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on Industrial Organization |
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Issue of 2022‒04‒11
seven papers chosen by |
| By: | Christina Brinkmann (University of Bonn) |
| Abstract: | Since the push towards central clearing in derivatives markets after the global financial crisis, an open question has been how the development has affected competition. This paper models imperfect competition between dealers in derivatives markets. Two risk-neutral dealers offer derivatives to risk-averse clients with a hedging need, and compete in price (fee) and quality (default probability). I find that with such two-dimensional competition, for given default probabilities, an equilibrium in prices exists that is preferred by both dealers. In this equilibrium the dealer with the lower default probability makes larger profits - a feature, that can produce market discipline to keep the own default probability low. If a central counterparty (CCP) is introduced as an innovation that removes the quality dimension of the competition, this market force pushing for higher qualities vanishes. |
| Keywords: | Derivatives, OTC Markets, Central Clearing, Imperfect Competition, Vertical Product Differentiation |
| JEL: | G12 G23 G28 L13 L15 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:153&r= |
| By: | Piolatto, A. (Tilburg University, School of Economics and Management); Schuett, Florian (Tilburg University, School of Economics and Management) |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:ac184e2f-0492-4738-b455-82a1385114f6&r= |
| By: | Wenji Xu (College of Business, City University of Hong Kong); Kai Hao Yang (Cowles Foundation and School of Management, Yale University) |
| Abstract: | This paper examines the welfare effects of informational intermediation. A (short-lived) seller sets the price of a product that is sold through a (long-lived) informational intermediary. The intermediary can disclose information about the product to consumers, earns a fixed percentage of the sales revenue in each period, and has concerns about its prominence—the market size it faces in the future, which in turn is increasing in past consumer surplus. We characterize the Markov perfect equilibria and the set of subgame perfect equilibrium payoffs of this game and show that when the market feedback (i.e., how much past consumer surplus affects future market sizes) increases, welfare may decrease in the Pareto sense. |
| Keywords: | Informational intermediary, market size, market feedback, consumer surplus, Pareto-inferior outcomes, Markov perfect equilibrium, subgame perfect equilibrium. |
| JEL: | C73 D61 D82 D83 L15 M37 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2321&r= |
| By: | Cremer, Helmuth; Lozachmeur, Jean-Marie; Borsenberger, Claire; Joram, Denis; Malavolti, Estelle |
| Abstract: | We study how consumers’ environmental awareness (CEA) affects the design of environmental policy in the e-commerce sector. We also examine if there is a need for regulation requiring delivery operators to reveal their emissions. We consider a model with two retailers who sell a differentiated product and two parcel delivery operators. Delivery generates CO2 emissions and their total level creates a global (atmosphere) externality. We assume that it is more expensive for the delivery operator to use less polluting technologies. We consider different scenarios reflecting the type of competition and the vertical structure of the industry. We shown that CEA mitigates the inefficiency of the equilibrium by bringing the level of emissions closer to its optimal level. This is true under perfect and imperfect competition. This efficiency enhancing effect of CEA also affects the design of emissions taxes, which leads to an amended Pigouvian rule. Under perfect competition the tax is reduced by exactly the level of CEA expressed in monetary terms. Under imperfect competition the adjustment exceeds this level. |
| Keywords: | Consumers' environmental awareness; Pigouvian rule; emission taxes; e-commerce; parcel delivery operators; vertical integration |
| JEL: | H21 L42 L81 L87 |
| Date: | 2022–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126748&r= |
| By: | Edona Reshidi |
| Abstract: | Manufacturers often engage in practices that impede consumer search. Examples include proliferating product varieties, imposing vertical informational restraints, and banning online sales to make it more difficult for consumers to compare prices. This paper models vertical bargaining over wholesale prices and obfuscation levels and finds that obfuscation arises in equilibrium whenever retailers have some bargaining power. Once the bargaining power rests with the manufacturer, the equilibrium involves no obfuscation. The final consumers, however, are worse off compared with settings when retailers have all the bargaining power. We show that in vertical markets, policies that impose caps on obfuscation may induce higher wholesale and retail prices. Instead, we propose caps on wholesale prices as an effective consumer protection policy. |
| Keywords: | Economic models; Market structure and pricing |
| JEL: | C70 L42 L13 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-13&r= |
| By: | Kim Huynh; Gradon Nicholls; Oleksandr Shcherbakov |
| Abstract: | The market for payments is an important two-sided one, where consumers benefit from increased merchant acceptance of payment cards and vice versa. The dependence between the decisions that are made on each side of the market results in various network externalities that are often discussed but rarely quantified. We construct and estimate a structural two-stage model of equilibrium in a market for payments in order to quantify the network externalities and identify the main determinants of consumer and merchant decisions. The estimation results suggest significant heterogeneity in consumer adoption costs and benefits. We discuss the critical characteristics that determine which payment instrument is used at the point of sale. Our counterfactual simulation measures the degree of excessive intermediation by credit card providers. |
| Keywords: | Bank notes; Digital currencies and fintech; Econometric and statistical methods; Financial services |
| JEL: | C51 D12 E42 L14 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-15&r= |
| By: | Dominic A. Smith; Sergio Ocampo |
| Abstract: | Increases in national concentration have been a salient feature of industry dynamics in the U.S. and have contributed to concerns about increasing market power. Yet, local trends may be more informative about market power, particularly in the retail sector where consumers have traditionally shopped at nearby stores. We find that local concentration has increased almost in parallel with national concentration using novel Census data on product-level revenue for all U.S. retail stores. The increases in concentration are broad based, affecting most markets, products, and retail industries. We implement a new decomposition of the national Herfindahl-Hirschman Index and show that despite similar trends, national and local concentration reflect different changes in the retail sector. The increase in national concentration comes from consumers in different markets increasingly buying from the same firms and does not reflect changes in local market power. We estimate a model of retail competition which links local concentration to markups. The model implies that the increase in local concentration explains one-third of the observed increase in markups. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.07609&r= |