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on Industrial Organization |
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Issue of 2024‒04‒22
eleven papers chosen by |
| By: | Flavio Delbono; Carlo Reggiani |
| Abstract: | We propose a new model of mixed oligopoly where a workers’ cooperative firms competes with a number of profit maximising companies. Building upon a large empirical evidence, we innovate as compared to the traditional literature on the objective function of the cooperative; moreover, its membership is treated as endogenous in the Cournot-Nash equilibrium. We show which factors may be responsible of the degeneration of the workers’ cooperative firms, which occurs when the number of members shrinks with respect to the overall employees. |
| JEL: | L21 L25 P13 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1194&r=ind |
| By: | Inkoo Cho; Noah Williams |
| Abstract: | We develop a model of algorithmic pricing that shuts down every channel for explicit or implicit collusion while still generating collusive outcomes. We analyze the dynamics of a duopoly market where both firms use pricing algorithms consisting of a parameterized family of model specifications. The firms update both the parameters and the weights on models to adapt endogenously to market outcomes. We show that the market experiences recurrent episodes where both firms set prices at collusive levels. We analytically characterize the dynamics of the model, using large deviation theory to explain the recurrent episodes of collusive outcomes. Our results show that collusive outcomes may be a recurrent feature of algorithmic environments with complementarities and endogenous adaptation, providing a challenge for competition policy. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.07177&r=ind |
| By: | Liu, Yi; Matsumura, Toshihiro |
| Abstract: | We formulate a duopoly model with international location choice in the presence of global common ownership. We theoretically examine how payoff interdependence caused by overlapping ownership such as common and cross ownership affects location and production choices, and resulting welfare. We find that positive payoff interdependence enhances international location diversification, which may improve global welfare. |
| Keywords: | Overlapping ownership; Transport costs; Welfare-improving production substitution; Spatial Cournot; Market-oriented location; Cost-oriented location |
| JEL: | F12 L13 R32 |
| Date: | 2024–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120495&r=ind |
| By: | Martin Peitz; Anton Sobolev |
| Abstract: | Biased recommendations arise naturally in markets with heterogeneous consumers. We study a model in which a monopolist offers an experience good to a population of consumers with heterogeneous tastes and makes personalized purchase recommendations. We provide conditions under which a firm makes welfare-reducing purchase recommendations with positive probability, resulting in inflated recommendations. We extend this insight to a setting in which an intermediary makes the recommendations, whereas a seller sets the retail price. Regulatory interventions that forbid inflated recommendations may lead to higher social welfare or may backfire. |
| Keywords: | recommendation bias, recommender system, asymmetric information, experience good, intermediation |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_336v2&r=ind |
| By: | S. Nobili |
| Abstract: | Over the past few decades, there has been a notable increase in firms' market power accompanied by a global decrease in Corporate Income Tax (CIT) rates. This paper provides a theoretical framework to shed light on these diverging trends. I develop a general equilibrium model that incorporates imperfect competition and strategic interaction among firms, allowing them to shift profits abroad towards a tax haven. I find that increasing firms' market power enhances their incentives to engage in profit shifting, via larger profits. Profits rise through (i) larger markdowns and (ii) reallocation of market share towards more productive firms. A government, competing to retain firms' profits, set low tax rates to prevent local firms from evading toward tax haven(s). The competition is stronger, i.e. lower tax rates, when firms' market power is higher. Besides, I find that profit shifting widens the disparities among ex-ante heterogeneous firms and endogenously increases the level of market power in the economy, favouring the most productive firms. |
| Keywords: | L13;H73;H25;F23;E61;D43 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:202406&r=ind |
| By: | Panle Jia Barwick; Hyuk-Soo Kwon; Shanjun Li |
| Abstract: | Attribute-based subsidies (ABS) are commonly used to promote the diffusion of energy-efficient products, whose manufacturers often wield significant market power. We develop a theoretical framework for the optimal design of ABS to account for endogenous product attributes, environmental externalities, and market power. We then estimate an equilibrium model of China's vehicle market under ABS and conduct counterfactual simulations to evaluate the welfare impacts of various subsidy designs. Compared to the uniform subsidies, ABS lead to higher product quality and are more effective in mitigating quantity distortions, albeit with a modest environmental cost. Between 42% to 62% of welfare gains under ABS relative to uniform subsidies are attributed to more desirable product attributes, with the remainder explained by reductions in market power distortions. Allowing subsidy redistribution through product-level subsidies, as suggested by our theoretical model, further enhances welfare gains by an additional 34% to 62%. Among the ABS designs, China's notched subsidy design based on driving range leads to vehicle downsizing that undermines welfare benefits. Subsidies based on battery capacity, as implemented in the U.S., achieve the highest welfare gains by effectively balancing market power and environmental impacts. |
| JEL: | L13 L52 L62 Q58 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32264&r=ind |
| By: | Doron Sayag; Avichai Snir; Daniel Levy |
