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on Industrial Organization |
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Issue of 2023‒12‒18
ten papers chosen by |
| By: | Lefouili, Yassine; Madio, Leonardo |
| Abstract: | This paper examines the impact of changes in market structure on investments. We review recent theoretical and empirical contributions on this issue, starting with the relationship between competition intensity and investments. We then discuss how mergers between competitors affect firms’ incentives to introduce new products and to carry out cost-reducing and quality-enhancing investments. Lastly, we explore how acquiring an innovative entrant can influence investment incentives of both the acquirer and the acquired company. |
| Keywords: | Competition; Investments; Innovation; Mergers; Entry |
| JEL: | D43 L13 L40 |
| Date: | 2023–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128758&r=ind |
| By: | Bottasso, Anna; Robbiano, Simone; Marocco, Paolo |
| Abstract: | We analyze a sample of consumer-electronics products sold by the US NewEgg online-retailer to study the impact of Price Matching Guarantees (PMGs) policies on prices. By applying aDifference-in-Differences approach, we find that prices of the policy-adopting retailer increase by 4.7% during the policy validity period and up to five days after the treatment, while those of the major non-adopting competitor are not affected. Results are mainly driven by highlyrated, visible and expensive products, while the policy does not affect low-rated, less visible and cheaper ones. Overall findings are consistent with the hypothesis that PMGs act as price discrimination tools. |
| Keywords: | Price Matching Guarantees, Online Retailing, User Generated Contents, Difference-in-Differences, Price Discrimination, Collusion, Signalling |
| JEL: | L11 L13 L15 L81 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1351&r=ind |
| By: | David P. Myatt (London Business School); David Ronayne (ESMT Berlin) |
| Abstract: | We broaden and develop the classic captive-and-shopper model of sales. Firstly, we allow for asymmetric marginal costs as well as asymmetric captive audiences. These asymmetries jointly determine the identities of the two or more firms we find compete (via randomized sales) to serve shoppers. In a leading case, the prices paid by shoppers fall following a cost rise for the firm that serves most of them. Secondly, we study asymmetric price adjustment opportunities via a two-stage game in which firms may cut but not raise their initial prices. In this setting (and in scenarios with risk aversion or endogenous move order) we predict the play of pure strategies and that a unique firm serves the shoppers. Despite the different pricing predictions across games, firms’ profits are equivalent. Welfare properties depend on whether firm asymmetry is predominantly on the supply side (costs) or on the demand side (captive audiences). Thirdly, we allow firms to choose production technologies via process innovations. One firm innovates distinctly more than others, attains a lower marginal cost, and ultimately serves the shoppers. We connect the distinctive asymmetric pattern of innovations to demand-side asymmetries and the shape of technology opportunity. |
| Keywords: | model of sales; captives; shoppers; price dispersion; clearinghouse models; |
| JEL: | D43 L11 M3 |
| Date: | 2023–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:450&r=ind |
| By: | Anna Kerkhof; Johannes Münster |
| Abstract: | Media content is an important privately supplied public good. While it has been shown that contributions to a public good crowd out other contributions in many cases, the issue has not been thoroughly studied for media markets yet. We show that in a standard model of commercial media bias, qualities of media content are strategic complements, whereby investments into quality crowd in further investments and engage competitors in a race to the top. Therefore, financially strong public service media can mitigate commercial media bias: the content of commercial media can be more in line with the preferences of the audience and less advertiser-friendly in a dual (mixed public and commercial) media system than in a purely commercial media market. |
| Keywords: | commercial media bias, public service media, advertising two-sided markets, supermodular games, strategic complements, public goods |
| JEL: | C70 H41 L13 L51 L82 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10738&r=ind |
| By: | George Abi Younes (Ecole polytechnique federale de Lausanne); Gaetan de Rassenfosse (Ecole polytechnique federale de Lausanne) |
| Abstract: | Recognizing the increasing accessibility and importance of patent data, the paper underscores the need for standardized and transparent data analysis methods. By leveraging the BigQuery language, we illustrate the construction and relevance of commonly used patent indicators derived from Google Patents Public Datasets. The indicators range from citation counts to more advanced metrics like patent text similarity. The code is available in an open Kaggle notebook, explaining operational intricacies and potential data issues. By providing clear, adaptable queries and emphasizing transparent methodologies, this paper hopes to contribute to the standardization and accessibility of patent analysis, offering a valuable resource for researchers and practitioners alike. |
| Keywords: | BigQuery language; data transparency; patent analytics; patent data |
| JEL: | O34 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:iip:wpaper:24&r=ind |
| By: | Davide Radi; Laura Gardini |
