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on Industrial Organization |
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Issue of 2024‒06‒17
nine papers chosen by |
| By: | Brown, Zach Y.; Egan, Mark; Jeon, Jihye; Jin, Chuqing; Wu, Alex A. |
| Abstract: | The number of index funds increased drastically from 2000 to 2020, partially fueled by the emergence of exchange-traded funds (ETFs). Despite the growing availability of similar products, price dispersion persists, with many expensive funds still available, indicating significant market power among index funds. One explanation is that investor inertia limits the adoption of new products and interacts with other market frictions to restrict competition. To understand the sources and implications of market power, we develop a tractable quantitative dynamic model of demand for and supply of index funds that accounts for information frictions and heterogeneous preferences, in addition to inertia. These frictions on the demand side create market power for index fund managers, which fund managers can further exploit by price discriminating and charging higher expense ratios to retail investors. We find that inertia is high, with only 13\% of households updating their portfolio at least once yearly. Although inertia is high, its impact on the investment behavior of households is limited because they struggle to optimize investment decisions due to information frictions. Thus, there is an interaction between the two frictions—inertia is more costly for investors when information frictions are low. We show that although the introduction of ETFs lowered expense ratios through both the cost advantage of ETFs and increased competition, demand-side frictions limited product adoption. |
| JEL: | G11 G2 G5 L0 |
| Date: | 2024–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129370&r= |
| By: | Gautam Gowrisankaran; Philipp Schmidt-Dengler |
| Abstract: | This paper analyzes dynamic oligopoly models where investment is the principal strategic variable of interest, there are a large number of investment choices, and there are privately observed shocks to the marginal cost of investment. We show that simulation methods to compute these models can result in non-existence of pure strategy equilibrium. We provide a computationally efficient method to calculate optimal investment probabilities and show how to apply our methods to the recent dynamic empirical literature. The method iteratively finds the investment choices chosen with positive probability and cutoff values of the private information shocks across options in this set. |
| JEL: | C63 C73 L11 L13 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32399&r= |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Compatibility and connectivity are essential elements in a network economy. Using the degree of network compatibility as a measure of market competitiveness, we consider the impact of compatibility on profit incentives to innovate in a network goods industry. That is, an increase in the degree of network compatibility possibly reduces market competitive pressure. In addition, we investigate the impact on consumer benefits (i.e., marginal consumer surplus) caused by the innovation. We demonstrate that as the degree of compatibility increases, the profit incentives to innovate first decrease, then increase (i.e., a U-shaped function of compatibility); but, conversely, the consumer benefits first increase, then decrease (i.e., an inverted U-shaped function of compatibility). |
| Keywords: | innovation; network compatibility; a fulfilled expectation; cost-reducing R&D; Cournot duopoly |
| JEL: | D43 L13 L15 O31 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:274&r= |
| By: | Alice Chen; Seth M. Freedman; Elizabeth L. Munnich; Michael R. Richards |
| Abstract: | Technological innovation in medical services can improve health, but its ability to reach patients often depends on price signals for downstream providers, which can also be discordant across production inputs. We examine such a context when Medicare sharply revises facility fees—while holding physician fees constant—for advanced surgical care performed within certain outpatient settings. Industry-wide output for impacted cases increases via market expansion, and indirectly affected physicians devote more labor supply to these cases by sacrificing other outpatient and inpatient surgical volumes. Government price setting for healthcare facilities spills over onto physicians––impacting their technology utilization and time allocations. |
| JEL: | I11 I13 I18 L25 L84 L88 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32439&r= |
| By: | Abdoulaye Ndiaye |
