nep-ind New Economics Papers
on Industrial Organization
Issue of 2024‒05‒20
eleven papers chosen by

  1. Merger Analysis with Latent Price By Paul Koh
  2. A Field Experiment on Antitrust Compliance By Kei Kawai; Jun Nakabayashi
  3. Super Apps and the Digital Markets Act By Simonetta Vezzoso
  4. Learning From Online Ratings By Xiang Hui; Tobias J. Klein; Konrad Stahl
  5. Trust in Vertical Relations By Giacomo Calzolari; Leonardo Felli; Johannes Koenen; Giancarlo Spagnolo; Konrad Stahl
  6. A Dynamic Model of Predation By Patrick Rey; Yossi Spiegel; Konrad Stahl
  7. Supply Chain Frictions By Ying-Ju Chen; Zhengqing Gui; Ernst-Ludwig von Thadden; Xiaojian Zhao
  8. Bargaining and Dynamic Competition By Shanglyu Deng; Dun Jia; Mario Leccese; Andrew Sweeting
  9. Pricing behaviour and inflation during the COVID-19 pandemic: Insights from consumer prices microdata By Olga Bilyk; Mikael Khan; Olena Kostyshyna
  10. Biased Beliefs of Consumers and Two-Part Tariff Competition By Koji Ishibashi
  11. Common Ownership in Production Networks By Matteo Bizzarri; Fernando Vega-Redondo

