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on Industrial Organization |
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Issue of 2024‒04‒15
six papers chosen by |
| By: | Daniel (University of Pavia); |
| Abstract: | Product design is studied in a simple duopoly where firms compete à la Cournot, goods are hedonically differentiated and consumers have preferences defined over characteristics. What we find is that, in equilibrium, firms choose the same product’s design. This results in horizontal product differentiation being minimal. |
| Keywords: | Hedonic Product Differentiation, Horizontal Differentiation, Product Design, Cournot Competition |
| JEL: | D43 L13 L20 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0216&r=ind |
| By: | Zhang Xu; Mingsheng Zhang; Wei Zhao |
| Abstract: | As firms' pricing strategies increasingly rely on algorithms, two concerns have received much attention: algorithmic tacit collusion and price discrimination. This paper investigates the interaction between these two issues through simulations. In each period, a new buyer arrives with independently and identically distributed willingness to pay (WTP), and each firm, observing private signals about WTP, adopts Q-learning algorithms to set prices. We document two novel mechanisms that lead to collusive outcomes. Under asymmetric information, the algorithm with information advantage adopts a Bait-and-Restrained-Exploit strategy, surrendering profits on some signals by setting higher prices, while exploiting limited profits on the remaining signals by setting much lower prices. Under a symmetric information structure, competition on some signals facilitates convergence to supra-competitive prices on the remaining signals. Algorithms tend to collude more on signals with higher expected WTP. Both uncertainty and the lack of correlated signals exacerbate the degree of collusion, thereby reducing both consumer surplus and social welfare. A key implication is that the over-usage of data, both payoff-relevant and non-relevant, by AIs in competitive contexts will reduce the degree of collusion and consequently lead to a decline in industry profits. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.06150&r=ind |
| By: | Siavash Mohades; Giulia Piccillo; Tania Treibich |
| Abstract: | We introduce a novel method for measuring economic uncertainty at the firm, sector, and aggregate levels using sales volatility and validate it by comparison with existing macroeconomic uncertainty measures. We use Compustat firms data in the period 2000-2022 to construct our uncertainty measures for the U.S. economy. Our findings highlight that 1) macroeconomic conditions are the predominant source of firms’ uncertainty, 2) diverse firm traits yield notable heterogeneity, and 3) the manufacturing sector exhibits the highest uncertainty among sectors. Our findings shed light on the importance of firm and sectoral heterogeneity in studying uncertainty and its effects on economic activity. |
| Keywords: | measuring uncertainty, firm heterogeneity, balance sheet data, business fluctuations |
| JEL: | D80 D22 E32 L11 L25 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10974&r=ind |
| By: | Alberto Galasso; Hong Luo |
| Abstract: | We examine the relationship between product liability litigation and innovation by systematically combining data on product liability lawsuits with data on new product introductions in a panel dataset of leading medical device firms. We first document a decline in the propensity to introduce new products for both defendant firms and other firms operating in litigated device categories. This decline, however, does not spill over to other device categories, and we also do not find any slowing down in firms' patenting activities. We then show that changes in two features of the regulatory environment---(1) the availability of public information regarding adverse events and (2) federal law taking precedence over state law---substantially affect the likelihood of litigation. These changes also provide quasi-exogenous variations in litigation that confirm our baseline findings. Finally, we show that litigation appears to induce firms to develop safer devices. Overall, our findings suggest that product liability litigation affects the rate and direction of technological progress, and that safety regulation and liability regimes interact with one another in significant ways. |
| JEL: | K13 K41 L51 O32 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32215&r=ind |
| By: | Sylvia Hristakeva; Julie Holland Mortimer; Eric Yde |
| Abstract: | We study the effect of price caps on the provision of costly effort by pharmaceutical firms using variation in drug discounts generated by a price regulation program that allows eligible hospitals to purchase outpatient drugs at steep discounts. These discounts directly affect drug manufacturers’ markups, and may change firms’ incentives to exert promotional effort targeted towards physicians at these hospitals. We find that the effects of price regulation on pharmaceutical firm effort depend crucially on the design of the regulations. Using detailed data on marketing payments from pharmaceutical firms to physicians, we observe that physicians receive 12% fewer promotional payments after their hospitals take up the program. The design of the price caps imply that discounts tend to increase with a drug’s age. Consistent with theoretical predictions, we find that pharmaceutical firms shift promotional payments away from older drugs and towards newer drugs, which are less affected by the price caps. |
| JEL: | I1 I11 L0 L2 M30 M37 M39 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32249&r=ind |
| By: | Song, Myungkoo (Korea Institute for Industrial Economics and Trade) |
| Abstract: | In this paper, we examine the effects of the changing global automotive landscape from several perspectives. In particular, we consider changes in vehicle production and sales to assess the supply and demand sides of the industry. We also take into account changes in exports to examine the state of global trade. All of these changes are considered through the lens of countries rather than firms. In addition, we examine the South Korean automotive industry as a case study to elaborate on the details of recent changes and the response of automakers. We conclude the paper with a review of policy instruments recently implemented to stimulate the EV market. Thank you for reading this abstract of a report from the Korea Institute for Industrial Economics and Trade! Visit us on YouTube: https://www.youtube.com/watch?v=Q36v30l5CV0 Visit us on Instagram: https://www.instagram.com/worldkiet/ Visit our website: http://www.kiet.re.kr/en |
| Keywords: | manufacturing industry; auto manufacturing; automotive industry; auto industry; internal combustion engine; ICE; electric vehicles; EVs; batteries; EV adoption; EV policy; Hyundai; Kia; Genesis; Korea; KIET |
| JEL: | L62 L98 |
| Date: | 2024–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kieter:2024_001&r=ind |