| Abstract: | The finding of small price changes in many retail price datasets is often viewed as a puzzle. We show that a possible explanation for the presence of small price changes is related to sales volume, an observation that has been overlooked in the existing literature. Analyzing a large retail scanner price dataset that contains information on both prices and sales volume, we find that small price changes are more frequent when products sales volume is high. This finding holds across product categories, within product categories, and for individual products. It is also robust to various sensitivity analyses such as measurement errors, the definition of small price changes, the inclusion of measures of price synchronization, the size of producers, the time horizon used to compute the average sales volume, the revenues, the competition, shoppers characteristics, etc. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.07166&r=ind |
| By: | J. Daniel Kim; Joonkyu Choi; Nathan Goldschlag; John Haltiwanger |
| Abstract: | Using administrative data from the U.S. Census Bureau, we introduce a new public-use database that tracks activities across firm growth distributions over time and by firm and establishment characteristics. With these new data, we uncover several key trends on high-growth firms—critical engines of innovation and economic growth. First, the share of firms that are high-growth has steadily decreased over the past four decades, driven not only by falling firm entry rates but also languishing growth among existing firms. Second, this decline is particularly pronounced among young and small firms, while the share of high-growth firms has been relatively stable among large and old firms. Third, the decline in high-growth firms is found in all sectors, but the information sector has shown a modest rebound beginning in 2010. Fourth, there is significant variation in high-growth firm activity across states, with California, Texas, and Florida having high shares of high-growth firms. We highlight several areas for future research enabled by these new data. |
| Keywords: | Firm Growth, Business Dynamism, Entrepreneurship, Business Dynamics Statistics |
| JEL: | L11 L25 L26 O30 O40 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:24-11&r=ind |
| By: | In Kyung Kim (Department of Economics, Sogang University, Seoul, Korea); Kyoo il Kim (Department of Economics, Michigan State University) |
| Abstract: | We study the impact of a boycott on one of the largest Korean dairy producers, triggered by the exposure of the firm’s unethical management practices, on sales of its own and others. We find empirical evidence that the boycott had substantial and long-lasting consequences. First, consumer utility from the boycotted products decreased significantly, reflecting consumers’ strong willingness to take part in collective action. Second, our discrete choice demand model, which addresses both price endogeneity and product substitution, estimates that sales of the boycotted firm decreased by almost eight percent, or equivalently by 8.1 million liters during the 12-month post-boycott period. Third, the boycotted firm’s sales and revenue decreases would have been more severe had the firm not cut prices after the boycott outbreak. Our findings emphasize top-level managers’ role in fostering an ethical organizational culture within the firm and taking proper and timely countermeasures to curb losses incurred by a boycott. |
| Keywords: | boycott, CSR, discrete choice demand, milk |
| JEL: | D12 L66 M14 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2401&r=ind |
| By: | Pinka Chatterji; Chun-Yu Ho; Tao Jin; Yichuan Wang |
| Abstract: | Since the inception of Medicare Part D in 2006, mergers and acquisitions (M&A) and regulatory changes have led to increased concentration and reduced plan variety in the standalone prescription drug plan (PDP) portion of the market. We examine how this industry consolidation affects Medicare beneficiaries’ enrollment in PDPs and their out-of-pocket (OOP) drug expenditures using individual-level data from the 2006-2018 waves of the Health and Retirement Study (HRS) merged with PDP market-level characteristics. Overall, we find that lower plan variety in the PDP market decreases the likelihood that elderly individuals enroll in PDPs, and higher PDP market concentration increases OOP drug expenditures. Our main results are robust to considering possible effects of unobserved individual-level heterogeneity, region-specific time trends, and entry/exit of insurers, as well as to the use of an alternative identification scheme based on a quasi-experimental design. Further, we find that younger, more advantaged, and healthier individuals respond differently to industry consolidation compared to their older, less advantaged, and sicker counterparts. The former groups are more likely to adjust their PDP enrollment in response to reduced PDP variety and have higher OOP drug expenditures in response to increased PDP market concentration compared to the latter groups. Finally, we find that not only do lower PDP variety and greater PDP market concentration directly affect PDP enrollment and OOP drug expenditures, but these changes also affect Medicare beneficiaries indirectly through impacting PDP characteristics. |
| JEL: | I1 I11 I13 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32267&r=ind |
| By: | Jesus Cañas; Aparna Jayashankar; Emily Kerr; Diego Morales-Burnett |
| Abstract: | The Texas Manufacturing Outlook Survey (TMOS) is a monthly survey of area manufacturers conducted by the Federal Reserve Bank of Dallas. TMOS indexes provide timely information on manufacturing activity in Texas, which is useful for understanding broader changes in regional economic conditions. This paper describes the survey methodology and analyzes the explanatory and predictive power of TMOS indexes with regard to other measures of state economic activity. Regression analysis shows that several TMOS indexes successfully track changes in Texas employment, gross domestic product and consumer price index. Forecasting exercises show that several TMOS indexes are also useful in predicting future changes in some of these regional economic indicators. |
| Keywords: | manufacturing; surveys; forecasting |
| JEL: | L60 C83 C53 |
| Date: | 2024–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:98007&r=ind |