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on Industrial Organization |
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Issue of 2024‒05‒06
eight papers chosen by |
| By: | Simon Cowan |
| Abstract: | General conditions that are sufficient for mergers in symmetric Cournot industries to be profitable or unprofitable are found and applied. If inverse demand curvature is weakly higher than the number of firms then all mergers are profitable. The same condition implies that outputs are strategic complements locally. If demand is log-concave, so inverse demand curvature is at most 1, two-firm mergers are unprofitable. Log-concavity of demand implies that outputs are strategic substitutes. The issue of the profitability of mergers in Cournot was first addressed by Salant, Switzer, and Reynolds (1983) in a model with linear demand. |
| Date: | 2024–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:1041&r=ind |
| By: | Laureen de Barsy; Axel Gautier |
| Abstract: | In the past 20 years, large digital platforms have made many acquisitions, mainly young and innovative startups. Few of them have been reviewed by competition authorities and little is known on their evolution after acquisition. This paper intends to fill in this gap by looking at the development of the technologies owned by the acquired firms. We focus on technologies protected by a patent and we investigate whether an acquisition by a big tech contributes to their development. For this analysis, we use patent citations as a proxy for the innovation effort by the acquirer. Our main result is to show that acquisition increases the innovation effort of the acquirer but only temporarily. After 1.5 year, there is no longer a significant impact of the acquisition on the acquirer’s innovation effort. This decline is relatively larger when the acquired patent belongs to a core technology field of the acquiring firm or to a large patent portfolio. On the contrary, citations by the rest of the industry are not negatively affected by acquisition, which does not corroborate the idea that the acquired technology has reached its maturity. |
| Keywords: | mergers, digital, big techs, innovation, patents, killer acquisitions |
| JEL: | D43 G34 K21 L40 L86 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11025&r=ind |
| By: | Marco de Pinto (University of Applied Labour Studies); Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University); Alberto Palermo (University of Roehampton) |
| Abstract: | Entry in a homogeneous Cournot oligopoly can be excessive if there is business stealing. Since this excessive entry prediction has been established, a variety of circumstances have been identified which allow for insufficient entry, despite the business stealing externality. This paper shows that most of them rely on the same mechanism and, therefore, constitute a special case of a general set-up. To establish this insight, we survey the pertinent contributions and classify the circumstances, which are invoked to establish the possibility of insufficient entry into four categories. Importantly, they all imply that the oligopolists pay a rent, which reduces profits and deters entry. Since rents are welfare-neutral, insufficient entry will occur if the rent is high enough. |
| Keywords: | : Business stealing, Cournot oligopoly, Economic rent, Excessive entry, Insufficient entry, Literature survey |
| JEL: | D43 D62 L13 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:iaa:dpaper:202402&r=ind |
| By: | Filip Abraham; Yannick Bormans; Jozef Konings; Werner Roeger |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:asx:nugsbd:2024-24&r=ind |
| By: | Joel Waldfogel |
| Abstract: | Regulators around the world are discussing, or taking action to limit, self-preferencing by large platforms. This paper explores Amazon's search rankings of its own products as the European Union's Digital Markets Act (DMA) was coming into effect. Using data on over 8 million Amazon search results at 22 Amazon domains in the US, Europe, and elsewhere, I document three things. First, conditional on rudimentary product characteristics, Amazon's own products receive search ranks that are 24 positions better on average throughout the sample period. Second, the Amazon rank differential is large in comparison with the differential for 142 other popular brands. Third, shortly after the EU designated Amazon a “gatekeeper” platform in September 2023, the Amazon rank differential fell from a 30 position advantage to a 20 position advantage, while other major brands' rank positions were unaffected. The changed Amazon search rankings appear in both Europe and other jurisdictions. |
| JEL: | L40 L50 L81 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32299&r=ind |
| By: | Rhodes, Andrew; Zhou, Jidong |
| Abstract: | This paper studies consumers’ privacy choices when firms can use their data to make personalized offers. We first introduce a general framework of personalization and privacy choice, and then apply it to personalized recommendations, personalized prices, and personalized product design. We argue that due to firms’ reaction in the product market, consumers who share their data often impose a negative externality on other consumers. Due to this privacy-choice externality, too many consumers share their data relative to the consumer optimum; moreover, more competition, or improvements in data security, can lower consumer surplus by encouraging more data sharing. |
| Keywords: | personalization; consumer data; privacy; personalized pricing; personalized recommendations; personalized product design |
| JEL: | D43 D82 L13 |
| Date: | 2024–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129289&r=ind |
| By: | Le Xu; Yang Yu; Francesco Zanetti |
| Abstract: | We assemble a novel firm-level dataset to study the adoption and termination of suppliers over business cycles. We document that the aggregate number and rate of adoption of suppliers are procyclical. The rate of termination is acyclical at the aggregate level, and the cyclicality of termination encompasses large differences across producers. To account for these new facts, we develop a model with optimizing producers that incur separate costs for management, adoption, and termination of suppliers. These costs alter the incentives to scale up production and to replace existing with new suppliers. Both forces are critical to replicating the observed cyclicality in the adoption and termination rates at the producer and aggregate levels. Sufficiently high convexity in management relative to adjustment costs is required to replicate the observed decrease in the procyclicality of termination of suppliers with the size of producers. The optimal policy entails subsidies to management and adjustment costs. |
| Keywords: | management and adjustment costs, adoption and termination of suppliers, business cycles |
| JEL: | E32 L14 L24 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11030&r=ind |
| By: | van Leuvensteijn, Michiel; Huljak, Ivan; de Bondt, Gabe |
| Abstract: | This paper extends Boone (2008) by introducing a competition measure at the individual firm level rather than for an entire market segment. It is based on the elasticity between profits and efficiency and called marginal relative profitability (MRP). Its intuition is that when a small change in efficiency derived from marginal costs can cause a large change in profits, a firm exercises pressure on its peers and gains profits. The MRP is embedded in the theoretical framework of Boone and measures competition vis-à-vis other market participants. We apply this extended Boone indicator to individual bank-level competition in the loan market in the four largest euro area countries and Austria. The MRP distribution is skewed to the left and many banks have a MRP below one, indicating that those banks have little incentive to enhance their efficiency to increase their profits. The MRP approach is shown to be a powerful tool to test the efficient-structure, structure-conduct performance, and ‘quiet life’ hypotheses and to detect comparatively weak non-competitive banks. Our new measure of firm-level competition enriches and complements other competition measures and provides a promising starting point for future market power analyses. JEL Classification: D4, L16, G21 |
| Keywords: | banks, competition, firm level |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242925&r=ind |