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on Industrial Organization |
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Issue of 2024‒01‒08
twelve papers chosen by |
| By: | Raúl Bajo-Buenestado; Markus Kinateder; Raul Bajo-Buenestado |
| Abstract: | We present a general and tractable oligopoly model of multi-sided platforms with endogenous side and platform choices of heterogeneous end-users, considering any mix of single-homing and multi-homing platforms and in which participating on one side could preclude doing so on others. We show the existence of a unique equilibrium number of end-users and characterize optimal platform pricing. Using the equilibrium conditions, we formally derive (across sides and platforms) switching effects that distort optimal pricing, which can lead to markups exceeding the Lerner index and rule out the classical “cross-subsidization” result. We then provide a unifying framework to analyze multi-sided platform mergers, which rationalizes mixed results from the previous literature by providing, based on the switching effects, a set of conditions that predict the upward pricing pressure post-merger. We show that while optimal pricing is determined by the nature of end-users’ side choices, their platform choices are crucial for merger analysis. |
| Keywords: | multi-sided markets, heterogeneous end-users, endogenous side choice, mergers of platforms, digital platforms |
| JEL: | D43 G34 L11 L13 L22 L86 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10818&r=ind |
| By: | Armstrong, Mark; 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. |
| Keywords: | Price competition, consideration sets, multiproduct firms, multibranding, price discrimination, price dispersion, brand proliferation |
| JEL: | C72 D42 D43 L13 M31 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119322&r=ind |
| By: | Martin Peitz |
| Abstract: | In this chapter, we discuss how platforms manage the interaction between various users. First, we discuss and exemplify governance decisions by platforms that affect access and interactions of users regarding a platform service. Here, we investigate the choice of price structure and the choice of non-price strategies. We also address the horizontal and vertical scope of these platforms. Second, we consider platform decisions that generate spillovers to other platforms or channels, and we explore private incentives and welfare effects. Third, we discuss the role of government regulation in a broad sense, that is, the laws and regulations that constrain platforms and shape their incentives regarding their governance decisions. Emphasis is given to interventions against anti-competitive conduct and practices that may lead to consumer harm. |
| Keywords: | Platform governance, platform regulation, digital ecosystems, digital markets, competition policy, network effects |
| JEL: | L12 L13 L41 L42 D42 D47 K21 K23 M21 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_480&r=ind |
| By: | Maarten C.W. Janssen (University of Vienna); Santanu Roy (Southern Methodist University) |
| Abstract: | A manufacturer with private information about product quality may earn higher expected profit when their wholesale pricing contract with a retailer is unobserved by consumers. Secret wholesale contracts may prevent distortionary signaling by the manufacturer and double marginalization by the retailer. Instead, reasonable pooling outcomes exist where wholesale pricing is independent of quality, leaving the retailer and consumers in the dark about true quality. These outcomes may increase expected consumer and total surplus. The strategic interaction is different from standard signaling games. The pooling outcomes satisfy a new equilibrium refinement that we develop in the spirit of the Intuitive Criterion. |
| Keywords: | Asymmetric Information; Product Quality; Vertical Contracts; Wholesale Pricing; Signaling; Pooling. |
| JEL: | L13 L15 D82 D43 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:2310&r=ind |
| By: | Madhuri H.Shastry (Department of Economics, Delhi School of Economics); Uday Bhanu Sinha (Department of Economics, Delhi School of Economics) |
| Abstract: | We analyse the interplay of privatization and technology licensing under a public budget constraint, where a cost-disadvantaged public firm has to generate profits to pay for the license. In a mixed duopoly, we consider the licensing of a cost-reducing technology by an outsider innovator. The innovator chooses to license smaller sizes of innovation to both firms, whereas, larger innovation is licensed exclusively to the private firm. The public firm alone never gets the license. Thus, the public firm can never “catch up” with its more efficient private rival. We find the possibility of both partial and full privatization in our model. Additionally, from a social planner’s perspective, it is always optimal to allocate licenses to both firms. |
| Keywords: | mixed duopoly; technology licensing; privatization; budget constraint; welfare. JEL codes: L32, L33, H42, O33, O38 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:343&r=ind |
| By: | Marco Catola; Alessandra Chirco; Marcella Scrimitore |
| Abstract: | By developing a linear model in a two-country framework of international price competition, we show how the degree of product differentiation and the cross-country distribution of private firms affect the strategic privatization choices made by governments concerned with their own country’s welfare. More particularly, the work points out that sufficiently low product differentiation may lead public ownership to be optimally chosen to restrict competition in the country with the larger number of firms, and privatization to be global welfare enhancing in this case. |
| Keywords: | Mixed oligopoly, price competition, strategic privatization, internationalmarkets |
| JEL: | F23 L13 L32 |
| Date: | 2023–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2023/301&r=ind |
| By: | Jean-Marc Zogheib |
| Abstract: | Two digital firms compete in prices and information disclosure levels. A consumer signing up to one firm's service decides how much personal information to provide. We find that firms essentially trade-off between consumer valuations and disclosure levels to determine their business strategies when consumers single-home. Under multi-homing, business strategies are more complex to assess and may completely shift compared to single-homing. All things being equal, implementing a strict privacy regime with no data disclosure can be optimal under single-homing, while a soft privacy regime with data disclosure may be preferred under multi-homing. |
| Keywords: | competition, online privacy, information disclosure, multi-homing. |
