We develop a framework for the analysis of the economic effects of an epidemic that incorporates firm-specific innovation and endogenous entry. Transition dynamics is characterized by two differential equations describing the evolution of the mass of susceptible in the population and the ratio of the population to the mass of firms. An epidemic propagates through the economy via changes in market size that reduce incentives to enter the market and to undertake innovative activity. We evaluate state-dependent interventions involving policy rules based on tracking susceptible or infected. Simple policy rules are announced at the time of the outbreak and anchors private sector's expectations about the time path of the intervention, including the end date. Welfare gains/losses relative to the do-nothing scenario are computed accounting for transition dynamics.
{"title":"Market Size, Innovation, and the Economic Effects of an Epidemic","authors":"D. Ferraro, P. Peretto","doi":"10.2139/ssrn.3740243","DOIUrl":"https://doi.org/10.2139/ssrn.3740243","url":null,"abstract":"We develop a framework for the analysis of the economic effects of an epidemic that incorporates firm-specific innovation and endogenous entry. Transition dynamics is characterized by two differential equations describing the evolution of the mass of susceptible in the population and the ratio of the population to the mass of firms. An epidemic propagates through the economy via changes in market size that reduce incentives to enter the market and to undertake innovative activity. We evaluate state-dependent interventions involving policy rules based on tracking susceptible or infected. Simple policy rules are announced at the time of the outbreak and anchors private sector's expectations about the time path of the intervention, including the end date. Welfare gains/losses relative to the do-nothing scenario are computed accounting for transition dynamics.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"13 3","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131809592","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In the presence of network externalities, this study examines the endogenous delegation structure in an export rivalry market with import tariff under Bertrand competition. Contrast to previous works, we show that (i) with strong (weak) network externalities, choosing delegation for exporters is a dominant strategy, which implies the managerial delegation for output {it expansion (restriction)} is socially desirable; (ii) with intermediate network externalities, the exporters choose no delegation in equilibrium; (iii) compared to no delegation, a smaller import tariff further increases both exporters incentives to choose delegation for output expansion unless the strength of network externalities is small.
{"title":"A Note on Strategic Delegation and Network Externalities Under Export Rivalry Market","authors":"Kangsik Choi, Ki‐Dong Lee","doi":"10.2139/ssrn.3707301","DOIUrl":"https://doi.org/10.2139/ssrn.3707301","url":null,"abstract":"In the presence of network externalities, this study examines the endogenous delegation structure in an export rivalry market with import tariff under Bertrand competition. Contrast to previous works, we show that (i) with strong (weak) network externalities, choosing delegation for exporters is a dominant strategy, which implies the managerial delegation for output {it expansion (restriction)} is socially desirable; (ii) with intermediate network externalities, the exporters choose no delegation in equilibrium; (iii) compared to no delegation, a smaller import tariff further increases both exporters incentives to choose delegation for output expansion unless the strength of network externalities is small.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"60 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126462833","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, I take advantage of the aggregative properties of the nested logit, and nested CES demands to show equilibrium existence for a price-setting game among multi-product firms. As opposed to previous existence results for this class of demand schedules, I allow for a fully flexible nesting structure (i.e., firms can offer products in multiple nests and nests can host products of various firms). This significantly relaxes the model’s implications for markups and substitution patterns, making the result relevant for empirical research. Furthermore, I show that in the presence of multiple equilibria, there is a profit-maximal equilibrium that is most preferred by firms and least preferred by consumers, and a profit-minimal equilibrium that is least preferred by firms and most preferred by consumers. Finally, as a by-product of the existence result, I show that FOCs are sufficient for profit maximization. This implies that the standard approach to marginal cost estimation in the empirical literature, i.e., inverting FOCs, correctly identifies the costs that rationalize pricing decisions.
