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on Industrial Organization |
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Issue of 2024‒03‒04
nine papers chosen by |
| By: | Kenneth R. Ahern; Lei Kong; Xinyan Yan |
| Abstract: | Concentration is a single summary statistic driven by two opposing forces: the number of firms in a market and the evenness of their market shares. This paper introduces a generalized measure of concentration that allows researchers to vary the relative importance of each force. Using the generalized measure, we show that the widely-cited evidence of increasing industrial employment concentration is driven by the Herfindahl Index's over-weighting of evenness and under-weighting of firm counts. We propose an alternative, equally-weighted measure that has an equivalent economic meaning as the Herfindahl Index, but possesses superior statistical attributes in typical firm size distributions. Using this balanced measure, we find that employment concentration decreased from 1990 to 2020. Finally, decomposing aggregate diversity into meaningful geographic and industry subdivisions reveals that concentration within regional markets has fallen, while concentration between markets has risen. |
| JEL: | C46 D40 L11 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32057&r=ind |
| By: | Jason D. Hartline; Sheng Long; Chenhao Zhang |
| Abstract: | Consider sellers in a competitive market that use algorithms to adapt their prices from data that they collect. In such a context it is plausible that algorithms could arrive at prices that are higher than the competitive prices and this may benefit sellers at the expense of consumers (i.e., the buyers in the market). This paper gives a definition of plausible algorithmic non-collusion for pricing algorithms. The definition allows a regulator to empirically audit algorithms by applying a statistical test to the data that they collect. Algorithms that are good, i.e., approximately optimize prices to market conditions, can be augmented to contain the data sufficient to pass the audit. Algorithms that have colluded on, e.g., supra-competitive prices cannot pass the audit. The definition allows sellers to possess useful side information that may be correlated with supply and demand and could affect the prices used by good algorithms. The paper provides an analysis of the statistical complexity of such an audit, i.e., how much data is sufficient for the test of non-collusion to be accurate. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.15794&r=ind |
| By: | Lorenz K.F. Ekerdt; Kai-Jie Wu |
| Abstract: | This paper studies firm diversification over 6-digit NAICS industries in U.S. manufacturing. We find that firms specializing in fewer industries now account for a substantially greater share of production than 40 years ago. This reallocation is a key driver of rising industry concentration. Specialized firms have displaced diversified firms among industry leaders—absent this reallocation concentration would have decreased. We then provide evidence that specialized firms produce higher-quality goods: specialized firms tend to charge higher unit prices and are more insulated against Chinese import competition. Based on our empirical findings, we propose a theory in which growth shifts demand toward specialized, high-quality firms, which eventually increases concentration. We conclude that one should expect rising industry concentration in a growing economy. |
| JEL: | L25 O33 F14 L11 O47 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:24-06&r=ind |
| By: | Claire Chambolle; Morgane Guignard |
| Abstract: | Our article investigates the impact of vertical integration (without foreclosure) on innovation. We compare cases where either (i) two manufacturers or (ii) a manufacturer and a vertically integrated retailer invest. Then, the independent manufacturer( s) and the retailer bargain over non-linear contracts before selling to consumers. We show that vertical integration always increases the incentives to invest on the integrated product which stifles (resp. spurs) the investment of the independent manufacturer when spillovers are low (resp. high). In contrast, when investments are sequential, if the buyer power is high, the leader independent manufacturer invests more (resp. less) to discourage the integrated retailer’s investment when spillovers are low (resp. high). Furthermore, vertical integration is always profitable even when it is not desirable for the industry and welfare. Overall, vertical integration is only desirable for the industry when the buyer power is high and may damage welfare when both the buyer power and spillovers are low. |
| Keywords: | Vertical integration, Investment, Buyer power, Spillovers |
| JEL: | L13 L14 L42 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp2071&r=ind |
| By: | Saruta, Fuyuki |
| Abstract: | This study examines the degree and manner by which first-party selling by a platform affects the profits of a third-party seller and a competing platform. After developing a model in which a third-party seller distributes goods through two competing platforms, with only one platform able to have a private label, we analyze first-party selling effects in both monopoly and duopoly platform cases. Our findings demonstrate the following. In a monopoly case, a platform consistently reduces the seller fee when introducing a private label. In a duopoly case, the two platforms will jointly raise or lower fees upon private label introduction. Additionally, first-party selling can either positively or negatively affect the competing platform's profit. Results suggest that competition among platforms might upset the influence of first-party selling on commission fees. Consequently, platforms might opt for first-party selling as a strategy to weaken commission fee competition and retail competition. |
