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on Industrial Organization |
| By: | Claudio Deiana; Davide Dragone; Ludovica Giua |
| Abstract: | This paper examines the role of domestic elections and political polarisation in shaping international environmental agreements and how electoral dynamics may explain the limited success of current climate cooperation. I focus on two key factors: the impact of domestic electoral pressure on international policy decisions and the mismatch between short election cycles and long-term treaty commitments. Using a 4-stage game modelling a bilateral environmental agreement, I analyse how incumbents strategically balance policy preferences with reelection prospects. Results show that while a green incumbent is often forced to temper their ambitions, a brown incumbent faces fewer electoral constraints, explaining why stringent policies are harder to achieve. Nonetheless, electoral pressure can moderate policies, producing outcomes more aligned with the preferences of the median voter. Finally, I discuss how political polarisation, particularly in two party systems, adds complexity to international cooperation on global public goods. |
| JEL: | I18 L43 L83 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bol:bodewp:wp1197 |
| By: | Armin Schmutzler |
| Abstract: | This paper provides a simple unified discrete-choice framework for analyzing differentiated duopolies. This framework nests models of horizontal and vertical differentiation, including standard textbook models (Hotelling and Shaked-Sutton). Contrary to these models, it also applies to economic environments where horizontal differentiation coincides with positive correlation of product valuations across consumers, and environments where vertical differentiation coincides with negative correlation. The paper provides an equilibrium characterization that is applicable independently of the type of differentiation and the sign of the valuation correlation. |
| Keywords: | Duopoly, differentiated products, price competition |
| JEL: | D43 L13 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:zur:econwp:461 |
| By: | Maria Teresa Medeiros Garcia; Tiago Miguel Batista Raimundo |
| Abstract: | This paper examines how player transfers influence the stock prices of publicly traded football clubs through an event study approach. The analysis focus on five prominent European teams—Manchester United, Juventus, Borussia Dortmund, Olympique Lyon, and Ajax—focusing on 230 player transactions that occurred between 2018 and 2023. The study assesses abnormal returns (AR) and cumulative abnormal returns (CAR) within a 10-day event window, encompassing five days prior to and following the announcements of transfers. Findings indicate that high-value transfers typically result in positive abnormal returns, which reflect investor optimism regarding the new player's potential impact on the team's success. In contrast, sales and loans of players tend to elicit negative reactions from the market, indicating concerns about possible adverse effects on team performance. These results support the Efficient Market Hypothesis by demonstrating that stock prices quickly adjust to new information such as player transfers. This research adds to the expanding literature at the intersection of sports events and financial markets, providing valuable insights for clubs operating in capital markets and investors aiming to understand the dynamics of football markets. |
| Keywords: | Event Studies; Football Transfers; Abnormal Returns; Stock Market; Efficient Market Hypothesis. |
| JEL: | G14 L83 M41 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03612024 |
| By: | Abdel Mokhtari (emlyon business school, 144 avenue Jean Jaurès, 69007, Lyon, France); Richard Ruble (emlyon business school, CNRS, Université Lumière Lyon 2, Université Jean Monnet Saint-Etienne, GATE, 69007, Lyon, France) |
| Abstract: | We study incentives to invest in electricity generation capacity if an incumbent using nuclear power competes with an endogenous number of entrants using intermittent renewable energy sources. The intermittence of renewables makes the incumbent less aggressive, and the incumbent accommodates if the efficiency difference between technologies is not too large. We analyze France’s long-running subsidy scheme, the ARENH, through the prism of our model. This policy achieves its aim of making product market outcomes more competitive through an endogenous entry channel, but if investments in nuclear power are restarted then pursuing such a scheme would run the risk of facilitating deterrence. |
| Keywords: | Free entry, Intermittence, Renewable energy, Stackelberg leadership |
| JEL: | D24 D61 L13 Q41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2422 |
| By: | Bublu Thakur-Weigold; Sébastien Miroudot |
