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on Industrial Organization |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Using the framework of a Hotelling linear market, we consider the impact of network connectivity (horizontal interoperability) between network goods on strategic R&D competition and profits. We first demonstrate that in the case of a fully covered (mature) market, as network connectivity increases, R&D activities decrease, but profits increase. Then, relaxing the assumption of market coverage, we demonstrate that in the case of a partially covered and uncovered (immature) market, as network connectivity increases, R&D activities at first decrease, and then increase given strong network externalities. Otherwise, the R&D activities monotonically increase. However, regardless of the strength of the network externalities, profits increase. Regarding quantity competition in the immature market, we obtain the same results in the case of price competition. We also consider the implication of network connectivity for market competitiveness. |
| Keywords: | innovation, Network externality, Connectivity, interoperability, R&D competition, Hotelling linear market, Fulfilled expectations, Lerner index |
| JEL: | L13 L15 L31 L32 D43 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:280 |
| By: | Wehner, Jasmin; Feil, Jan-Henning; Yu, Xiaohua |
| Abstract: | Market power in economic theory is defined as deviations from marginal cost pricing, which results in unfair competition and welfare losses. In complex agri-food supply chains, the exercise of market power is a significant contributor to welfare losses, as multiple actors throughout the chain can exert such power. However, the potential dual role of dairy processors—as both buyers in the raw milk market and sellers in the output market—has received little attention so far. Using a panel data set with 323 observations from major German dairy processors between the years 2010 and 2021, we show that dairy processors exercise both, oligopsonistic as well as oligopolistic market power. Results suggest that dairy processors take advantage of their central position in the dairy supply chain, and buy milk from dairy farmers 9.2 percent below the value of the marginal product and sell processed milk to retailers 1.1 percent above the marginal costs. We demonstrate that it is important to incorporate the dual role of supply chain actors in market power analyses. In order to reduce welfare losses generated by market power, we recommend that the federal cartel authority should monitor market actors within the dairy supply chain continuously and consider the dual role of market actors in their reports and recommendations to the government. |
| Keywords: | Dairy Farming, Dairy Production/Industries, Industrial Organization |
| Date: | 2024–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:ags:gausfs:347738 |
| By: | Oner Tulum (Academic-Industry Research Network); William Lazonick (Academic-Industry Research Network) |
| Abstract: | Mandated by the Inflation Reduction Act of 2022, the U.S. government through the Centers for Medicare and Medicaid Services (CMS) is negotiating with pharmaceutical companies over the "maximum fair price" of ten drugs in wide use by Medicare patients. Over the next few years, the number of drugs whose prices are subject to negotiations will increase. The pharmaceutical companies contend that a "fair" price would be a "value-based price" that enables the companies' shareholders to capture the value that the drug creates for society. Invoking the dominant "maximizing shareholder value" ideology, the argument for value-based pricing assumes that it is only a pharmaceutical company's shareholders who make the risky investments that fund drug innovation. Pharmaceutical executives and their lobbyists warn that a lowering of drug prices will reduce investments in new drugs. The purpose of this paper is to enable CMS negotiators to respond to these arguments by showing a) why drug-price regulation is required, given the relation between scale economies in supplying drugs and price inelasticity of drug demand; b) how the pharmaceutical companies with which they are negotiating prices are, in general, not using their profits from unregulated drug prices to fund drug innovation but rather to fund distributions to shareholders in the form of cash dividends and stock buybacks; c) that publicly listed pharmaceutical companies do not typically rely upon investment by shareholders to fund drug innovation; and d) that investment in drug innovation entails "collective and cumulative learning" in foundational and translational research that is both antecedent and external to the investments in clinical research that a pharmaceutical company may make to bring a safe and effective drug to market. |
| Keywords: | Inflation Reduction Act, drug prices, Medicare negotiations, investment in innovation, accessible and affordable medicines, foundational research, translational research, clinical research, collective and cumulative learning, stock buybacks, shareholder-value ideology, value-based pricing, value for society |