{"title":"An Aggregative Approach to Price Equilibrium Among Multi-Product Firms With Nested Demand","authors":"Francisco J. Garrido","doi":"10.2139/ssrn.3647311","DOIUrl":"https://doi.org/10.2139/ssrn.3647311","url":null,"abstract":"In this paper, I take advantage of the aggregative properties of the nested logit, and nested CES demands to show equilibrium existence for a price-setting game among multi-product firms. As opposed to previous existence results for this class of demand schedules, I allow for a fully flexible nesting structure (i.e., firms can offer products in multiple nests and nests can host products of various firms). This significantly relaxes the model’s implications for markups and substitution patterns, making the result relevant for empirical research. Furthermore, I show that in the presence of multiple equilibria, there is a profit-maximal equilibrium that is most preferred by firms and least preferred by consumers, and a profit-minimal equilibrium that is least preferred by firms and most preferred by consumers. Finally, as a by-product of the existence result, I show that FOCs are sufficient for profit maximization. This implies that the standard approach to marginal cost estimation in the empirical literature, i.e., inverting FOCs, correctly identifies the costs that rationalize pricing decisions.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127122492","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We explore the effects of country asymmetries in a general oligopolistic equilibrium model with segmented markets. Firms' oligopolistic behaviour in segmented markets has macro‐level effects when countries' characteristics or policies are asymmetric. Due to their effect on strategic firm behaviour, country asymmetries can induce deviations from the law of one price, which gives rise to terms‐of‐trade based international shifts in consumption and welfare. We demonstrate that by studying the welfare and distributional effects of asymmetric labour market policies.
{"title":"Asymmetric General Oligopolistic Equilibrium","authors":"Ansgar Quint, Jonas F. Rudsinske","doi":"10.2139/ssrn.3715419","DOIUrl":"https://doi.org/10.2139/ssrn.3715419","url":null,"abstract":"We explore the effects of country asymmetries in a general oligopolistic equilibrium model with segmented markets. Firms' oligopolistic behaviour in segmented markets has macro‐level effects when countries' characteristics or policies are asymmetric. Due to their effect on strategic firm behaviour, country asymmetries can induce deviations from the law of one price, which gives rise to terms‐of‐trade based international shifts in consumption and welfare. We demonstrate that by studying the welfare and distributional effects of asymmetric labour market policies.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"241 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131038632","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This dissertation consists of four related studies on the assessment of decentralized welfare-maximizing airport congestion policies involving (grandfathered) slot policy and pricing policy. Different demand structures and airport networks are considered in the presence of origin-destination passengers. These studies capture that local and non-local origin-destination passengers may have one or two destinations to choose from, in which the two destinations may or may not be considered as substitutes. This dissertation shows that even a small variation can fundamentally change the analysis and the assessment of the congestion policies.
The first study considers networks with two or three airports. The results show that equilibrium policies involve slots when airport profits do not matter and pricing policies when airport profits matter. The main results show that in the presence of congestion effects, equilibrium slot policies will lead to too high and equilibrium pricing policies to too low passenger quantities relative to the first best outcome that maximizes the welfare of all airport regions.
The second study considers a stylized airport network with two airports designed to clearly identify the role of local and non-local passengers. The analysis shows that the local welfare-maximizing slot quantity can coincide with the first-best outcome whereas this is impossible in the case of pricing policy. Whether the outcomes coincide in the case of slot policy depends on the shares of inframarginal and marginal local and non-local passengers. The results provide clear insights on the reasons why slot quantities are found to be excessive in the three-airport network considered in the first study.
The third study is an extension of the analysis of the three-airport network considered in the first study. This extension involves a variation of the demand structure in the sense that the air services offered at the congested airports are considered as imperfect substitutes whereas they are not considered as substitutes in the first study. The analysis shows that the presence of substitute air services is a necessary condition for equilibrium slot quantities to reach the first-best outcome. The results derived from the second study help understand the reasons why equilibrium slot quantities can lead to first-best outcome. Whereas equilibrium pricing levels will always be too high relative to the first-best prices independent of the presence or absence of substitute air services.
By contrast with the third study, the fourth study proceeds with the consideration of substitute air services for non-local passengers in a three-airport network to concentrate on the role of airport competition. The results show that airport competition will lead to too low equilibrium slot quantities in the case of slot policies, or too low equilibrium prices in the case of pricing policies, to maximize the total welfare of the two congested airports.
