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on Industrial Organization |
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Issue of 2024‒08‒12
seven papers chosen by |
| By: | Xiang Hui; Tobias J. Klein; Konrad O. Stahl |
| Abstract: | Online ratings play an important role in many markets. However, how fast they can reveal seller types remains unclear. To study this question, we propose a new model in which a buyer learns about the seller’s type from previous ratings and her own experience and rates the seller if she learns enough. We derive two testable implications and verify them using administrative data from eBay. We also show that alternative explanations are unlikely to explain the observed patterns. After having validated the model in that way, we calibrate it to eBay data to quantify the speed of learning. We find that ratings can be very informative. After 25 transactions, the likelihood of correctly predicting the seller type is above 95 percent. |
| Keywords: | online markets, rating, reputation, Bayesian learning |
| JEL: | D83 L12 L13 L81 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11171 |
| By: | Paulo Ramos; Thomas G. Wollmann |
| Abstract: | This paper uses an aggregative games framework to predict consumer welfare when market structure is endogenously determined. Our main results characterize mergers whose synergies reduce consumer welfare by inducing rivals to exit. The conditions under which such mergers arise are broad, regardless of whether we consider quantity competition among homogeneous products or price competition among multi-product firms facing multinomial logit demand. Calibrated models based on commonly used parameter values indicate that the synergies required to avoid consumer harm can be much higher than those implied by traditional merger analysis. Neither subsequent entry nor follow-on mergers necessarily mitigate the problem. |
| JEL: | D43 G34 K21 L13 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32630 |
| By: | Leonardo Madio; Martin Quinn |
| Abstract: | We study the incentive of an ad-funded social media platform to curb the presence of unsafe content that entails reputational risk to advertisers. We identify conditions for the platform not to moderate unsafe content and demonstrate how the optimal moderation policy depends on the risk the advertisers face. The platform is likely to under-moderate unsafe content relative to the socially desirable level when both advertisers and users have congruent preferences for unsafe content and to over-moderate unsafe content when advertisers have conflicting preferences for unsafe content. Finally, to mitigate negative externalities generated by unsafe content, we study the implications of a policy that mandates binding content moderation to online platforms and how the introduction of taxes on social media activity and social media platform competition can distort the platform’s moderation strategies. |
| Keywords: | advertising, content moderation, social media platforms, toxic content |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11169 |
| By: | Patrick Rey; Yossi Spiegel; Konrad O. Stahl |
| Abstract: | We study the feasibility and profitability of predation in a dynamic environment, using a parsimonious infinite-horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to accommodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies, accounting for the possibility that recurrent predation may be welfare improving. |
| Keywords: | predation, accommodation, entry, legal rules, Markov perfect equilibrium |
| JEL: | D43 L41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11172 |
| By: | Giacomo Calzolari; Leonardo Felli; Johannes Koenen; Giancarlo Spagnolo; Konrad O. Stahl |
| Abstract: | We investigate the role of mutual trust in long-term vertical relationships involving trades of complex goods. High complexity is associated with high contract incompleteness and hence the increased relevance of trust-based relational contracts. Contrary to expectations, we find that changes in trust do not impact the quality of highly complex objects. Instead, higher trust improves the quality of less complex objects. Even more surprisingly, trust is associated with more competi-tion in procurement, again for low tech objects. This complexity-based difference persists even when the same supplier provides both types of objects, suggesting relational contracting may be object-specific. These findings are derived from a comprehensive survey of buyers and critical suppliers in the German automotive industry. We explain these results with a relational contracting model, where the cost of switching suppliers is technology-specific and increases with object complexity, shifting bargaining power and altering the effects of trust on each party’s incentives. |
| Keywords: | relational contracts, complexity, bargaining power, trust, high-tech industries |
| JEL: | D86 L14 L62 O34 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11170 |
| By: | Shaun D. McRae; Frank A. Wolak |
| Abstract: | Recent energy shortfalls in renewables-dominated electricity markets call for a mechanism to ensure demand is met under all system conditions. We demonstrate severe shortcomings of an increasingly popular mechanism—reliability options—caused by its interaction with fixed-price forward contracts for energy. Large generators can trigger the option exercise, weakening the short-term incentive to sell output provided by forward contracts alone. In the longer term, hydro generators sell more forward contracts and store less water, reducing system reliability. We empirically show that Colombian generators respond to these incentives. We analyze a standardized energy contracting approach to long-term resource adequacy that does not create these economic incentives. |
| JEL: | L13 Q40 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32616 |
| By: | Montag, Felix; Sagimuldina, Alina; Winter, Christoph |
| Abstract: | The widespread availability of digital technologies has made mandatory price disclosure policies (MPD) a convenient tool for policymakers to increase price transparency and foster competition. The literature has shown that these can increase or decrease prices. We shed light on the circumstances under which MPD lowers prices. We study the introduction of MPD in the German retail fuel market by combining a stylized theoretical model with detailed data on prices, seller characteristics and consumer information. We find that low levels of prior consumer information, a high number of sellers, and complementary information campaigns foster the procompetitive effects of MPD. |
| Keywords: | Mandatory price disclosure, consumer information, retail fuel market |
| JEL: | D83 L41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cbscwp:300263 |