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on Industrial Organization |
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Issue of 2024‒01‒01
six papers chosen by |
| By: | Brian C. Albrecht; Tom Phelan; Nick Pretnar |
| Abstract: | What are the welfare implications of markup heterogeneity across firms? In standard monopolistic competition models, such heterogeneity implies inefficiency even in the presence of free entry. We enrich the standard model with heterogeneous firms so that preferences are non-separable in off-market time and market consumption and show that this changes the welfare implications of markup heterogeneity. In this context, homogeneity of markups is neither necessary nor sufficient for efficiency. The marginal cost of the marginal firm is weakly inefficiently high when off-market time and market consumption are complements and inefficiently low when they are substitutes, and the equilibrium allocation devotes weakly too few resources to firm creation. However, when off-market time and market consumption are perfect complements, markups are heterogeneous across firms and yet the equilibrium allocation is efficient. |
| Keywords: | monopolistic competition; markups; efficiency; time use; home production; elasticity of substitution; selection; heterogeneous firms |
| JEL: | D1 D4 D6 L1 |
| Date: | 2023–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:97319&r=ind |
| By: | Carsten Eckel (LMU Munich, CESifo, CEPR); Lisandra Flach (LMU Munich, ifo Institute, CESifo, CEPR); Ning Meng (Nanjing University, CESifo) |
| Abstract: | Products produced by a multiproduct firm can be linked through demand linkages or supply linkages. On the demand side, changes in the price of one product can affect the demand for a firm's other products through shifts in consumer expenditures. This is commonly referred to as the cannibalization effect. On the supply side, joint inputs can create a dependency of one product's marginal costs on the output of other products. The existence of these linkages is important for how firms respond to shocks and has major implications for several performance measures, such as productivity and markups. This paper provides first empirical evidence for the existence of cannibalization linkages in presence of supply linkages, which is implied evidence for market power. |
| Keywords: | multiproduct firms; cannibalization effect; demand linkages; supply linkages; anti-dumping tariffs; quality; mark-ups; |
| JEL: | D21 D24 F12 F13 F14 L11 L15 L25 |
| Date: | 2023–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:456&r=ind |
| By: | Mark Armstrong; John Vickers |
| Abstract: | We study a market in which several firms potentially each supply a number of “brands” of fundamentally the same product. In fashion, for example, a single firm might retail similar items under different labels and different prices. Consumers differ in which products they consider for their purchase, and firms compete using (multi-dimensional) mixed pricing strategies for their brands. Using relative elasticity conditions, we discuss when firms choose to offer uniform pricing across their brands, and when they use segmented pricing so that one “discount” brand is always priced below another. We solve duopoly models in which equilibria can be derived for all parameters. We discuss the impact of introducing a new brand, of imposing a requirement to set uniform prices across a firm’s brands, and of mergers between single-brand firms. |
| Date: | 2023–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:1029&r=ind |
| By: | Jay Pil Choi; Kyungmin Kim; Arijit Mukherjee |
| Abstract: | Platform-run marketplaces may exploit third-party sellers’ data to develop competing products, but potential for future competition can deter sellers’ entry. We explore how this trade-off affects the platform’s referral fee and its own entry decision. We first characterize the platform’s optimal referral fee under full commitment on entry decision and study its economic implications. We then analyze the extent to which the platform’s own information sharing policy substitutes for its commitment to entry. We characterize the platform’s optimal information policy and examine how it interacts with the platform’s fee structure. Our findings highlight the importance of considering the platform’s fee structure as a regulatory response in the policy debates on marketplace regulation. |
| Keywords: | hybrid platforms, referral fee, information design |
| JEL: | D82 D42 L10 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10769&r=ind |
| By: | Caterina Colombo; Corrado Benassi; Alessandra Chirco |
| Abstract: | Within the standard framework of mixed oligopoly theory, in this paper we investigate how changes in the distribution of income affect demand and the incentives towards privatization. We show that the scope for privatization is widened when the market is poorer, and when incomes become moreconcentrated. These results are accounted for in terms of the way distributional shocks alter the allocative inefficiency of imperfectly competitive markets. |
| Keywords: | Mixed oligopoly; income distribution; privatization |
| JEL: | L13 L32 H44 |
| Date: | 2023–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:udf:wpaper:20230812&r=ind |
| By: | Adrián, Nerja |
| Abstract: | Parallel airline alliances have negative effects on consumers a priori; however, they can be counteracted if airports may modify the behavior of airlines. In particular, vertical airport–airline agreements allow the airport to influence the competition downstream market, changing the effects of parallel alliances. In this paper, we analyze the effects of parallel alliances in the context of competition between vertical airport–airline pairs competition. We show that under the influence of airports, parallel alliances are welfare improving, and the number of passengers increases, against former studies. These results offer a new brand of analyses to be considered by authorities that evaluate parallel alliances. |
| Keywords: | Airlines parallel alliances; Concession revenue sharing; Vertical agreements; Airports competition |
| JEL: | D43 D47 L13 L93 R49 |
| Date: | 2022–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119174&r=ind |