This paper analyzes competitive pricing policies by multiproduct firms facing heterogeneous buying patterns. We show that cross-subsidization arises when firms have comparative advantages on different products but are equally efficient overall: Firms earn a profit from multi-stop shoppers by charging positive margins on their strong products but, as price competition for one-stop shoppers drives total margins down to zero, they price weaker products below cost. Banning below-cost pricing leads to higher profits and higher prices for one-stop shoppers, and may reduce consumer surplus as well as total social welfare.
{"title":"Competitive cross‐subsidization","authors":"Zhijun Chen, P. Rey","doi":"10.1111/1756-2171.12293","DOIUrl":"https://doi.org/10.1111/1756-2171.12293","url":null,"abstract":"This paper analyzes competitive pricing policies by multiproduct firms facing heterogeneous buying patterns. We show that cross-subsidization arises when firms have comparative advantages on different products but are equally efficient overall: Firms earn a profit from multi-stop shoppers by charging positive margins on their strong products but, as price competition for one-stop shoppers drives total margins down to zero, they price weaker products below cost. Banning below-cost pricing leads to higher profits and higher prices for one-stop shoppers, and may reduce consumer surplus as well as total social welfare.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12293","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41781607","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a discrete-choice model of differentiated products for U.S. corn and soybean seed demand to study the welfare impact of genetically engineered (GE) crop varieties. Using a unique dataset spanning the period 1996-2011, we find that the welfare impact of the GE innovation is significant. In the last five years of the period analyzed, our preferred counterfactual indicates that total surplus due to GE traits was $5.18 billion per year, with seed manufacturers appropriating 56% of this surplus. The seed industry obtained more surplus from GE corn, whereas farmers received more surplus from GE soybeans.
{"title":"Valuing product innovation: genetically engineered varieties in US corn and soybeans","authors":"F. Ciliberto, G. Moschini, Edward D. Perry","doi":"10.1111/1756-2171.12290","DOIUrl":"https://doi.org/10.1111/1756-2171.12290","url":null,"abstract":"We develop a discrete-choice model of differentiated products for U.S. corn and soybean seed demand to study the welfare impact of genetically engineered (GE) crop varieties. Using a unique dataset spanning the period 1996-2011, we find that the welfare impact of the GE innovation is significant. In the last five years of the period analyzed, our preferred counterfactual indicates that total surplus due to GE traits was $5.18 billion per year, with seed manufacturers appropriating 56% of this surplus. The seed industry obtained more surplus from GE corn, whereas farmers received more surplus from GE soybeans.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2019-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12290","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44437926","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Motivated by the recent antitrust cases in which Japanese auto parts suppliers colluded to raise supply prices against their long-term collaborators, the Japanese carmakers, we study the conditions under which an upstream collusion is profitable even after compensating downstream direct purchasers. Oligopoly competition in successive industries is shown to give rise to a vertical externality and a horizontal externality. If a collusive price of intermediate goods better balances the two externalities, the collusion will raise the joint profit of all firms in the two industries and is therefore profitable for the upstream after compensation of downstream firms.
{"title":"When is upstream collusion profitable?","authors":"Dingwei Gu, Zhiyong Yao, Wen Zhou, Rangrang Bai","doi":"10.1111/1756-2171.12271","DOIUrl":"https://doi.org/10.1111/1756-2171.12271","url":null,"abstract":"Motivated by the recent antitrust cases in which Japanese auto parts suppliers colluded to raise supply prices against their long-term collaborators, the Japanese carmakers, we study the conditions under which an upstream collusion is profitable even after compensating downstream direct purchasers. Oligopoly competition in successive industries is shown to give rise to a vertical externality and a horizontal externality. If a collusive price of intermediate goods better balances the two externalities, the collusion will raise the joint profit of all firms in the two industries and is therefore profitable for the upstream after compensation of downstream firms.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2019-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12271","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49025689","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes welfare under differential versus uniform pricing across oligopoly makes that differ in costs of service. We establish necessary and sufficient conditions on demand properties—cross/own elasticities and curvature—for differential pricing by symmetric firms to raise aggregate consumer surplus, profit, and total welfare. The analysis reveals intuitively why differential pricing is generally beneficial though not always—including why profit can fall, unlike for monopoly—and why it is more beneficial than oligopoly third-degree price discrimination. When firms have asymmetric costs, however, differential pricing can reduce profit or consumer surplus even with ‘simple’ demands such as linear.