| Abstract: | This paper studies the optimal transaction fee mechanisms for blockchains, focusing on the distinction between price-based ($\mathcal{P}$) and quantity-based ($\mathcal{Q}$) controls. By analyzing factors such as demand uncertainty, validator costs, cryptocurrency price fluctuations, price elasticity of demand, and levels of decentralization, we establish criteria that determine the selection of transaction fee mechanisms. We present a model framed around a Nash bargaining game, exploring how blockchain designers and validators negotiate fee structures to balance network welfare with profitability. Our findings suggest that the choice between $\mathcal{P}$ and $\mathcal{Q}$ mechanisms depends critically on the blockchain's specific technical and economic features. The study concludes that no single mechanism suits all contexts and highlights the potential for hybrid approaches that adaptively combine features of both $\mathcal{P}$ and $\mathcal{Q}$ to meet varying demands and market conditions. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.00235&r= |
| By: | Stefano Clò; Gianluca Iannucci; Alessandro Tampieri |
| Abstract: | This paper examines the interplay between firms' choices regarding Environmental Corporate Social Responsibility (ECSR) activities and the implementation of an emission trading system (ETS) within an oligopoly industry. We determine the equilibrium and stability conditions of an endogenous industry configuration where profit-seeking (PS) and ECSR firms coexist in the presence of an ETS policy. We derive some testable findings: first, the ECSR strategy is favoured by the increase in consumers' environmental concern, irrespective of any policy implementation. Second, the number of ECSR firms increases with the implementation of the ETS policy, provided that the number of allowances is sufficiently high. Finally, the number of ECSR firms decreases with the stringency of the ETS policy. We test the theoretical findings with a longitudinal dataset spanning the years 2002-2021, by evaluating how the number of ECSR firms in several industries and countries is affected by the introduction of the ``EU ETS scheme'' in 2005. Our empirical results are consistent with what is expected from the theory. |
| Keywords: | Emission trading scheme, Mixed oligopoly markets, Emission reduction investment |
| JEL: | C73 H23 L13 L21 M14 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2024_06.rdf&r= |
| By: | Andrew Brown; Peter Börkey |
| Abstract: | Companies are announcing pledges to increase their use of recycled content in their plastics products or packaging. But companies have historically failed to meet the goals that they have announced. OECD governments are adopting policies that will require the use of recycled content. There is some initial evidence that these policies strengthen recycling markets. Businesses have experienced some challenges in their initial efforts to comply due to a disharmonious range of definitions and targets. Additionally, there is an insufficient volume of useable recycled material in the market. This is especially an issue for food-contact packaging. Governments are facing limitations in what is feasible for monitoring and verifying compliance. This paper reviews current policies and methods for checking compliance. This review informs description of considerations for the design of recycled content policies and insights about their use. |
| Keywords: | circular economy, recycling, resource efficiency |
| JEL: | L22 L23 Q53 |
| Date: | 2024–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:envaaa:236-en&r= |
| By: | Megan C. Diaz; Adrian Bertrand; Tatum McKay; Barbara A. Schillo; Bushraa S. Khatib; John A. Tauras |
| Abstract: | Using NielsenIQ Retail Scanner data, we estimate demand equations for e-cigarettes by nicotine concentration. Overall, the models show that the price elasticities of demand range from -2.117 to -1.494. In a rapidly evolving e-cigarette market, demand for e-cigarettes varies considerably by nicotine strength. High-nicotine products, which have many close substitutes, are found to be more responsive to changes in price. Demand for low-nicotine products, with few close substitutes, are found to be less responsive to changes in price. Our findings also suggest that e-cigarettes with the lowest and highest nicotine concentrations may be economic complements, suggesting concurrent use. Unlike available evidence on cross-tax elasticities of demand, we find no evidence of an economic relationship between traditional cigarettes and e-cigarettes when broken down by nicotine strength concentration. |
| JEL: | I12 I18 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32435&r= |
| By: | Gupta, Apoorva; Stiebale, Joel |
| Abstract: | We study the effect of stronger patent protection on innovation activities of firms and firm-product level markups. Relying on cross-industry differences in the use of patents, we exploit firm-level variation in exposure to India's patent reform. For firms more exposed to stronger patent protection, we find an increase in patenting and R&D expenditure post-reform. Additionally, we estimate an increase in firm-product level markups after the reform, driven primarily by lower marginal costs rather than higher prices. Our results indicate that process innovations and output expansion contributed to these cost-savings, and incomplete pass-through accounts for a substantial part of rising markups. |
| Keywords: | Intellectual property rights, patent protection, innovation, R&D, markups, patents |
| JEL: | L10 O30 O31 O00 D22 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:295746&r= |