  1. By: Paul Koh
    Abstract: Standard empirical tools for merger analysis assume price data, which may not be readily available. This paper characterizes sufficient conditions for identifying the unilateral effects of mergers without price data. I show that revenues, margins, and revenue diversion ratios are sufficient for identifying the gross upward pricing pressure indices, impact on consumer/producer surplus, and compensating marginal cost reductions associated with a merger. I also describe assumptions on demand that facilitate the identification of revenue diversion ratios and merger simulations. I use the proposed framework to evaluate the Staples/Office Depot merger (2016).
    Date: 2024–04
  2. By: Kei Kawai; Jun Nakabayashi
    Abstract: We study the effectiveness of firms' compliance programs by conducting a field experiment in which we disclose to a subset of Japanese firms that the firm is potentially engaging in illegal bid-rigging. We find that the information that we disclose affects the bidding behavior of the treated firms: our test of bid-rigging is less able to reject the null of competition when applied to the bidding data of the treated firms after the intervention. We find evidence that this change is not the result of firms ceasing to collude, however. We find evidence suggesting that firms continue to collude even after our intervention and that the change in the bidding behavior we document is the result of active concealment of evidence by cartelizing firms.
    JEL: K21 L41
    Date: 2024–04
  3. By: Simonetta Vezzoso
    Abstract: The Digital Markets Act (DMA) aims to ensure contestability and fairness in digital markets, particularly focusing on regulating Big Tech companies. The paper explores the DMA's capacity to address both current and future challenges in digital market contestability and fairness, spotlighting the trend towards platform integration and the potential rise of "super-apps" akin to WeChat and KakaoTalk. Specifically, it investigates WhatsApp, owned by Meta, as a gatekeeper that might expand its service offerings, integrating additional functionalities like AI and metaverse technologies. The paper discusses whether the DMA's obligations, such as mandated interoperability and data portability, can mitigate the emergent risks to market fairness and contestability from such integrations. Despite recognizing that the DMA has the potential to address many issues arising from platform integration, it suggests the necessity for adaptability and a complementary relationship with traditional antitrust law to ensure sustained contestability and fairness in evolving digital markets.
    Date: 2024–04
  4. By: Xiang Hui; Tobias J. Klein; Konrad Stahl
    Abstract: Online ratings play an important role in many markets. However, how fast they can reveal seller types remains unclear. We propose a simple model of rating behavior where learning about the seller type influences the rating decision. We calibrate the model to eBay data and 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
    JEL: D83 L12 L13 L81
    Date: 2024–04
  5. By: Giacomo Calzolari; Leonardo Felli; Johannes Koenen; Giancarlo Spagnolo; Konrad Stahl
    Abstract: Using data from a unique survey on all buyers and crtical suppliers in German automotive production, we explore the role of trust in long-term procurement relationships. Higher trust leads to higher quality of the automotive parts, and to more competition among suppliers. These effects are significant for low-tech parts only, and not for high tech ones, even when the buyer procures parts from the same supplier. We rationalize these unexpected findings within a relational contracting model, where technology-specific differences in the cost of switching suppliers determine the bargaining power in part-specific procurement relationships.
    Keywords: Relational Contracts, Hold-up, Buyer-Supplier Contracts, Bargaining Power
    JEL: D86 L14 L62 O34
    Date: 2024–04
  6. By: Patrick Rey; Yossi Spiegel; Konrad Stahl
    Abstract: We study the feasibility and profitability of predtion 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 predtion may be welfare improving.
    Keywords: predation, accommodation, entry, legal rules, Markov perfect equilibrium
    JEL: D43 L41
    Date: 2024–04
  7. By: Ying-Ju Chen; Zhengqing Gui; Ernst-Ludwig von Thadden; Xiaojian Zhao
    Abstract: A central problem in supply chains is to coordinate the mismatch between supply and demand along the chain. This paper studies a problem of contracting between a manufacturer and a retailer who privately observes the retail demand materialized after the contracting stage. Under quite general assumptions, we show that the optimal contract must be either a wholesale contract or a buyback contract, depending on the retailer's ex-ante liquidity and bargaining power. In a buyback contract, the manufacturer requests an upfront payment from the retailer and buys back the unsold inventory at a previously agreed price. Depending on downstream liquidity and bargaining power this price may be constant or demand-dependent. Since return shipments are inefficient, retail supply and price will be lower than the first-best level. The optimal contracts are robust to several extensions including multiple retailers.
    Keywords: Supply chains, informational frictions, buyback contracts, incentive compatibility, limited liability, ironing
    JEL: D82 D86 L42 L60
    Date: 2024–04
  8. By: Shanglyu Deng; Dun Jia; Mario Leccese; Andrew Sweeting
    Abstract: Industries with significant scale economies or learning-by-doing may come to be dominated by a single firm. Economists have studied how likely this is to happen, and whether it is efficient, using models where buyers are price or quantity takers, even though these industries are often also characterized by buyer-seller negotiations. We extend the dynamic “learning-by-doing and forgetting” model of Besanko, Doraszelski, Kryukov, and Satterthwaite (2010) to allow for Nash-in-Nash bargaining over prices. Price-taking and the social planner solution are captured as special cases. We show that sellers’ dynamic incentives, market concentration and welfare can change sharply, and non-monotonically, as one moves away from the price-taking assumption. We study the implications of buyer bargaining power for the existence of multiple equilibria, the design of subsidy policies and the welfare effects of policies designed to increase competition.
    JEL: C73 D21 D43 L13 L41
    Date: 2024–04
  9. By: Olga Bilyk; Mikael Khan; Olena Kostyshyna
    Abstract: Using the microdata underlying the Canadian consumer price index, we study how often and by how much firms changed their prices during the COVID-19 pandemic. We find that the surge in inflation was mainly associated with retailers raising prices much more often than before. We also find that more recently, corporate price-setting behaviour appears to be approaching pre-pandemic norms.
    Keywords: Firm dynamics, Inflation and prices, Recent economic and financial developments
    JEL: D2 D22 E3 E31 L1 L11
    Date: 2024–04
  10. By: Koji Ishibashi (Department of Economics, Keio University)
    Abstract: This paper explores how firms respond in designing two-part tariffs to consumers' biased beliefs about their preferences. Biased consumers could be either overpessimistic when they underestimate their true demand or overoptimistic when they overestimate. Assuming that unbiased consumers consist of two types with high and low valuations, I show that the effect of the presence of biased consumers on unbiased consumers depends on market structure. The monopolist wants to educate overpessimistic consumers while may not want to educate overoptimistic consumers. Alternatively, in competition, firms do not have the incentive to educate any biased consumers. A debiasing policy for either overpessimistic or overoptimistic consumers unambiguously improves social welfare in competition but could harm social welfare in monopoly.
    Keywords: biased belief, overoptimistic consumers, overpessimistic consumers, two-part tariff
    JEL: D42 D43 D91 L12 L13
    Date: 2024–04–11
  11. By: Matteo Bizzarri (University of Naples Federico II and CSEF.); Fernando Vega-Redondo (Bocconi University and BIDSA.)
    Abstract: We characterize the firm-level welfare effects of a small change in ownership overlap, and how it depends on the position in the production network. In our model, firms compete in prices, internalizing how their decisions affect the firms lying downstream as well as those that have common shareholders. While in a horizontal economy the common-ownership effects on equilibrium prices depend on firm markups alone, in the more general case displaying vertical inter-firm relationships a full knowledge of the production network is typically required. Addressing then the normative question of what are the welfare implications of affecting the ownership structure, we show that, if costs of adjusting it are large, the optimal intervention is proportional to the Bonacich centrality of each firm in the weighted network quantifying interfirm price-mediated externalities. Finally, we also explain that the parameters of the model can be identified from typically available data, hence rendering our model amenable to empirical analysis.
    Keywords: production networks, network games, common ownership, oligopoly.
    JEL: D43 D57 D85 L13 L16
    Date: 2024–03–14

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