{"title":"Decentralized Congestion Policies: Pricing Versus (Grandfathered) Slots in Airport Networks","authors":"Hao Lang","doi":"10.2139/ssrn.3803044","DOIUrl":"https://doi.org/10.2139/ssrn.3803044","url":null,"abstract":"This dissertation consists of four related studies on the assessment of decentralized welfare-maximizing airport congestion policies involving (grandfathered) slot policy and pricing policy. Different demand structures and airport networks are considered in the presence of origin-destination passengers. These studies capture that local and non-local origin-destination passengers may have one or two destinations to choose from, in which the two destinations may or may not be considered as substitutes. This dissertation shows that even a small variation can fundamentally change the analysis and the assessment of the congestion policies.<br><br>The first study considers networks with two or three airports. The results show that equilibrium policies involve slots when airport profits do not matter and pricing policies when airport profits matter. The main results show that in the presence of congestion effects, equilibrium slot policies will lead to too high and equilibrium pricing policies to too low passenger quantities relative to the first best outcome that maximizes the welfare of all airport regions. <br><br>The second study considers a stylized airport network with two airports designed to clearly identify the role of local and non-local passengers. The analysis shows that the local welfare-maximizing slot quantity can coincide with the first-best outcome whereas this is impossible in the case of pricing policy. Whether the outcomes coincide in the case of slot policy depends on the shares of inframarginal and marginal local and non-local passengers. The results provide clear insights on the reasons why slot quantities are found to be excessive in the three-airport network considered in the first study.<br><br>The third study is an extension of the analysis of the three-airport network considered in the first study. This extension involves a variation of the demand structure in the sense that the air services offered at the congested airports are considered as imperfect substitutes whereas they are not considered as substitutes in the first study. The analysis shows that the presence of substitute air services is a necessary condition for equilibrium slot quantities to reach the first-best outcome. The results derived from the second study help understand the reasons why equilibrium slot quantities can lead to first-best outcome. Whereas equilibrium pricing levels will always be too high relative to the first-best prices independent of the presence or absence of substitute air services.<br><br>By contrast with the third study, the fourth study proceeds with the consideration of substitute air services for non-local passengers in a three-airport network to concentrate on the role of airport competition. The results show that airport competition will lead to too low equilibrium slot quantities in the case of slot policies, or too low equilibrium prices in the case of pricing policies, to maximize the total welfare of the two congested airports. ","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125056749","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The bloom is off the Big Tech rose. It seems nearly the entire political spectrum is angry with Amazon, Google and Facebook for one reason or another. This has led to a great deal of discussion on whether and how to regulate (or even break up) these platforms, including whether they should be regulated as utilities. Over the last several years, if there is one issue which might support a somewhat broad political consensus it is the desire to regulate large internet platforms like Amazon, Google and Facebook. Our purpose with this article is simply to caution against some forms of regulatory treatment which emphasize the utility-like nature of large platforms. We choose the word “caution” because we are not necessarily arguing that such regulation is in all instances inappropriate or uncalled for. Instead, all we mean is that there are counterarguments which should be considered, and in this article we give voice to some of those arguments. The basic economic argument for utility-like regulation of internet platforms is that these platforms can become “natural monopolies” which tend to forestall competition. While there is merit to this argument, internet platforms have also been a source of tremendous innovation which in turn has allowed entrants to unseat what were once thought to be entrenched incumbents. Regulation risks quashing such innovation and harming consumer welfare. Furthermore, internet platforms, unlike traditional utilities, are sometimes amenable to multi-homing, meaning that customers of one platform may also choose to be customers of additional similar platforms. Multi-homing can be critical in enabling successful entry into the market. While examples of entry do not disprove the possibility of market power abuse by some platforms, they do remind us that the economics of platforms can be more complex and nuanced than the classical utility model would suggest.
