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on Industrial Organization |
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Issue of 2024‒02‒19
seven papers chosen by |
| By: | Mertens, Matthias; Mottironi, Bernardo |
| Abstract: | Several models posit a positive cross-sectional correlation between markups and firm size, which characterizes misallocation, factor shares, and gains from trade. Accounting for labor market power in markup estimation, we find instead that larger firms have lower product markups but higher wage markdowns. The negative markup-size correlation turns positive when conditioning on markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias, non-neutral technology) and hold across 19 European countries. We discuss possible mechanisms and resulting implications, highlighting the importance of studying input and output market power in a unified framework. |
| Keywords: | markups; markdowns; market power; firm size |
| JEL: | L11 L13 L25 J42 |
| Date: | 2023–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121283&r=ind |
| By: | Subhamon Supantha; Naresh Kumar Sharma |
| Abstract: | We have used agent-based modeling as our numerical method to artificially simulate a dynamic real economy where agents are rational maximizers of an objective function of Cobb-Douglas type. The economy is characterised by heterogeneous agents, acting out of local or imperfect information, monopolistic competition, perfect product differentiation, allowance for increasing returns to scale technology and trade in disequilibrium. An algorithm for economic activity in each period is devised and a general purpose open source agent-based model is developed which allows for counterfactual inquiries, testing out treatments, analysing causality of various economic processes, outcomes and studying emergent properties. 10, 000 simulations, with 10 firms and 80 consumers are run with varying parameters and the results show that from only a few initial conditions the economy reaches equilibrium while in most of the other cases it remains in perpetual disequilibrium. It also shows that from a few initial conditions the economy reaches a disaster where all the consumer wealth falls to zero or only a single producer remains. Furthermore, from some initial conditions, an ideal economy with high wage rate, high consumer utility and no unemployment is also reached. It was also observed that starting from an equal endowment of wealth in consumers and in producers, inequality emerged in the economy. In majority of the cases most of the firms(6-7) shut down because they were not profitable enough and only a few firms remained. Our results highlight that all these varying outcomes are possible for a decentralized market economy with rational optimizing agents. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.07070&r=ind |
| By: | Vladimir Skavysh; Jacob Sharples; Sofia Priazhkina; Salman H. Hasham |
| Abstract: | Centralized trading platforms, or exchanges, are playing an increasingly important role in expanding the global crypto ecosystem. In contrast with their counterparts in traditional financial markets, these exchanges are vertically integrated and solely responsible for the execution, clearing and settlement of transactions. Moreover, exchanges often act as the custodian of users’ assets, which exacerbates the risk borne by its users. In this note, we provide an introduction to the functions that cryptoasset exchanges typically perform and contrast their design with infrastructure used in traditional financial markets. We also discuss several emerging trends in regulation and financial innovation that help address the problems cryptoasset exchanges face. |
| Keywords: | Digital currencies and fintech; Payment clearing and settlement systems |
| JEL: | G15 L1 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:24-2&r=ind |
| By: | Raúl Bajo-Buenestado, Miguel à ngel Borrella Mas |
| Keywords: | Technological change, Green technology adoption, Market competition, Diffusion of technology, Environmental externalities. |
| JEL: | D22 K32 L20 Q55 R11 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nva:unnvaa:wp01-2022&r=ind |
| By: | Anna Pechan; Marius Buchmann |
| Abstract: | The market-based procurement of system services for network operators is gaining momentum in the current debate about the future market design in the energy sector. Since current sources of reactive power are primarily fossil-fuel power plants which will not be available in a carbon neutral energy system, reactive power will be sources from distributed assets in the electricity networks. The German regulator has proposed new rules for reactive power procurement, which are based on three pillars: The technical connection agreements, fully integrated network components owned by the network operators and market-based procurement. While this approach is primarily aiming at the reactive power demand on the transmission grid level, assets from the medium voltage grid can participate in this process as well. We evaluate this approach from an economic perspective and conclude that while such a three-pillar system can secure an effective provision of reactive power, the efficiency heavily depends on the regulatory system and that it provides the correct incentives for the network operator. |
| Keywords: | resilience, reactive power, electricity, network, market design |
| JEL: | D47 L51 L94 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bei:00bewp:0046&r=ind |
| By: | Ziran Ding; Jose Garcia-Louzao; Valentin Jouvanceau |
| Abstract: | This paper characterizes the power dynamics of firms in both product and labor markets in Lithuania between 2004 and 2018. We first show that both markets are not perfectly competitive, as both price markups and wage markdowns are far from unitary and homogeneous. Interestingly, we unveil that the dynamics of these margins followed different patterns. On the one hand, both the dispersion and the economy-wide markup have increased, indicative of an increase in product market power. On the other hand, we document a decline in monopsony power, as both the heterogeneity and the aggregate level of markdowns have declined. Altogether, our results underline the importance of jointly analyzing product and labor markets when assessing firms’ market power. |
| Keywords: | firm heterogeneity, monopoly, markups, monopsony, markdowns |
| JEL: | D40 E20 J30 L10 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10883&r=ind |
| By: | Alessandro V. M. Oliveira; Thiago Caliari; Rodolfo R. Narcizo |
| Abstract: | The modernization of an airline's fleet can reduce its operating costs, improve the perceived quality of service offered to passengers, and mitigate emissions. The present paper investigates the market incentives that airlines have to adopt technological innovation from manufacturers by acquiring new generation aircraft. We develop an econometric model of fleet modernization in the Brazilian commercial aviation over two decades. We examine the hypothesis of an inverted-U relationship between market concentration and fleet modernization and find evidence that both the extremes of competition and concentration may inhibit innovation adoption by carriers. We find limited evidence associating either hubbing activity or low-cost carriers with the more intense introduction of new types of aircraft models and variants in the industry. Finally, our results suggest that energy cost rises may provoke boosts in fleet modernization in the long term, with carriers possibly targeting more eco-efficient operations up to two years after an upsurge in fuel price. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.06876&r=ind |