| Abstract: | The global dynamics is investigated for a duopoly game where the perfect foresight hypothesis is relaxed and firms are worst-case maximizers. Overlooking the degree of product substitutability as well as the sensitivity of price to quantity, the unique and globally stable Cournot-Nash equilibrium of the complete-information duopoly game, loses stability when firms are not aware if they are playing a duopoly game, as it is, or an oligopoly game with more than two competitors. This finding resembles Theocharis' condition for the stability of the Cournot-Nash equilibrium in oligopolies without uncertainty. As opposed to complete-information oligopoly games, coexisting attractors, disconnected basins of attractions and chaotic dynamics emerge when the Cournot-Nash equilibrium loses stability. This difference in the global dynamics is due to the nonlinearities introduced by the worst-case approach to uncertainty, which mirror in bimodal best-reply functions. Conducted with techniques that require a symmetric setting of the game, the investigation of the dynamics reveals that a chaotic regime prevents firms from being ambiguity averse, that is, firms are worst-case maximizers only in the quantity-expectation space. Therefore, chaotic dynamics are the result and at the same time the source of profit uncertainty. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.11366&r=ind |
| By: | Luttmann, Alexander; Ladd, Daniel |
| Abstract: | Over the past forty years, one of the most important datasets in industrial organization has been the Airline Origin and Destination Survey (DB1B). Most studies relying on these data remove tickets with fares less than $20, assuming that these are heavily discounted frequent flyer awards (FFAs). We investigate the validity of this approach by first defining the size of the frequent flyer market using annual Form 10-K filings. Exploiting a federal regulation, we then outline a novel approach to identify FFAs in the DB1B. Our method indicates that the $20 cutoff used by researchers is too high and may be lowered to $12 for tickets appearing in the DB1B after February 1, 2002. Using the FFAs we identify, we show how the characteristics of award tickets differ from paid tickets and how these characteristics have changed over time. We then demonstrate how various market and product quality characteristics influence the share of passengers traveling on FFAs. Finally, we find that price dispersion increases on routes with higher shares of frequent flyer passengers, implying that airline loyalty programs enhance market power. |
| Keywords: | Airlines, competition, loyalty rewards, frequent flyer tickets, product quality |
| JEL: | L11 L13 L14 L93 M31 R40 R49 |
| Date: | 2023–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119214&r=ind |
| By: | Aron Culotta; Ginger Zhe Jin; Yidan Sun; Liad Wagman |
| Abstract: | Consumer reviews, especially those expressing concerns of product quality, are crucial for the credibility of online platforms. However, reviews that criticize a product or service may also dissuade buyers from using the platform, creating an incentive to blur the visibility of critical reviews. Using Airbnb and official crime data in five major US cities, we find that both reviews and self experiences concerning the safety of a listing's vicinity decrease guest bookings on the platform. Counterfactual simulations suggest that a complete removal of vicinity safety reviews (VSR) would hurt guests but increase revenues from reservations on Airbnb, with positive sorting towards listings formerly with VSR. Conversely, incorporating VSR in a listing's overall ratings or highlighting VSR could generate opposite effects. Either way, the interests of consumers are not always aligned with the interests of a revenue-centric platform. Because VSR are more closely correlated with official crime statistics in low-income and minority neighborhoods, our findings suggest that suppressing or highlighting VSR would have different effects on different neighborhoods. |
| JEL: | D83 L15 R3 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31855&r=ind |
| By: | Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Dalen, Dag Morten (Dept. of Economics, BI Norwegian Business School); Straume, Odd Rune (Dept. of Economics, University of Bergen) |
| Abstract: | We study the competitive effects of combination therapies in pharmaceutical markets, which crucially hinge on the additional therapeutic value of combinatory use of drugs and the therapeutic substitutability with the most relevant monotherapy. With large additional therapeutic value, the introduction of combination therapies leads to higher prices and, somewhat paradoxically, may reduce the health plan's surplus. Although combination therapies imply that drugs become both substitutes and complements, we show that drug prices increase if the firms are allowed to coordinate their prices. Allowing for price discrimination might increase allocational efficiency, but only at the expense of higher purchasing costs. |
| Keywords: | Pharmaceutical markets; Combination therapies; Therapeutic competition |
| JEL: | I11 I18 L13 L65 |
| Date: | 2023–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2023_019&r=ind |
| By: | Claudia Allende; Juan Pablo Atal; Rodrigo Carril; José Ignacio Cuesta; Andres Gonzalez-Lira |
| Abstract: | This paper examines the determinants of public procurement prices using comprehensive data on pharmaceutical purchases by the Chilean public sector. We start by estimating the extent to which different public agencies pay different prices for the same product. These buyer effects are sizable, and the difference between average prices paid by buyers at the 10th and 90th percentiles is 16%. Our main set of results is related to the role of market structure. The variation in market structure explains three times more variation in procurement prices than buyer effects. Moreover, using exogenous variation from patent expirations, we estimate that the entry of an additional vendor decreases average procurement prices by 11.7%, which is 72% of the gap between average prices paid by buyers at the 10th and 90th percentiles of the distribution of buyer effects. These results suggest that supply-side factors are key determinants of public procurement prices and that their quantitative importance may exceed that of demand-side factors previously emphasized in the literature. |
| Keywords: | Procurement, Bureaucracy, competition, pharmaceutical drugs |
| JEL: | D44 D73 H57 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1413&r=ind |