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on Industrial Organization |
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Issue of 2023‒12‒11
six papers chosen by |
| By: | Martin Besfamille; Nicolás Figueroa; Léon Guzmán |
| Abstract: | We consider a model featuring a single-product natural monopoly, which faces evaders, i.e., individuals that may not pay the price. By exerting a costly effort, the firm can deter evasion. To maximize the total surplus, a regulator sets the price, the level of deterrence effort, and socially costly transfers to ensure the monopoly’s participation. We obtain a modified Ramsey formula, which clearly shows that the mere existence of evaders dampens the use of the price as a mean to finance the firm’s deficit. The regulated price is always below the monopoly price and, under sufficient conditions, also below marginal cost. Then, we generalize the model to incorporate moral hazard. Finally, we undertake an empirical application of our results, which shows quantitatively that the downward tendency of regulated prices in a context of high evasion is significant. |
| Keywords: | regulation, natural monopoly, evasion and marginal cost of public funds |
| JEL: | D42 H20 L43 L51 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10732&r=ind |
| By: | Atayev, Atabek |
| Abstract: | In markets where sellers' marginal costs of production have a common component, they have informational advantage over buyers regarding those costs. This information asymmetry between sellers and buyers is especially relevant in markets where buyers have to uncover prices through costly search. We propose a theoretical model of simultaneous search that accounts for such information asymmetry. Our main finding is that informing buyers about marginal costs may harm them by deterring search and, hence, softening competition. This result has important implications on policy regulations and voluntary information sharing. |
| Keywords: | Information Asymmetry, Consumer Search, Price Competition |
| JEL: | D43 D83 L13 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:279810&r=ind |
| By: | Leonardo Gambacorta; Leonardo Madio; Bruno Maria Parigi |
| Abstract: | We analyse the impact of platform lending on innovation and e-commerce vendors' surplus. The platform generates revenues from both lending and marketplace fees, and can use lending to price discriminate vendors, thereby leading to higher marketplace fees and below-market interest rates. While platform lending can encourage innovation by providing access to subsidised credit, it can harm vendors who do not have financial needs. A sufficient condition for platform lending to be welfare-enhancing is that innovators would not receive funding from banks otherwise. However, if innovators would receive funding from banks, platform lending may reduce the overall vendor surplus. Cream skimming arises when the platform has better information than the bank about the prospects of the innovators' projects. To address the potential negative effects of platform lending on vendors' surplus, we also explore the impact of different regulatory instruments. |
| Keywords: | platform lending, big tech, online platforms, credit, innovation |
| JEL: | G20 L86 O31 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1142&r=ind |
| By: | Colin Wessendorf; Nils Grashof |
| Abstract: | This study analyses the influence of Key Enabling Technologies (KETs) on radical innovation at the firm-level in 27 EU countries. KETs are a group of six technologies that are considered to be promising for Europe’s industrial competitiveness and innovativeness because they are horizontal and widely combinable, representing properties of General Purpose Technologies. We test this by investigating whether KET knowledge promotes the emergence of radical innovation in firms and whether regional specialization in KETs can moderate this relationship. Based on a unique firm-level database, our results show that KETs generally facilitate the emegence of radical innovation and that firms lacking KET knowledge in particular can benefit from being located in regions specialised in KETs. However, when focusing on the six individual KETs, the results get markedly heterogeneous and point to differences in the influence of engineering-oriented and science-based KETs. Our results therefore call for tailored, KET-specific, approaches – both in research and policy. |
| Keywords: | Radical Innovation, Recombinant Novelty, Knowledge Creation, General Purpose Technologies, Key Enabling Technologies, Firm-Level |
| JEL: | L25 O31 O33 R10 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:atv:wpaper:2303&r=ind |
| By: | Scott Alan Carson; Wael M. Al-Sawai; Scott A. Carson |
| Abstract: | Regression model error assumptions are essential to estimator properties. Least squares model parameters are consistent and efficient when the underlying error terms are normally distributed but yield inefficient estimators when errors are not normally distributed. Partially adaptive and M-estimation are alternatives to least squares when regression model errors are not normally distributed. Vertically Integrated firms in the oil and gas industry is one industrial sector where error mis-specification is consequential. Equity returns are a common area where returns are not normally distributed, and inappropriate error distribution specification has substantive effect when estimating capital costs. Vertically Integrated Major equity returns and accompanying regression model error terms are not normally distributed, and this study considers error returns for Integrated oil and gas producers. Vertically Integrated firm returns and their regression model error are not normally distributed, and alternative estimators to least squares have desirable properties. |
| Keywords: | partially adaptive regression models, oil and gas industry, Integrated Majors, vertical integration |
| JEL: | G12 L71 L72 Q40 Q41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10733&r=ind |
| By: | Kurt R. Brekke (Norwegian School of Economics (NHH), Department of Economics,); Odd Rune Straume (NIPE/Center for Research in Economics and Management, University of Minho, Portugal; and Department of Economics, University of Bergen, Norway); Lars Sørgard (Norwegian School of Economics (NHH), Department of Economics, Helleveien 30, 5045 Bergen, Norway; and Centre for Applied Research at NHH) |
| Abstract: | Energy markets are undergoing a radical shift towards renewable energy and network integration. We study the effects of integrating regions with storable (hydro) and intermittent (wind) energy sources in the presence of market power. Based on a two-period model with price fluctuations in the wind power region and bottlenecks in transmission of energy between regions, we show that a dominant firm (facing a competitive fringe) has an incentive to reallocate more hydropower production to the low-price period in order to induce higher prices in the high-price period. This incentive might be so strong that the bottleneck in the low-price period is removed and the two regions become de facto integrated. Paradoxically, we find that higher hydropower production capacity and/or larger transmission capacity can lead to higher (average) prices in the hydropower region due to the strategic responses by the dominant firm. Moreover, we find that the presence of market power in many cases enables the dominant firm to appropriate a larger share of the surplus from trade without harming domestic consumers, implying that stronger competition in the hydropower region might not be welfare improving. |
| Keywords: | Hydropower, trade, market power |
| JEL: | L13 L94 Q41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:10/2023&r=ind |