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on Industrial Organization |
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Issue of 2024‒07‒08
eleven papers chosen by |
| By: | Marit Hinnosaar; Toomas Hinnosaar |
| Abstract: | Social media influencers account for a growing share of marketing worldwide. We demonstrate the existence of a novel form of market failure in this advertising market: influencer cartels, where groups of influencers collude to increase their advertising revenue by inflating their engagement. Our theoretical model shows that influencer cartels can improve consumer welfare if they expand social media engagement to the target audience, or reduce welfare if they divert engagement to less relevant audiences. We validate the model empirically using novel data on influencer cartels combined with machine learning tools, and derive policy implications for how to maximize consumer welfare. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.10231&r= |
| By: | Martin Peitz; Anton Sobolev |
| Abstract: | We consider a monopolist selling an experience good to differentially informed consumers: some consumers are uncertain about their tastes, whereas other consumers are perfectly informed. The fully informed monopolist sets a uniform price and can make personalized product recommendations. We characterize conditions under which the monopolist biases its recommendations – that is, some consumers with match values lower than the marginal cost follow the recommendation to buy the product or some consumers with match values higher than the marginal cost follow the recommendation not to buy the product. |
| Keywords: | information design, biased recommendations, recommender system |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_554&r= |
| By: | Matthias Hunold; Vasilisa Petrishcheva |
| Abstract: | We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target. Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction. |
| Keywords: | Foreclosure, Minority shareholdings, Partial ownership, Profit shifting, Vertical integration |
| JEL: | G34 L22 L40 |
| Date: | 2024–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0041&r= |
| By: | Ziyu Yan |
| Abstract: | This thesis investigates the dynamics of multimarket contact and airline mergers on collusive pricing of airlines. In align with Bernheim and Whinston (1990) and Athey et.al.(2004), it detects collusive pricing via pairwise price difference and price rigidity. The piece of work extends previous work by incorporating additional controls such as distinction between non-stop and stopover itineraries and detailed market concentration measures. The findings confirm a significant relationship between multimarket contact and reduced price differences, indicating collusive equilibria facilitated by frequent interactions across markets. Moreover, the results highlight that airlines exhibit more collusive behavior when pricing non-stop flights, and are more likely to attain tacit collusion when they approaches duopoly in a particular market. The study also explores the effects of airline mergers on collusion, employing an event study methodology with a difference-in-difference (DID) design. It finds no direct evidence that mergers lead to increased collusion among unmerged carriers. However, it reveals that during and after the merger process, carrier pairs between merged and unmerged carriers are more likely to collude compared to pairs of unmerged carriers. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.15825&r= |
| By: | Martin Spann; Marco Bertini; Oded Koenigsberg; Robert Zeithammer; Diego Aparicio; Yuxin Chen; Fabrizio Fantini; Ginger Zhe Jin; Vicki Morwitz; Peter Popkowski Leszczyc; Maria Ana Vitorino; Gizem Yalcin Williams; Hyesung Yoo |
| Abstract: | Over the past decade, an increasing number of firms have delegated pricing decisions to algorithms in consumer markets such as travel, entertainment, and retail; business markets such as digital advertising; and platform markets such as ride-sharing. This trend, driven primarily by the increased availability of digital data and developments in information technology, has economic and social consequences that are not yet well understood. The aim of this paper is therefore to examine various implications and challenges of algorithmic pricing for consumers, managers, and regulators. We contribute to the literature by defining and classifying algorithmic pricing, understanding managers' perceptions and adding empirical evidence on its use, raising important considerations for the three stakeholders, and finally outlining research priorities in this area. |
| JEL: | D4 L1 L4 L5 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32540&r= |
| By: | Shidi Deng; Maximilian Schiffer; Martin Bichler |
| Abstract: | Nowadays, a significant share of the Business-to-Consumer sector is based on online platforms like Amazon and Alibaba and uses Artificial Intelligence for pricing strategies. This has sparked debate on whether pricing algorithms may tacitly collude to set supra-competitive prices without being explicitly designed to do so. Our study addresses these concerns by examining the risk of collusion when Reinforcement Learning algorithms are used to decide on pricing strategies in competitive markets. Prior research in this field focused on Tabular Q-learning (TQL) and led to opposing views on whether learning-based algorithms can lead to supra-competitive prices. Our work contributes to this ongoing discussion by providing a more nuanced numerical study that goes beyond TQL by additionally capturing off- and on-policy Deep Reinforcement Learning (DRL) algorithms. We study multiple Bertrand oligopoly variants and show that algorithmic collusion depends on the algorithm used. In our experiments, TQL exhibits higher collusion and price dispersion phenomena compared to DRL algorithms. We show that the severity of collusion depends not only on the algorithm used but also on the characteristics of the market environment. We further find that Proximal Policy Optimization appears to be less sensitive to collusive outcomes compared to other state-of-the-art DRL algorithms. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.02437&r= |