{"title":"Regulating Multisided Platforms? The Case Against Treating Platforms As Utilities","authors":"Rosa M. Abrantes-Metz, Albert D. Metz","doi":"10.2139/ssrn.3692857","DOIUrl":"https://doi.org/10.2139/ssrn.3692857","url":null,"abstract":"The bloom is off the Big Tech rose. It seems nearly the entire political spectrum is angry with Amazon, Google and Facebook for one reason or another. This has led to a great deal of discussion on whether and how to regulate (or even break up) these platforms, including whether they should be regulated as utilities. Over the last several years, if there is one issue which might support a somewhat broad political consensus it is the desire to regulate large internet platforms like Amazon, Google and Facebook. \u0000 \u0000Our purpose with this article is simply to caution against some forms of regulatory treatment which emphasize the utility-like nature of large platforms. We choose the word “caution” because we are not necessarily arguing that such regulation is in all instances inappropriate or uncalled for. Instead, all we mean is that there are counterarguments which should be considered, and in this article we give voice to some of those arguments. \u0000 \u0000The basic economic argument for utility-like regulation of internet platforms is that these platforms can become “natural monopolies” which tend to forestall competition. While there is merit to this argument, internet platforms have also been a source of tremendous innovation which in turn has allowed entrants to unseat what were once thought to be entrenched incumbents. Regulation risks quashing such innovation and harming consumer welfare. \u0000 \u0000Furthermore, internet platforms, unlike traditional utilities, are sometimes amenable to multi-homing, meaning that customers of one platform may also choose to be customers of additional similar platforms. Multi-homing can be critical in enabling successful entry into the market. \u0000 \u0000While examples of entry do not disprove the possibility of market power abuse by some platforms, they do remind us that the economics of platforms can be more complex and nuanced than the classical utility model would suggest.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"78 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127013065","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article looks at the relationship between the environment and competition law. It shows that cooperative agreements in industries where there are significant pollution or open access resources such as fisheries may improve economic welfare and the environment. However, except for cooperative agreements among users of open access resources, this is likely to be coincidental and facilitate collusion. The pros and cons of expanding Article 101(3) TFEU to take account of third-party and wider benefits are examined, and whether competition authorities should pursue environmental protection.
{"title":"Collusion as Environmental Protection - An Economic Assessment","authors":"C. Veljanovski","doi":"10.2139/ssrn.3693381","DOIUrl":"https://doi.org/10.2139/ssrn.3693381","url":null,"abstract":"This article looks at the relationship between the environment and competition law. It shows that cooperative agreements in industries where there are significant pollution or open access resources such as fisheries may improve economic welfare and the environment. However, except for cooperative agreements among users of open access resources, this is likely to be coincidental and facilitate collusion. The pros and cons of expanding Article 101(3) TFEU to take account of third-party and wider benefits are examined, and whether competition authorities should pursue environmental protection.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131182144","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Shunyuan Zhang, Elizabeth M. S. Friedman, Xupin Zhang, K. Srinivasan, R. Dhar
Non-informational cues, such as facial expressions, can significantly influence judgments and interpersonal impressions. Past research has explored how smiling affects business outcomes in offline or in-store contexts, yet relatively little is known about how smiling influences consumer choice in e-commerce settings. This paper explores the effect of smiling in the growing sharing economy context, specifically examining how a smile in an Airbnb host’s profile photo affects property demand. The study uses a facial attribute classifier to determine whether the host is smiling in their profile picture or not, and estimate the influence of a host smile in a longitudinal dataset of Airbnb bookings, controlling for a rich set of variables such as reviews, property characteristics, and the host’s age and gender. A smile in the host’s profile photo increases property demand by 1.9% on average. Further, gender moderates this effect, with smiling increasing demand for male hosts by 6.8%, compared to an insignificant increase for female hosts. An online experiment confirms this pattern, and explores the underlying mechanism. In particular, a moderated mediation analysis shows that smiling increases perceptions of the host’s warmth—to a greater extent for male than female hosts—which increases the likelihood of booking their property.
