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on Industrial Organization |
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Issue of 2024‒06‒10
eleven papers chosen by |
| By: | OECD |
| Abstract: | Recent global developments, and a number of serious crises, have led to large government interventions in many jurisdictions, driving a debate on whether there is a need to rethink the role of industrial policy in modern economies. This paper explores how to use industrial policy and make it pro-competitive. Competition authorities can play a crucial role in strengthening the impact of industrial policy: by ensuring that competition principles remain a cornerstone of carefully designed industrial policy. Moreover, competition enforcement keeps markets more competitive, laying a good foundation for industrial policy. |
| Date: | 2024–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaac:309-en&r= |
| By: | Mary Amiti; Sebastian Heise |
| Abstract: | The increasing dominance of large firms in the United States has raised concerns about pricing power in the product market. The worry is that large firms, facing fewer competitors, could increase their markups over marginal costs without fear of losing market share. In a recently published paper, we show that although sales of domestic firms have become more concentrated in the manufacturing sector, this development has been accompanied by the entry and growth of foreign firms. Import competition has lowered U.S. producers’ share of the U.S. market and put smaller, less efficient domestic firms out of business. Overall, market concentration in manufacturing was stable in recent decades, though import penetration has greatly altered the makeup of the U.S. manufacturing sector. |
| Keywords: | concentration; markups; import competition |
| JEL: | E2 F0 |
| Date: | 2024–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:98182&r= |
| By: | Qianjun Lyu |
| Abstract: | This paper studies the optimal refund mechanism when an uninformed buyer can privately acquire information about his valuation of a product over time. We consider a class of refund mechanisms based on stochastic return policies: if the buyer requests a return, the seller will issue a (partial) refund while allowing the buyer to keep the product with some probability. Such return policies can affect the buyer's learning process and thereby influence the return rate. Nevertheless, we show that the optimal refund mechanism is deterministic and takes a simple form: either the seller offers a sufficiently low price and disallows returns to deter buyer learning, or she offers a sufficiently high price with free returns to implement maximal buyer learning. The form of the optimal refund mechanism is non-monotone in the buyer's prior belief regarding his valuation. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.14927&r= |
| By: | Kolos Csaba \'Agoston; Veronika Varga |
| Abstract: | Since 2016 the operation of insurance companies in the European Union is regulated by the Solvency II directive. According to the EU directive the capital requirement should be calculated as a 99.5\% of Value at Risk. In this study, we examine the impact of this capital requirement constraint on equilibrium premiums and capitals. We discuss the case of the oligopoly insurance market using Bertrand's model, assuming profit maximizing insurance companies facing Value at Risk constraints. First we analyze companies' decision on premium level. The companies strategic behavior can result positive as well as negative expected profit for companies. The desired situation where competition eliminate positive profit and lead the market to zero-profit state is rare. Later we examine ex post and ax ante capital adjustments. Capital adjustment does not rule out market anomalies, although somehow changes them. Possibility of capital adjustment can lead the market to a situation where all of the companies suffer loss. Allowing capital adjustment results monopolistic premium level or market failure with positive probabilities. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.17915&r= |
| By: | d'Artis Kancs |
| Abstract: | Motivated by the recently experienced systemic shocks (the COVID-19 pandemic and the full-fledged Russia's war of aggression against Ukraine) - that have created new forms of uncertainties to our supplies - this paper explores the supply chain robustness under risk aversion and ambiguity aversion. We aim to understand the potential consequences of deeply uncertain systemic events on the supply chain resilience and how does the information precision affect individual agents' choices and the chain-level preparedness to aggregate shocks. Augmenting a parsimonious supply chain model with uncertainty, we analyse the relationship between the upstream sourcing decisions and the supply chain survival probability. Both risk-averse and ambiguity-averse individually-optimising agents' upstream sourcing paths are efficient but can become vulnerable to aggregate shocks. In contrast, a chain-level coordination of downstream firm sourcing decisions can qualitatively improve the robustness of the entire supply chain compared to the individual decision-making baseline. Such a robust decision making ensures that in the presence of an aggregate shock - independently of its realisation - part of upstream suppliers will survive and the final goods' supply will be ensured even under the most demanding circumstances. Our results also indicate that an input source diversification extracts a cost in foregone efficiency. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.03451&r= |
| By: | Pablo D. Azar; Adrian Casillas; Maryam Farboodi |
| Abstract: | The decentralized nature of blockchain markets has given rise to a complex and highly heterogeneous market structure, gaining increasing importance as traditional and decentralized (DeFi) finance become more interconnected. This paper introduces the DeFi intermediation chain and provides theoretical and empirical evidence for private information as a key determinant of intermediation rents. We propose a repeated bargaining model that predicts that profit share of Ethereum market participants is positively correlated with their private information, and employ a novel instrumental variable approach to show that a 1 percent increase in the value of intermediaries’ private information leads to a 1.4 percent increase in their profit share. |
