sellers may want to intervene and force the platform to employ a disclosure technology that enables consumers to voluntarily disclose information from a richer message space.
    Keywords: Two-sided platform, platform governance, information disclosure, information design, privacy regulation, e-commerc
    JEL: L12 L15 D21 D42 M37
    Date: 2023–09
  7. By: Georgios Petropoulos; Bertin Martens; Geoffrey Parker; Marshall Van Alstyne
    Abstract: Digital platforms, empowered by artificial intelligence algorithms, facilitate efficient interactions between consumers and merchants that allow the collection of profiling information which drives innovation and welfare. Private incentives, however, lead to information asymmetries resulting in market failures. This paper develops a product differentiation model of competition between two platforms to study private and social incentives to share information. Sharing information can be welfare-enhancing because it solves the data bottleneck market failure. Our findings imply that there is scope for the introduction of a mandatory information sharing mechanism from big tech to their competitors that help the latter to improve their network value proposition and become more competitive in the market. The price of information in this sharing mechanism matters. We show that price regulation over information sharing like the one applied in the EU jurisdiction increases the incentives of big platforms to collect and analyze more data. It has ambiguous effects on their competitors that depend on the exact relationship between information and network value.
    Keywords: information sharing, digital platforms, data bottleneck, data portability
    JEL: D47 D82 K21 L21 L22 L40 L41 L43 L51 L86
    Date: 2023
  8. By: OECD
    Abstract: This policy paper explores the contribution of platform cooperatives to local development as an alternative model to conventional digital platforms. It considers their role in reducing potential negative effects of the digital transition on local communities and places, as well as the new opportunities they present to provide greater quality of life for local residents. The paper introduces the main features of platform cooperatives, explores their contributions to local development and identifies the challenges to their emergence and expansion. It then provides policy orientations that could support the development of platform cooperatives and enhance their contributions to local development.This paper was produced as part of the OECD Global Action on Promoting Social and Solidarity Economy Ecosystems, funded by the European Union’s Foreign Partnership Instrument.
    Keywords: cooperative, local development, non-profit, social and solidarity economy, social economy, social enterprise, social entrepreneurship, social innovation
    JEL: L33 L31
    Date: 2023–10–04

This nep-ind issue is ©2023 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.