| Keywords: | First-party selling; Platform competition; Marketplaces; Agency contracts; Wholesale contracts |
| JEL: | D21 L13 L22 |
| Date: | 2023–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119585&r=ind |
| By: | HONJO, Yuji; IWAKI, Yunosuke; KATO, Masatoshi |
| Abstract: | This study explores the impact of initial debt financing on the survival of start-up firms by identifying three types of exit routes: bankruptcy, voluntary liquidation, and merger. Using a discrete-time duration model for Japanese start-up firms, we examine how debt financing affects the time from founding to exit. We find that firms that initially rely on debt financing from outside creditors are more likely to go bankrupt and that long-term debt, rather than short-term debt, is positively associated with the time to exit due to bankruptcy. In contrast, such firms are less likely to liquidate voluntarily, and long-term debt is negatively associated with the time to voluntary liquidation. Moreover, they are less likely to exit via merger, and long-term debt is negatively associated with the time to exit via merger. Furthermore, unlike voluntary liquidation and merger, macroeconomic conditions influence the likelihood of bankruptcy. |
| Keywords: | Bankruptcy, Debt financing, Long-term debt, Merger, Outside creditors, Start-up, Voluntary liquidation |
| JEL: | G33 G34 M13 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:hit:tdbcdp:e-2023-02&r=ind |
| By: | Rozzi, Roberto; Schmitt, Stefanie Y. |
| Abstract: | In many markets, firms offering low-quality goods are more prominent than firms offering high-quality goods. Then, consumers are perfectly informed about the good of the prominent low-quality firm but incur search costs to bring the high-quality good of a competitor to mind. We analyze under which circumstances the less-prominent firm has an incentive to invest in high quality. We investigate two scenarios: (i) homogeneous and (ii) heterogeneous search costs. If search costs are homogeneous, the less-prominent firm produces highquality goods for sufficiently low search costs, and an increase in search costs reduces the range of values for which the less-prominent firm invests in high quality. In contrast, if search costs are heterogeneous, the less-prominent firm produces high-quality goods for sufficiently high search cost heterogeneity, and an increase in average search costs expands the range of values for which the less-prominent firm invests in high quality. |
| Keywords: | consideration sets, duopoly, prominence, search costs, vertical product differentiation |
| JEL: | D43 D83 L13 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:283000&r=ind |
| By: | Leigh, Andrew (Parliament of Australia) |
| Abstract: | Artificial intelligence has the potential to be a valuable competitive force in product and service markets. Yet AI may also pose competitive problems. I identify five big challenges that AI poses for competition. (1) Costly chips. (2) Private data. (3) Network effects. (4) Immobile talent. (5) An 'open-first, closed-later' model. These are not just issues for our competition regulators, but also for competition reformers. Just as antitrust laws needed to be updated to deal with the misbehaviour of the oil titans and rail barons of nineteenth century America, so too we may need to make changes in competition laws to address the challenges that AI poses. |
| Keywords: | competition, antitrust, artificial intelligence |
| JEL: | L40 L63 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izapps:pp209&r=ind |
| By: | Pablo Blanchard (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía) |
| Abstract: | In this paper, we recover and decompose markups, and estimate the pass-through rates from cost to prices in small and medium retail stores for oil, tomato sauce, and rice in Uruguay using a structural model of demand and assumptions about the competitive behavior of producers. The market power for these products has been under the Commission of Promotion and Defence of Competence study since 2016, and the proposed methodology allows for deepening in the measure and the understanding of the origin of that market power. In addition to providing a fundamental input for competition defense policies in Uruguay, this study enhances the international academic literature by contributing evidence on cost-to-price pass-through in a developing economy with potentially greater market power than that found in developed countries. The markups for oil and tomato sauce are around 25% for Nash Bertrand competition assumption, and 50% for the collusion assumption, while for rice are 36% and 75% respectively. For its part, about 65% of the market power under Nash Bertrand assumption is explained by the ability of firms to differentiate products and 35% for the ownership structure in the case of oil and sauce. In the case of rice, 49% are explained for differentiation and 51% for ownership structure. Finally, the pass-through rates are low for the three products, being under both behavioral assumptions lower than 55% for the three products. |
| Keywords: | market power, cost pass-through, discrete choice models, product differentiation |
| JEL: | D43 L11 L81 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:ulr:wpaper:dt-20-23&r=ind |