| Abstract: | This working paper contributes to the debate on effective solutions for assuring the resilience of critical global supply chains by undertaking a review of both the supply chain management literature and recent actions by firms and governments. The report highlights that when pursuing the resilience of global supply chains, policy should focus on the performance of the system as a whole and not target a single objective, such as security of supply. In addition, resilience strategies should be segmented to address two distinct categories of risks: business-as-usual disruptions that can be mitigated by standard risk management practices of firms and unforeseen extreme disruptions where the role of governments is crucial as facilitators and providers of emergency resources. Effective interventions include reducing logistics frictions, regulatory co-operation and flexibility, and fostering an industrial commons for emergency preparedness. Regular preparedness conferences would enable public-private stakeholders to co-ordinate responses to future crises. |
| Keywords: | Global supply chains, Risk management |
| JEL: | D81 F23 F63 H12 L23 |
| Date: | 2024–11–28 |
| URL: | https://d.repec.org/n?u=RePEc:oec:traaab:286-en |
| By: | Till Fladung; Anna Saile |
| Abstract: | During the energy crisis in 2022, electricity prices in Germany soared to unprecedented levels. To explore the drivers of the high electricity prices, we develop an electricity dispatch model that simulates hourly equilibrium prices under the assumption of perfect competition. We then extend this model to account for firms exercising market power. By comparing the outcomes of the perfect competition and Cournot competition models with actual market data, we demonstrate that market power may contributed to higher prices during the crisis, elevating them beyond what rising input costs alone would justify. |
| Keywords: | Energy Economics, Market Power, Energy Crisis, Electricity Prices, Cournot Competition |
| JEL: | Q41 Q43 L13 D43 L94 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ifowps:_414 |
| By: | Chiara Bellucci; Armando Rungi |
| Abstract: | Rising market power threatens competition and decreases consumers' welfare. To date, a few works have shown how global firm-level markups increase, but there is scant evidence about the channels of such a change. This study investigates the causal impact of takeovers on markups and related firm-level outcomes on European manufacturing in 2007- 2021. Interestingly, findings suggest that takeovers aimed at vertical integration strategies are procompetitive because they result in lower markups (0.7%) and more sales (2.9%). The effects are higher as time passes from the takeover event, and they increase with the parents' number of already integrated subsidiaries. Notably, we do not find a significant impact on markups in horizontal integration strategies after we control for cherry-picking by acquirers. Eventually, we emphasize that our results on vertical takeovers point to strategies aimed at eliminating double profit margins on the input markets; thus, lower markups increase sales, spreading fixed costs and benefiting from economies of scale. Several checks on methods and sample composition effects confirm our central tenets. Finally, we reconnect with the debate initiated by the U.S. Vertical Merger Guidelines (2020; 2023), where the presumption of harm after vertical deals has been softened, thus considering procompetitive effects, but the discussion of potential foreclosure risks has been expanded. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.12412 |
| By: | Bolotova, Yuliya V. |
| Abstract: | This research analyzes the U.S. fluid milk industry dynamics in light of a herd retirement (HR) program implemented by the Cooperatives Working Together (CWT) in the period of 2003 to 2010, which led to an antitrust lawsuit filed by buyers of fluid milk and other fresh milk products at the retail level against CWT dairy cooperatives and a large settlement. Presuming that they had a Capper-Volstead Act immunity, CWT cooperatives acted in a cartel-like manner to decrease milk supply to increase and stabilize milk prices received by dairy farmers. The HR program may have modestly increased seller market power of dairy farmers reflected in the increased farm sector shares in the retail fluid whole milk prices in the majority of the analyzed cities in the HR period. In contrast, seller market power of fluid milk retailers decreased in these cities, as reflected in the increased cost pass-throughs, decreased fixed absolute markups, and decreased farm-to-retail margins. The cost of milk used in fluid milk manufacturing increased at a higher rate than retail fluid whole milk prices in these cities and fluid milk retailers were able to pass only a portion of the farm milk price increase on their buyers. Nevertheless, in the HR period, buyers of fluid whole milk at the retail level paid higher prices in all analyzed cities, except for Cincinnati and Seattle. |