| Keywords: | financial intermediation; oligopoly; blockchain; decentralized finance; cybersecurity |
| JEL: | G23 D82 L14 L22 G14 D43 |
| Date: | 2024–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:98219&r= |
| By: | Joshua S. Gans |
| Abstract: | Mobile app commissions paid by app developers to a monopolist device maker/app store operator are examined. Three results are demonstrated. First, unregulated app commissions are set at a level that maximises consumer surplus. Second, eliminating app commissions will lead to higher device prices. Third, requiring a menu of options for consumers as to how device makers receive subsidies from app developers constrains app commissions in a way that provides a more equal balance between consumer versus app developer interests. |
| JEL: | L11 L40 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32339&r= |
| By: | Angel Espinoza E. |
| Abstract: | Improving public transport infrastructure changes local market conditions. In this paper, I examine the impact of the construction and operation of "Metrobus", Mexico City's Bus Rapid Transit (BRT) system on consumer prices in chain stores, street vendors, and small family-owned (mom and pop) stores. I do so through a panel event study design. I consider the construction and operation of BRT as two different phenomena; while the former is associated to street closures, the latter reduces transportation costs. I show that only prices in mom and pop stores respond to changes in local market conditions produced by the introduction of BRT. For these businesses, construction pressures prices downwards; in contrast, operation is associated with partial price recoveries. I cannot reject a null effect in prices from chain stores or street vendors. |
| Keywords: | Public Transportation;Local Markets;Price Formation |
| JEL: | L11 L92 R12 R42 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2024-02&r= |
| By: | Ignatenko, Anna (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | This paper documents price discrimination by transport companies, revealing their market power. Larger shipments of similar products sharing a container receive lower prices. A trade model with non-linear pricing of transportation rationalizes this with economies of scale and price discrimination, highlighting their distinct policy implications. To distinguish them, I test for the effect of competition on freight price variation specific to price discrimination. Using unexpected water level changes to instrument for competition in river transportation, I find increased competition causes steeper discounts for larger shipments. Thus, market power in transportation is less distortionary for larger firms gaining additional cost advantages. |
| Keywords: | price discrimination; quantity discounts; transportation; competition; economies of scale; mark-ups; market power |
| JEL: | D22 D43 F10 F12 F14 |
| Date: | 2024–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2024_006&r= |
| By: | Davi-Arderius, D.; Jamasb, T.; Rosellon, J. |
| Abstract: | The 2022 energy crisis highlighted the dependence of Europe electricity sector on imported gas and the need to accelerate the connection of renewables to the power system. However, the allocation of generation and demand in electricity markets is not always technically viable and, where needed, system operators must activate or curtail specific generators not cleared in the day-ahead markets to ensure system reliability. This is a well-known operational, but under-researched, issue related to high integration of renewables. In Spain, most activated units are combined cycle or coal, while an equivalent volume of scheduled renewables (wind) must be curtailed to balance generation and consumption. Most of these actions are not used to alleviate congestion or grid bottlenecks, but to ensure system stability which highlights new challenges, but little empirically analyzed, in efficient integration of renewables. These actions impact on social welfare since all customers bear the costs of these actions, resulting in additional gas imports and CO2 emissions. We estimate how these actions could evolve under different scenarios. We find that additional renewables have increased the costs and CO2 emissions related to network operational needs. Moreover, the installation of small generation behind the meter might become a regressive policy since all customers will bear the additional operational costs. Finally, higher electricity consumption decreases the costs of solving operational needs, which highlights another social welfare benefit associated with the electrification of demand. Until the renewable or storage technologies evolve further, conventional generators (coal, combined cycle or nuclear) are needed for safe operation of systems with high rate of renewables, and countries need to assess when they disconnect them from the network. |
| Keywords: | Renewables, decarbonization, generation mix, redispatching, renewable curtailment, synchronous generators, day-ahead market, network constraints, gas crisis, system operator, smart grids, digitalization |
| JEL: | L51 L94 Q41 Q42 |
| Date: | 2024–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2421&r= |
| By: | Jessica Coria; Jūratė Jaraitė |
| Abstract: | This study examines how the impact of Tradable Green Certificates (TGC) on profitability and investment behavior varies depending on the vertical integration status of regulated firms. Our theoretical model predicts that vertical integration does not lead to higher profits when internal pricing aligns with market values for green certificates. However, it stimulates greater investment in renewable electric capacity since it reduces the costs of the sourced certificates. Empirical analysis of the Swedish TGC system confirms these findings, revealing that vertically integrated firms did not experience profit increases. Instead, they exhibited distinct investment patterns, prioritizing cost-effective technologies like hydro and thermal capacity over more expensive renewables, in contrast to non-integrated firms. |
| Keywords: | renewable energy, tradable green certificates, vertical integration, firm-level data, causal effects, profits, investments, Sweden |
| JEL: | L10 L50 Q58 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11079&r= |