| By: | Oleg Alekseev; Karel Janda; Mathieu Petit; David Zilberman |
| Abstract: | This paper investigates the return and volatility spillovers between the upstream electric vehicles (EV) battery raw materials market and the individual downstream EV producers. The study uses the daily stock returns of two lithium producers and a new model in the GARCH family to capture the jump component of volatility in the EV battery raw materials market. Return and volatility spillovers are studied using an EGARCH(1, 1) model including the excess stock returns of lithium producers in the mean equation and their jump component intensity in the variance equation. The results indicate that jumps exist in the EV battery raw materials market and that there exist significant return spillovers between lithium and EV producers. However, this paper didn’t find any strong evidence of the existence of volatility spillovers between these two markets through lithium unexpected news. |
| Keywords: | EVs, return spillovers, volatility spillovers, jump component, jump intensity, EGARCH-EARJI |
| JEL: | C22 G14 L61 L62 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-40&r= |
| By: | In Kyung Kim (Department of Economics, Sogang University, Seoul, Korea); Kyoo il Kim (Department of Economics, Michigan State University) |
| Abstract: | This study investigates the pricing behaviors of instant noodle manufacturers in South Korea during the 2010s. We find strong evidence against the suspicion by the Korea Fair Trade Commission (KFTC) that firms in this industry have colluded in price-fixing. Contrary to these suspicions, it appears they have been subjected to de facto price controls by the government; the observed markups are significantly lower than those calculated under a scenario of Nash–Bertrand competition, setting aside any collusion. Our counterfactual analysis suggests that profits would have been much higher (by 50 percent on average) than observed if the firms had engaged in the ‘follow-the-leader’ pricing strategy as claimed by the regulatory authority. These findings align with the ruling of the Supreme Court of Korea in 2015, which overturned the KFTC’s imposition of fines (approximately 120 million US dollars) on the four major instant noodle producers in 2012. |
| Keywords: | Follow-the-leader pricing, Discrete choice demand, Collusion, Instant noodles |
| JEL: | D12 D22 L40 L66 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:sgo:wpaper:2403&r= |
| By: | Patrick Alexander; Lu Han; Oleksiy Kryvtsov; Ben Tomlin |
| Abstract: | We study how the interaction of market power and nominal price rigidity influences inflation dynamics. We formulate a tractable model of oligopolistic competition and sticky prices and derive closed-form expressions for the pass-through of idiosyncratic and common cost shocks to firms’ prices. Using unpublished micro data for Canadian wholesale firms, we estimate that the pass-through of idiosyncratic costs is incomplete at 70% and independent of the degree of sector-price-stickiness. The pass-through of common costs declines with price stickiness, from nearly complete in flexible-price sectors to below 70% in sectors with the stickiest prices. An increase in the degree of sector or firm market power reduces the pass-through of both types of cost shocks. These estimates imply a degree of strategic complementarity that lowers the slope of the New Keynesian Phillips curve by 30% in a one-sector model and by 74% in a multi-sector model. |
| Keywords: | Firm dynamics; Inflation and prices; Market structure and pricing; Monetary policy transmission |
| JEL: | D43 E31 L13 L81 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-20&r= |
| By: | Frederik von Waldow; Heike Link |
| Abstract: | This paper analyses the pass-through rates and their determinants of the temporary German fuel discount in 2022 at its start and its termination. Based on a unique dataset of fuel station characteristics and prices, we employ a Regression Discontinuity in Time (RDiT) methodology to estimate heterogeneous pass-through rates. Our main contribution is to identify the impact of horizontal and vertical market structures on the extent to which taxes are passed on to consumers. While competitive pressure is positively associated with the response of prices to tax changes, we estimate lower pass-through predominantly for more isolated stations with fewer competitors. Furthermore, our results indicate that independence from upstream markets is accompanied by a reduced pass-through of tax changes suggesting the existence of double marginalization. |
| Keywords: | Gasoline prices, local competition, tax pass-through, regression discontinuity in time |
| JEL: | Q48 H22 L13 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2086&r= |
| By: | Leonov Ivan (Department of Economics, Lomonosov Moscow State University) |
| Abstract: | Since 2019, Russia has implemented quasi-directive pricing in the retail gasoline and diesel fuel markets, and a "big tax maneuver" has started to be implemented. This study aims to assess the impact of the current pricing system for gasoline and diesel fuels on the competitive environment in retail markets. As part of the study, four econometric models were built using the weighted least squares method and using stationary differences instead of stationary series to identify the impact of the "big tax maneuver" on domestic gasoline and diesel prices. Current pricing imbalances are leading to a permanent increase in retail fuel prices, which inevitably leads to an increase in market concentration in the gasoline station segment. There is no steady progress in the institutional environment in the motor fuel market due to increased regulatory uncertainty and expected negative consequence. |
| Keywords: | competition policy, oil industry, price regulation, gasoline pricing, diesel fuel pricing, stock exchange, taxation of the oil industry, big tax maneuver, damper |
| JEL: | L11 L42 L81 H32 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:upa:wpaper:0067&r= |