nep-ind New Economics Papers
on Industrial Organization
Issue of 2024–12–02
seven papers chosen by
Kwang Soo Cheong, Johns Hopkins University


  1. Mechanism Design and Innovation Incentive for an Ad-Funded Platform By Jeon, Doh-Shin; Ichihashi, Shota; Kim, Byung-Cheol
  2. Green antitrust conundrum: Collusion with social goals By Hashimzade, Nigar; Hatsor, Limor; Jelnov, Artyom
  3. Advertising's Impact on Brand Price Elasticity By Ataman, Berk; Pauwels, Koen; Srinivasan, Shuba; Vanhuele, Marc
  4. Bad Apples on Rotten Tomatoes: Critics, Crowds, and Gender Bias in Product Ratings By Luis Aguiar
  5. The use of structural presumptions in antitrust By OECD
  6. Financial frictions and market power accumulation By G. Spano
  7. Corporate investment trends in Germany: The role of financialization, intangibles and M&A By Giovanazzi, Carmen; Victor, Vincent; Putscher, Dorothee

  1. By: Jeon, Doh-Shin; Ichihashi, Shota; Kim, Byung-Cheol
    Abstract: We study a mechanism design problem of a monopoly platform that matches content of varying quality, ads with dierent ad revenues, and consumers with heterogeneous tastes for content quality. The optimal mechanism balances revenue from advertising and revenue from selling access to content: Increasing advertising revenue requires serving content to more consumers, which may reduce access revenue. Contrary to the standard monopolistic screening, the platform may serve content to consumers with negative virtual values while, to reduce information rents, limiting their access to higher-quality content. Then, an increase in ad protability reduces its incentive to invest in content quality.
    JEL: D42 D82 L15 O31
    Date: 2024–11–13
    URL: https://d.repec.org/n?u=RePEc:tse:wpaper:129923
  2. By: Hashimzade, Nigar; Hatsor, Limor; Jelnov, Artyom
    Abstract: Recent antitrust regulations in several countries have granted exemptions for col- lusion aimed at achieving environmental goals. Firms can apply for exemptions if collusion helps to develop or to implement costly clean technology, particularly in sec- tors like renewable energy, where capital costs are high and economies of scale are significant. However, if the cost of the green transition is unknown to the competition regulator, firms might exploit the exemption by fixing prices higher than necessary. The regulator faces the decision of whether to permit collusion and whether to commission an investigation of potential price fixing, which incurs costs. We fully characterise the equilibria in this scenario that depend on the regulator’s belief about the high cost of green transition. If the belief is high enough, collusion will be allowed. We also identify conditions under which a regulator’s commitment to always investigate price fixing is preferable to making discretionary decisions.
    Keywords: policy, antitrust, collusion, environment
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:zbw:esprep:305321
  3. By: Ataman, Berk (Koç University); Pauwels, Koen (Northeastern University); Srinivasan, Shuba (Boston University); Vanhuele, Marc (HEC Paris)
    Abstract: Managers often count on advertising to create and reinforce brand differentiation, which should, in theory at least, translate into lower price sensitivity for their brands. But to what extent does it do so, what is the route through which this effect of advertising materializes, and what are the boundary conditions? The authors develop a Dynamic Linear Model that links advertising to brand price elasticity directly and indirectly through consideration and main brand preference mindset metrics. Model estimation on six and a half years of data, on average, for 350 brands in 39 categories of fast-moving consumer goods shows that advertising indeed decreases the magnitude of price elasticity. The effect is mainly direct (97.5%) and partly indirect (2.5%), through brand preference. The direct effect shows that advertising predominantly decreases price sensitivity among the consumers who already consider the brand and among the consumers who already prefer it. When converted into incremental revenue impact, monetary gains from this increased pricing power are especially pronounced for expensive brands in complex and frequently purchased categories. The findings thus help managers demonstrate the benefits of advertising in sustaining brand performance.
    Keywords: Advertising; price elasticity; mindset metrics; long-term effects; dynamic linear models; and empirical generalization.
    JEL: M30 M31 M37
    Date: 2024–01–24
    URL: https://d.repec.org/n?u=RePEc:ebg:heccah:1500
  4. By: Luis Aguiar
    Abstract: Consumers considering the purchase of experience goods can rely on both critics and crowd-based evaluations to guide their decisions. Due to divergent incentives, however, critics and crowd assessments may incorporate different information. In the context of the movie industry, I investigate whether crowd reviewers provide gender-neutral product evaluations relative to professional critics. I classify movies as male or female based on the gender composition of their cast and estimate how the gender gap in movie rating scores differs across critics and crowds. Results show that while critics tend to assess both male and female movies similarly, the gender gap in ratings increases substantially under crowd-based ratings and at the expense of female movies. Notably, female movies receive a higher proportion of extreme low ratings, predominantly from male crowd reviewers. Using a rating design change implemented by the review-aggregating platform Rotten Tomatoes, results indicate that this overall increase in gender inequality is driven by a selected group of online reviewers rather than by a general bias against movies with more prominent female presence. These findings have important implications for the gate-keeping role of review-aggregating platforms in reducing bias against female representation in product ratings.