| Date: | 2024–12–18 |
| URL: | https://d.repec.org/n?u=RePEc:isu:genstf:202412181834180000 |
| By: | Richard N. Langlois (University of Connecticut) |
| Abstract: | Edith Penrose was far from underappreciated in management theory, where she was considered the inspiration for more than one research program. But she was virtually unknown in economics, the discipline in which she was trained and in which she considered herself to be working. This essay chronicles the life and work of Edith Penrose. It examines the streams of thought she influenced – and didn’t influence. As a special bonus, the essay also considers another underappreciated economist, George Richardson, who built on Penrose’s work and overcame some of its limitations. Following Brian Loasby, the essay ultimately argues for understanding Penrose and Richardson as industrial organization economists in the tradition of Adam Smith and Alfred Marshall. |
| JEL: | B25 B31 B52 B53 L2 L65 O32 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:uct:uconnp:2024-05 |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Introducing network externalities into a Hotelling linear market model, we consider the profit ranking of Bertrand and Cournot equilibria, the problem of endogenous choice of strategic variables, and welfare efficiency. In particular, focusing on network connectivity (horizontal interoperability) between network products, we demonstrate the following results: (i) firms earn higher (lower) profits under Bertrand competition rather than under Cournot competition if network connectivity is sufficiently large (small); (ii) firms choose price (quantity) contracts if network connectivity is sufficiently large (small); (iii) social efficiency is achieved under Bertrand competition if network connectivity is sufficiently large. |
| Keywords: | Hotelling linear market model, Bertrand competition, Cournot competition, network connectivity, fulfilled expectations, rational expectations |
| JEL: | D43 L13 L15 L22 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:283 |
| By: | Dawid, Herbert (Center for Mathematical Economics, Bielefeld University); Riedel, Frank (Center for Mathematical Economics, Bielefeld University); Steg, Jan-Henrik (Center for Mathematical Economics, Bielefeld University); Wen, Xingang (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | We study endogenous, credit-financed innovation under uncertainty in dynamic con- texts. In our model, a firm with limited cash reserves decides how much to invest in an R&D project, potentially using external financing. Investing more increases the proba- bility of a sooner innovation, but higher repayment obligations also increase bankruptcy risk if the innovation takes longer. We show that the firm reduces its investment dis- continuously if the financing cost is not favorable enough, in order to avoid the need for external financing. This insight implies that policies reducing financing costs can have discontinuous positive effects on investment, innovation rate and welfare. How- ever, policy measures increasing the effectiveness of R&D might reduce the innovation rate and welfare due to a discontinuous reduction of R&D investment. Furthermore, we find that low financing costs can lead to over-investment. The welfare loss from cash constraints is more severe for radical innovations compared to incremental ones. |
| Keywords: | Innovation, R&D investment, Cash constraints, Bankruptcy risk |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:bie:wpaper:699 |
| By: | Steven Callander (Stanford University, Stanford Graduate School of Business); Hongyi Li (University of New South Wales, School of Economics) |
| Abstract: | Innovations bring many benefits to society, but they can also bring harm. We study the problem of a regulator deciding whether to approve an innovation where information about the impact of the innovation is held within the firms that are developing it. We show that competition for the innovation undermines the regulator’s ability to extract the information she needs to make good policy. As the number of firms increases and the expected benefit of the innovation grows, the probability that the regulator is persuaded to approve an innovation decreases. This tension between competition and communication reverses Arrow’s famous “replacement effect.” Thus, in regulated markets, more competition can lead to fewer innovations making it to market. We explore how this tension can be mitigated, but not eliminated, by political and market design. |
| Keywords: | Innovation, regulation, competition |
| JEL: | L51 O31 D82 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:swe:wpaper:2024-07 |