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on Industrial Organization |
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Issue of 2022‒05‒30
seven papers chosen by |
| By: | Renato Gomes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique); Jean-Marie Lozachmeur (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique); Lucas Maestri (FGV-EPGE - Universidad de Brazil) |
| Abstract: | We study oligopolistic competition by firms practicing second-degree price discrimination. In line with the literature on demand estimation, our theory allows for comovements between consumers' taste for quality and propensity to switch brands. If low-type consumers are sufficiently less (more) brand loyal than high types, (i) quality provision is inefficiently low at the bottom (high at the top) of the product line, and (ii) informational rents are negative (positive) for high types, while positive (negative) for low types. We produce testable comparative statics on pricing and quality provision, and show that more competition (in that consumers become less brand-loyal) is welfare-decreasing whenever it tightens incentive constraints (so much so that monopoly may be welfare-superior to oligopoly). Interestingly, pure-strategy equilibria fail to exist whenever brand loyalty is sufficiently different across consumers types. Accordingly, price/quality dispersion ensues from the interplay between self-selection constraints and heterogeneity in brand loyalty. |
| Keywords: | Price dispersion,Preference correlation,Asymmetric information,Price discrimination,Competition |
| Date: | 2022–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03629496&r= |
| By: | Jackie M.L. Chan; Michael Irlacher; Michael Koch |
| Abstract: | This paper investigates the effects of mergers on the product mix of multiproduct firms. Thus, we open the black box of post-merger efficiency improvements to reveal a new margin of adjustment along the product dimension. We analyze horizontal mergers in a theoretical model where oligopolistic firms employ a flexible manufacturing technology and allocate assets between differentiated varieties. After a merger, acquirers drop products from their consolidated domestic product portfolio and reallocate assets towards core varieties. We further demonstrate that such merger-induced efficiency gains imply greater activity in foreign markets. Using detailed Danish register data, we document novel facts regarding mergers and multiproduct firms and find empirical evidence strongly supporting the model’s predictions. Our results show that the number of domestic products of the post-merger acquirer falls relative to the sum of the premerger acquirer and target, that skewness of domestic sales rises towards core products, and that export activity increases. |
| Keywords: | multiproduct firms, horizontal mergers, flexible manufacturing, exports, product mix, event study |
| JEL: | F12 F14 G34 L22 L25 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9722&r= |
| By: | Kazakis, Pantelis |
| Abstract: | Income inequality in the United States is on the rise. At the same time, firm market power has also increased. In this paper, I attempt to shed light on the relation between these two variables. Using data for U.S. firms I find a positive relation between market power and top executive pay. I also find that market power is positively associated with executive wage-to-employee wage ratios, potentially indicating that market power is a force that increases within-firm inequality |
| Keywords: | within-firm inequality, CEO & executive pay, firm markups, competition |
| JEL: | J2 J31 J33 L1 |
| Date: | 2022–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112823&r= |
| By: | Daniel F. Garrett (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Renato Gomes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique); Lucas Maestri (FGV-EPGE - Universidad de Brazil) |
| Abstract: | We study competition by firms that simultaneously post (potentially nonlinear) tariffs to consumers who are privately informed about their tastes. Market power stems from informational frictions, in that consumers are heterogeneously informed about firms' offers. In the absence of regulation, all firms offer quantity discounts. As a result, relative to Bertrand pricing, imperfect competition benefits disproportionately more consumers whose willingness to pay is high, rather than low. Regulation imposing linear pricing hurts the former but benefits the latter consumers. While consumer surplus increases, firms' profits decrease, enough to drive down utilitarian welfare. By contrast, improvements in market transparency increase utilitarian welfare, and achieve similar gains on consumer surplus as imposing linear pricing, although with limited distributive impact. On normative grounds, our analysis suggests that banning price discrimination is warranted only if its distributive benefits have a weight on the societal objective. |
| Keywords: | Asymmetric information,Informational frictions,Linear pricing,Nonlinear pricing,Oligopoly |
| Date: | 2022–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03629517&r= |
| By: | Shota Ichihashi; Alex Smolin |
| Abstract: | A seller faces a consumer with an uncertain value for the product. The seller has imperfect private information about the value and requests additional data to set the price. The consumer can decline any request. The consumer's willingness to provide data depends on his belief about the seller's type which in turn depends on the request. We show that the type uncertainty limits the scope of data collection: All equilibrium payoffs are spanned by fully pooling equilibria in which the seller collects the same data regardless of the type. The seller's private information lowers efficiency and profits, but benefits the consumer by fueling his skepticism and preventing excessive data collection. Having less private information may enable the seller to collect more data directly from the consumer and may lower the overall consumer welfare. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.08723&r= |
| By: | Falk Bräuning; José Fillat; Gustavo Joaquim |
| Abstract: | The US economy is at least 50 percent more concentrated today than it was in 2005. In this paper, we estimate the effect of this increase on the pass-through of cost shocks into prices. Our estimates imply that the pass-through becomes about 25 percentage points greater when there is an increase in concentration similar to the one observed since the beginning of this century. The resulting above-trend price growth lasts for about four quarters. Our findings suggest that the increase in industry concentration over the past two decades could be amplifying the inflationary pressure from current supply-chain disruptions and a tight labor market. |
| Keywords: | inflation; supply shock identification; cost-price pass-through; industry concentration |
| JEL: | E30 E31 L11 L16 |
| Date: | 2022–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbcq:94265&r= |
| By: | Haitian Xie; Ying Zhu |
| Abstract: | This paper studies the gap between the classical pricing theory and the data-based pricing theory. We focus on the problem of price discrimination with a continuum of buyer types based on a finite sample of observations. Our first set of results provides sharp lower bounds in the worst-case scenario for the discrepancy between any data-based pricing strategies and the theoretical optimal third-degree price discrimination (3PD) strategy (respectively, uniform pricing strategy) derived from the distribution (where the sample is drawn) ranging over a large class of distributions. Consequently, there is an inevitable gap between revenues based on any data-based pricing strategy and the revenue based on the theoretical optimal 3PD (respectively, uniform pricing) strategy. We then propose easy-to-implement data-based 3PD and uniform pricing strategies and show each strategy is minimax optimal in the sense that the gap between their respective revenue and the revenue based on the theoretical optimal 3PD (respectively, uniform pricing) strategy matches our worst-case lower bounds up to constant factors (that are independent of the sample size $n$). We show that 3PD strategies are revenue superior to uniform pricing strategies if and only if the sample size $n$ is large enough. In other words, if $n$ is below a threshold, uniform pricing strategies are revenue superior to 3PD strategies. We further provide upper bounds for the gaps between the welfare generated by our minimax optimal 3PD (respectively, uniform pricing) strategy and the welfare based on the theoretical optimal 3PD (respectively, uniform pricing) strategy. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.12723&r= |