| JEL: | G30 G35 H40 H51 I10 I28 J24 L11 L12 L21 L50 L65 O30 P16 |
| Date: | 2024–09–09 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp226 |
| By: | Shamim Homaei; Simon Roussanaly; Asgeir Tomasgard |
| Abstract: | In power markets, understanding the cost dynamics of electricity generation is crucial. The complexity of price formation in the power system arises from its diverse attributes, such as various generator types, each characterized by its specific fixed and variable costs as well as different lifetimes. In this paper, we adopt an approach that investigates both long-run marginal cost (LRMC) and short-run marginal cost (SRMC) in a perfect competition market. According to economic theory, marginal pricing serves as an effective method for determining the generation cost of electricity. This paper presents a capacity expansion model designed to evaluate the marginal cost of electricity generation, encompassing both long-term and short-term perspectives. Following a parametric analysis and the calculation of LRMCs, this study investigates the allocation of investment costs across various time periods and how these costs factor into the LRMC to ensure cost recovery. Additionally, an exploration of SRMCs reveals the conditions under which LRMCs and SRMCs converge or diverge. We observe that when there is a disparity between LRMC and SRMC, setting electricity generation prices equal to SRMCs does not ensure the complete recovery of investment and operational costs. This phenomenon holds implications for market reliability and challenges the pricing strategies that rely solely on SRMCs. Furthermore, our investigation highlighted the significance of addressing degeneracy in the power market modeling. Primal degeneracy in the SRMC model can result in multiple values for the dual variable representing SRMC. This multiplicity of values creates ambiguity regarding the precise SRMC value, making it challenging to ascertain the correct estimation. As a result, resolving degeneracy will ensure the reliability of the SRMC value, consequently enhancing the robustness and credibility of our analysis. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.15861 |
| By: | Lehner, Lukas (University of Oxford); Parolin, Zachary (Bocconi University); Pignatti, Clemente (ILO International Labour Organization); Schmitt, Rafael Pintro (University of California, Berkeley) |
| Abstract: | Prior research suggests that Walmart Supercenters exert substantial power over the low-wage labor market, though the consequences of Supercenter openings on household incomes and public finances are less clear. This study uses restricted-access Panel Study of Income Dynamics data from 1970 to 2019 to study how Walmart Supercenter openings affect poverty, tax liabilities, and receipt of income transfers. Using a stacked difference-in-differences approach, we find that the opening of a Supercenter leads to a 2 percentage point (16%) increase in poverty. This increase is channeled through declining annual earnings and persists for 10 years following the Supercenter's entry. Increases in poverty are particularly strong for younger and less-educated adults, and for adults with pre-treatment incomes below the national median. Moreover, Walmart Supercenter openings lead to a $200 (or 16%) per household per year increase in government income transfers received, and a $920 (or 5%) per household per year decrease in tax revenues. |
| Keywords: | poverty, monopsony power, Walmart, local labor markets, economic inequality |
| JEL: | J23 J31 J42 R23 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17323 |
| By: | Timothy DeStefano; Nick Johnstone; Richard Kneller; Jonathan Timmis |
| Abstract: | The arrival of cloud computing provides firms a new way to access digital technologies as digital services. Yet, capital incentive policies present in every OECD country are still targeted towards investments in information technology (IT) capital. If cloud services are partial substitutes for IT investments, the presence of capital incentive policies may unintentionally discourage the adoption of cloud and technologies that rely on the cloud, such as artificial intelligence (AI) and big data analytics. This paper exploits a tax incentive in the UK for capital investment as a quasi-natural experiment to examine the impact on firm adoption of cloud computing, big data analytics and AI. The empirical results find that the policy increased investment in IT capital as would be expected; but it slowed firm adoption of cloud, big data and AI. Matched employer-employee data shows that the policy also led firms to reduce their demand for workers that perform data analytics, but not other types of workers. |
| Keywords: | capital incentives, firms, cloud computing, artificial intelligence |
| JEL: | J21 J24 L20 O33 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11369 |