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on Industrial Organization |
| By: | Caprice, Stéphane; Shekhar, Shiva |
| Abstract: | In this paper, we study supplier encroachment in competition with multi-product retailers and its effects on retail profits under endoge-nous consumer shopping behavior. We find that supplier encroach-ment (weakly) increases both supplier and retailer profits, as the re-tailer benefits from better consumer segmentation and price discrim-ination despite (weakly) higher wholesale prices. The effect of en-croachment on consumers is more nuanced: when the competitive product’s value is high, consumers benefit. Instead, when the value of the competitive product is low, consumers buying exclusively from the multi-product retailer are worse off while consumers who mix and match across stores are better off. Overall, supplier encroachment can improve market outcomes if the value of the supplier’s product offering is sufficiently high. |
| Keywords: | Encroachment; Vertical Contracting; Downstream Competition and Consumer Shopping Costs. |
| JEL: | L13 L22 L42 L81 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130442 |
| By: | Nicolas Schutz; Anton Sobolev |
| Abstract: | We study the competitive effects of dual pricing, a vertical restraint that involves charging a distributor a different price for units intended to be resold online than for units intended to be resold offline. We develop a model in which a manufacturer contracts with hybrid retailers, which sell the manufacturer’s product both in their brick-and-mortar stores and through an online channel. We find that dual pricing allows the manufacturer to induce the industry monopoly outcome whereas uniform pricing does not. Yet, dual pricing does not necessarily harm consumers or society at large, as the market outcome is distorted by market power regardless of whether dual or uniform pricing is used. Indeed, we find that consumer surplus and aggregate surplus tend to be higher under dual pricing if the online market is small, if the search costs faced by offline consumers are high, and if the pass-through rate of cost increases is high. |
| Keywords: | dual pricing, price dispersion, search, vertical restraints |
| JEL: | L13 L42 D43 D83 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_678 |
| By: | Martimort, David; Poudou, Jean-Christophe; Thomas, Lionel |
| Abstract: | A buyer (the principal) procures a good or service from a risk-neutral seller (the agent). The seller, protected by limited liability, has private information on his marginal cost of production (adverse selection), and exerts a non-verifiable effort that increases surplus (moral hazard). Even when the effort and production technologies are separable, the optimal contract always mixes features that are found separately under with pure moral hazard or pure screening. Screening distortions are mitigated in comparison with the pure screening scenario with the possibility of bunching for the least efficient types even in contexts where full separation would be obtained with pure screening. Effort distortions are also used as a screening device. In comparison with a pure moral hazard scenario, those distortions may be lessened for the most efficient types, up to the point of possibly allowing implementation of the first-best effort, while they are worsened for the worst types. Although our analysis is cast in a simple procurement setting, we illustrate our findings in other economic environments of general interest including economic and environmental regulation, financial contracting, provision of quality in services, and price discrimination. |
| Keywords: | Adverse selection; moral hazard; contract theory |
| JEL: | D82 |
| Date: | 2025–03–11 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130428 |
| By: | Abhishek KUMAR (University of Southampton); Apra SINHA (University of Delhi); Gazi Salah UDDIN (Linkoping University) |
| Abstract: | Using administrative plant-level data from India, we estimate the effect of revenue and cost uncertainties on markup (product market power), markdown (labour market power), and combined market power. We show that historical two- and three-digit industry averages of exports, imported inputs, and oil share are valid instruments for exports, imported inputs, and oil share at the plant level. The results suggest that revenue and cost uncertainties affect markup differently: revenue uncertainty decreases markup, whereas cost uncertainty increases markup. Despite the opposite effect of these uncertainty measures on product market power, revenue and cost uncertainties tend to increase combined market power. This is because the revenue uncertainty significantly increases labour market power. Heightened cost uncertainties reduce labour market power but by less compared to increases in product market power. Given the results obtained in this paper, it is important to make a distinction between revenue and cost uncertainty to understand their cyclical nature. |