{"title":"Serving with a Smile on Airbnb: Analyzing the Economic Returns and Behavioral Underpinnings of the Host’s Smile","authors":"Shunyuan Zhang, Elizabeth M. S. Friedman, Xupin Zhang, K. Srinivasan, R. Dhar","doi":"10.2139/ssrn.3692623","DOIUrl":"https://doi.org/10.2139/ssrn.3692623","url":null,"abstract":"Non-informational cues, such as facial expressions, can significantly influence judgments and interpersonal impressions. Past research has explored how smiling affects business outcomes in offline or in-store contexts, yet relatively little is known about how smiling influences consumer choice in e-commerce settings. This paper explores the effect of smiling in the growing sharing economy context, specifically examining how a smile in an Airbnb host’s profile photo affects property demand. The study uses a facial attribute classifier to determine whether the host is smiling in their profile picture or not, and estimate the influence of a host smile in a longitudinal dataset of Airbnb bookings, controlling for a rich set of variables such as reviews, property characteristics, and the host’s age and gender. A smile in the host’s profile photo increases property demand by 1.9% on average. Further, gender moderates this effect, with smiling increasing demand for male hosts by 6.8%, compared to an insignificant increase for female hosts. An online experiment confirms this pattern, and explores the underlying mechanism. In particular, a moderated mediation analysis shows that smiling increases perceptions of the host’s warmth—to a greater extent for male than female hosts—which increases the likelihood of booking their property.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124569069","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Wholesale-retail hub and spoke cartels usually combine a horizontal collusive behaviour between competitors and the involvement of at least one hub, who operates at a different level of the supply chain and facilitates the collusion, and some forms of vertical restraints, typically RPM or, in the context of e-commerce, broad RPMFN or even pricing algorithms. There are different economic theories to explain why the hub would accept the risk of facilitating or even promoting the collusion, and the economic literature has already shown that the referred vertical restraints can have horizontal effects which are very similar to a horizontal collusion, resulting in a difficulty for competition authorities to differentiate one conduct from the other. The ultimate scope of this dissertation is to identify the differences and interactions between RPM and hub and spoke cartels and, by analysing the current international enforcement activities against hub and spoke cartels, this dissertation proposes a single effective theory of harm for competition authorities to differentiate a hub and spoke cartel from the unilateral vertical anti-competitive conduct.
{"title":"Hub and Spoke Cartels vs. RPM: Differences, Interactions and the Concurrence of Wills’ Theory of Harm","authors":"Lucas de Carvalho Silveira Bueno","doi":"10.2139/ssrn.3732767","DOIUrl":"https://doi.org/10.2139/ssrn.3732767","url":null,"abstract":"Wholesale-retail hub and spoke cartels usually combine a horizontal collusive behaviour between competitors and the involvement of at least one hub, who operates at a different level of the supply chain and facilitates the collusion, and some forms of vertical restraints, typically RPM or, in the context of e-commerce, broad RPMFN or even pricing algorithms. There are different economic theories to explain why the hub would accept the risk of facilitating or even promoting the collusion, and the economic literature has already shown that the referred vertical restraints can have horizontal effects which are very similar to a horizontal collusion, resulting in a difficulty for competition authorities to differentiate one conduct from the other. The ultimate scope of this dissertation is to identify the differences and interactions between RPM and hub and spoke cartels and, by analysing the current international enforcement activities against hub and spoke cartels, this dissertation proposes a single effective theory of harm for competition authorities to differentiate a hub and spoke cartel from the unilateral vertical anti-competitive conduct.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"80 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130637428","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the effects of merger on firm entry, product variety and prices in the retail craft beer market in California. We develop a new method to estimate multiple-discrete choice models in order to recover fixed costs. The method is based on bounds of conditional choice probabilities and does not require solving a game. Using the estimated model, we simulate a counterfactual merger where a large brewery acquires multiple craft breweries. In most markets, we find that new firms enter, non-merging incumbents add products, and merging firms drop products. However, the net effects of product variety from new firm entry and incumbent product portfolio adjustment differ considerably across markets. Larger markets are more likely to see an increase in product variety, which moderates the loss of consumer surplus from the merger's price effects. In a majority of smaller markets, product variety decreases, exacerbating the welfare loss from the price effects.
{"title":"Merger, Product Variety and Firm Entry: The Retail Craft Beer Market in California","authors":"Ying Fan, Chenyu Yang","doi":"10.2139/ssrn.3681556","DOIUrl":"https://doi.org/10.2139/ssrn.3681556","url":null,"abstract":"We study the effects of merger on firm entry, product variety and prices in the retail craft beer market in California. We develop a new method to estimate multiple-discrete choice models in order to recover fixed costs. The method is based on bounds of conditional choice probabilities and does not require solving a game. Using the estimated model, we simulate a counterfactual merger where a large brewery acquires multiple craft breweries. In most markets, we find that new firms enter, non-merging incumbents add products, and merging firms drop products. However, the net effects of product variety from new firm entry and incumbent product portfolio adjustment differ considerably across markets. Larger markets are more likely to see an increase in product variety, which moderates the loss of consumer surplus from the merger's price effects. In a majority of smaller markets, product variety decreases, exacerbating the welfare loss from the price effects.","PeriodicalId":150569,"journal":{"name":"IO: Theory eJournal","volume":"93 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115675289","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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