| JEL: | D11 D40 L21 L41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2023-34&r=ind |
| By: | Yukihide Kurakawa (Kanazawa Seiryo University.); Makoto Tanaka (National Graduate Institute for Policy Studies.) |
| Abstract: | This study demonstrates how market power in the day-ahead electricity market influences the balancing cost in incentive-based demand response (DR) programs. The marginal cost of DR in an incentive-based DR program corresponds to the marginal benefit of energy services that might be provided under baseline electricity consumption. We analyze a stylized Cournot oligopoly model and demonstrate that distortion of an imperfectly competitive day-ahead market generates additional social cost (welfare loss) in the balancing period by increasing the cost of DR. We further investigate the case where some firms in the day-ahead market can also benefit from power generation in the balancing period and demonstrate that the strategic behavior of these firms further decreases total supply in an imperfectly competitive day- ahead market. The results indicate that procompetitive policies in the day-ahead market will lower the cost of DR, which makes demand more flexible and yields additional welfare gains, thereby lowering the balancing cost during the balancing period. |
| Keywords: | Incentive-based demand response, Market power, Day-ahead electricity market, Demand-side flexibility |
| JEL: | L13 Q41 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:was:dpaper:2303&r=ind |
| By: | Evgenii Monastyrenko (DEM, Université du Luxembourg); Pierre M. Picard (DEM, Université du Luxembourg) |
| Abstract: | We build a trade model that simultaneously embeds vertical product differentiation, within- country heterogeneous income, heterogeneous goods, and many countries. Under some spec- ifications of costs and preferences, we can establish the existence of the general equilibrium and obtain a very tractable quantification model. We estimate all of the model parameters by applying the model properties on OECD countries. We finally quantify the effect of trade costs and economic shocks – like Brexit – on each country’s share of high-quality goods. |
| Keywords: | vertical differentiation, general equilibrium, international trade. |
| JEL: | F12 F16 L11 L15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:23-13&r=ind |
| By: | Blázquez, Mario (Dept. of Business and Management Science, Norwegian School of Economics); Hovdahl, Isabel (Dept. of Business and Management Science, Norwegian School of Economics); Arve, Malin (Dept. of Business and Management Science, Norwegian School of Economics); Bjørndal, Endre (Dept. of Business and Management Science, Norwegian School of Economics); Bjørndal, Mette (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | We study the effect of introducing a market for green energy attributes on the market for the energy itself. In Europe, renewable energy producers receive Guarantees of Origin (GOs) that they can sell to consumers who wish to declare their electricity consumption as “green”. In a model of price competition, we show how the introduction of such a GO market can increase competition in the spot electricity market, leading to reduced electricity prices. In the current market design, the trade of GOs is not restricted by the physical transmission capacity in the spot electricity market. However, since the production capacity of GOs is still limited by the total dispatch of electricity, suppliers have incentives to compete more fiercely in the spot market. This pro-competitive effect disappears if the physical transmission capacity is also imposed on the GO market. |
| Keywords: | Electricity market; competition; pricing; guarantees of origin |
| JEL: | D43 L13 L94 Q41 Q48 |
| Date: | 2023–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2023_024&r=ind |
| By: | Ryan Kellogg; Richard L. Sweeney |
| Abstract: | We study how the Jones Act — a 100-year-old U.S. regulation that constrains domestic waterborne shipping — affects U.S. markets for crude oil and petroleum products. We collect data on U.S. Gulf Coast and East Coast fuel prices, movements, and consumption, and we estimate domestic non-Jones shipping costs using freight rates for Gulf Coast exports. We then model counterfactual prices and product movements absent the Jones Act, allowing shippers to arbitrage price differences between the Gulf and East Coasts when they exceed transport costs. Eliminating the Jones Act would have reduced average East Coast gasoline, jet fuel, and diesel prices by $0.63, $0.80, and $0.82 per barrel, respectively, during 2018–2019, with the largest price decreases occurring in the Lower Atlantic. The Gulf Coast gasoline price would increase by $0.30 per barrel. U.S. consumers’ surplus would increase by $769 million per year, and producers’ surplus would decrease by $367 million per year. |
| JEL: | F13 K33 L72 Q37 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31938&r=ind |
| By: | Andrés Mauricio Gómez-Sánchez (Facultad de Ciencias Contables, Económicas y Administrativas, Universidad del Cauca, Colombia); Juan A. Máñez-Castillejo (Department of Applied Economics II, Universidad de Valencia and ERICES, Spain); Juan A. Juan A. Sanchis-Llopis (Department of Applied Economics II, Universidad de Valencia and ERICES, Spain) |
| Abstract: | This paper investigates the impact of two innovating strategies (product and process) on total factor productivity (TFP) growth and the dynamic linkages between these strategies, for Colombia. In a first stage, we explore through panel data discrete choice models whether the ex-ante more productive firms are those that introduce innovations. In a second stage, we test whether the introduction of innovations boosts productivity growth. In this second stage, we use matching techniques. In a final stage, we explore the firm’s joint decision to innovate in process and/or product through a bivariate probit model. Data from the Annual Manufacturing Survey and the Technological Development and Innovation Survey, for 2007-2016, are used for Colombian manufacturing firms. Our results suggest that the most productive firms self- select into the introduction of innovations (both process and product). Further, these innovations render positive returns in terms of productivity growth only one period forward regardless of the type of innovation. In addition, we also find a strong persistence of process and product innovation over time, and cross effects between these two strategies, as product innovations are boosted by process innovation and vice versa. |
| Keywords: | product innovation, process innovation, productivity, self-selection/returns into/from innovation |
| JEL: | O3 D24 L6 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:2311&r=ind |