| Keywords: | Markup, Markdown; Labour Share; Uncertainty; Exchange Rate Volatility; Oil Price Volatility |
| JEL: | D21 D22 |
| Date: | 2025–03–04 |
| URL: | https://d.repec.org/n?u=RePEc:era:wpaper:dp-2024-37 |
| By: | Vesterberg, Mattias (Department of Economics, Umeå University) |
| Abstract: | This study estimates the causal impact of the recent years’ high electricity prices on electric vehicle (EV) adoption. Utilizing Swedish registry data and leveraging regional discontinuities in electricity prices, I demonstrate that higher electricity prices reduce EV demand, but also the demand for combustion-engine vehicles. Additionally, the response to electricity prices varies across different types of EVs and socio-economic groups. Based on these findings, I explore a counterfactual policy that reduces electricity prices for EV buyers, and show that under plausible assumptions, this policy is less cost-effective in boosting EV demand compared to subsidies for EV purchases or charging infrastructure. |
| Keywords: | Electrification; Transportation; Regression discontinuity |
| JEL: | D12 Q41 R41 |
| Date: | 2025–03–07 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1032 |
| By: | Drake, Samielle (Department of Economics, Umeå University) |
| Abstract: | This study examines the impact of local market concentration on the participation and success of small and medium enterprises (SMEs) in Swedish municipal cleaning service procurement auctions. A 10 percentage point reduction in the joint market share of the four largest firms (CR4), while maintaining a constant Herfindahl-Hirschman Index (HHI), results in a 7.5% increase in SME participation and raises the likelihood of an SME winning by 2.4%. Furthermore, the 2014 revisions to the EU public procurement directives mitigated the adverse effects of market concentration. However, despite the increase in participation, there is no evidence that the success rates of SMEs improved following the implementation of the revised EU directives. |
| Keywords: | Public Procurement; Market Concentration; SMEs; Competition; Regulations |
| JEL: | D44 H57 L13 L33 |
| Date: | 2025–03–11 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1034 |
| By: | Erich Muehlegger; Reid Taylor |
| Abstract: | We estimate the effect of competition on incumbent firm pricing by using high frequency price data and the precise geographic location for all gas stations in California. Using an event study design, we find that the entry of a new station is associated with a 2.5 cent decrease in prices at incumbent stores, which equates to a 7 percent reduction in estimated retail markups. The effects are immediate, persistent and show no sign of deterrence or limit pricing behavior. In contrast, nearby exit results in precisely estimated null effects on prices with no evidence of predatory pricing in the lead up to the station departure. We show that these results are consistent across all fuel blends, dissipate with distance and are driven by less concentrated markets. Finally, we explore the asymmetric effects, showing that the difference cannot be attributed to difference in branding, proximity to highway or data quality idiosyncrasies, although we find suggestive evidence that exit tends to happen in more competitive markets and amongst less heavily trafficked stations. |
| Keywords: | competition; entry; exit; retail gasoline; market structure |
| JEL: | D40 L11 L81 Q41 R32 |
| Date: | 2025–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:99661 |
| By: | TAKAHASHI, Yuta; TAKAYAMA, Naoki; TOYAMA, Yuta |
| Abstract: | Technological innovation in computer hardware, often measured by rapid decline in the relative price of computer hardware, significantly boosted productivity growth in the past. The massive decline in these relative prices stopped during the last two decades globally. To disentangle the causes behind recent price increases, we structurally estimate supply and demand model using detailed Japanese computer productlevel data from 2006 to 2015, and back out the marginal costs and markups. Our results indicate that price reductions in earlier sample period resulted from marginal cost decreases, while the price stabilization in later sample period reflects halted technological progress rather than increased market power. Recent PC market trends suggest genuine technological stagnation. |
| Keywords: | Market Power, Markup, Computer Hardware, Demand Estimation |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:hit:hituec:762 |