    Keywords: digital platforms, product ratings, critics, crowds, gender bias, movie industry
    JEL: D83 L15 L82 O33
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:ces:ceswps:_11422
  5. By: OECD
    Abstract: Structural presumptions in antitrust law refer to the concept that certain market structures, including high market shares and concentration, may presumptively harm competition and consumers. Once established by competition authorities or courts, the burden of proof typically shifts to the firms which need to rebut these presumptions. The use of structural presumption in antitrust enforcement continues to animate debates among competition authorities, academics and practitioners, reflecting different views on their relevance, application and accuracy when assessing potential anticompetitive practices. This paper explores how the use of structural presumptions may enable competition authorities to simplify complex issues related to market analysis and accelerate the competitive process, while maintaining the required degree of legal certainty to achieve the desired outcome. These mechanisms can ultimately make competition enforcement more predictable, transparent and efficient. Yet their use may also increase potential error costs, requiring competition authorities to consider trade-offs between different enforcement strategies (e.g. certainty, administrability and efficiency in decision-making versus accuracy). This paper also analyses the balancing of structural presumptions against detailed economic analysis which can be crucial to ensure fair and effective antitrust enforcement.
    Date: 2024–11–09
    URL: https://d.repec.org/n?u=RePEc:oec:dafaac:317-en
  6. By: G. Spano
    Abstract: This paper examines the interplay between market power and financial frictions, highlighting the bidirectional relationship between firms' access to finance and competitive dynamics. We develop a theoretical model where firms invest in technology to enhance product quality, which increases their market power. In our model, firms with greater market power can invest more, thereby reinforcing and accumulating additional market power in subsequent periods. However, the general equilibrium effects of reducing financial frictions is not clear. Specifically, when financial frictions are relaxed, firms can invest more, enabling them to produce at higher margins. This results in an increase in aggregate average market power. On the other hand, a reduction in financial frictions could also facilitate the entry of new firms into the market, thereby increasing competitive pressure. Our results indicate that an increase in investment, driven by reduced financial frictions, does not necessarily enhance competition unless the entry of new firms accompanies it. Through empirical analysis, using data from publicly listed U.S. firms, we test that firms with more market power are subjected to less financial frictions pressures in the subsequential periods. Empirical evidence also suggests higher levels of market power in the earlier period are correlated with less financial constraints in later periods.
    Keywords: technology ladder;investment;financial frictions;Market power
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:cns:cnscwp:202422
  7. By: Giovanazzi, Carmen; Victor, Vincent; Putscher, Dorothee
    Abstract: We examine the dynamics of corporate investment in Germany during the 2000s, a period marked by stagnant macroeconomic investment spending. Employing a mixed-methods approach, we explore investment trends across national accounts data, firm-level financials, and responses from financial executives through our financial strategy survey. We show that while tangible investment remains the most important investment category, both macroeconomic and firm-level data indicate a decline. This decrease is offset by rising intangible investment, reflecting the emergence of the intangible economy. Despite this shift, investment has lagged behind rising corporate saving, leading to an increased net lending position. Often interpreted as corporate financialization, we find only moderate and partial evidence to support this view from a firm-level perspective. Additionally, while we find an increasing importance of M&A at the firm level, this development is not fully captured in the national accounts due to missing goodwill data. Our results underscore the necessity of multifaceted analysis in understanding investment dynamics.
    Keywords: CFO Survey, Intangible Economy, Investment Strategy, Germany, M&A, Mixed Methods, Financialization
    JEL: C83 D22 E01 E22 G3 L2
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:zbw:ifsowp:305260

This nep-ind issue is ©2024 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at https://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.