{"title":"Competitive differential pricing","authors":"Yongmin Chen, Jianpei Li, M. Schwartz","doi":"10.1111/1756-2171.12363","DOIUrl":"https://doi.org/10.1111/1756-2171.12363","url":null,"abstract":"This paper analyzes welfare under differential versus uniform pricing across oligopoly makes that differ in costs of service. We establish necessary and sufficient conditions on demand properties—cross/own elasticities and curvature—for differential pricing by symmetric firms to raise aggregate consumer surplus, profit, and total welfare. The analysis reveals intuitively why differential pricing is generally beneficial though not always—including why profit can fall, unlike for monopoly—and why it is more beneficial than oligopoly third-degree price discrimination. When firms have asymmetric costs, however, differential pricing can reduce profit or consumer surplus even with ‘simple’ demands such as linear.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2019-05-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12363","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41381089","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider the effect of mergers between firms whose products are not viewed as direct substitutes for the same good or service, but are bundled by a common intermediary. Focusing on hospital mergers across distinct geographic markets, we show that such combinations can reduce competition among merging hospitals for inclusion in insurers' networks, leading to higher prices (or lower‐quality care). Using data on hospital mergers from 1996–2012, we find support that this mechanism operates within state boundaries: cross‐market, within‐state hospital mergers yield price increases of 7%–9 % for acquiring hospitals, whereas out‐of‐state acquisitions do not yield significant increases.
{"title":"The price effects of cross‐market mergers: theory and evidence from the hospital industry","authors":"Leemore S. Dafny, Katherine Ho, Robin S. Lee","doi":"10.1111/1756-2171.12270","DOIUrl":"https://doi.org/10.1111/1756-2171.12270","url":null,"abstract":"We consider the effect of mergers between firms whose products are not viewed as direct substitutes for the same good or service, but are bundled by a common intermediary. Focusing on hospital mergers across distinct geographic markets, we show that such combinations can reduce competition among merging hospitals for inclusion in insurers' networks, leading to higher prices (or lower‐quality care). Using data on hospital mergers from 1996–2012, we find support that this mechanism operates within state boundaries: cross‐market, within‐state hospital mergers yield price increases of 7%–9 % for acquiring hospitals, whereas out‐of‐state acquisitions do not yield significant increases.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2019-04-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12270","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42164692","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Transfers of corporate control in firms with noncontrolling blockholders","authors":"S. Stepanov","doi":"10.1111/1756-2171.12276","DOIUrl":"https://doi.org/10.1111/1756-2171.12276","url":null,"abstract":"","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2019-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12276","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42189878","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a tractable and versatile model of pretrial negotiation in which the negotiating parties are optimistic about the judge's decision and anticipate the possible arrival of public information about the case prior to the trial date. The parties will settle immediately upon the arrival of information. However, they may also agree to settle prior to an arrival. We derive the settlement dynamics prior to an arrival: negotiations result in either immediate agreement, a weak deadline effect—settling at a particular date before the deadline, a strong deadline effect—settling at the deadline, or impasse, depending on the level of optimism. Our findings match stylized facts.
{"title":"Pretrial negotiations under optimism","authors":"S. Vasserman, Muhamet Yildiz","doi":"10.1111/1756-2171.12273","DOIUrl":"https://doi.org/10.1111/1756-2171.12273","url":null,"abstract":"We develop a tractable and versatile model of pretrial negotiation in which the negotiating parties are optimistic about the judge's decision and anticipate the possible arrival of public information about the case prior to the trial date. The parties will settle immediately upon the arrival of information. However, they may also agree to settle prior to an arrival. We derive the settlement dynamics prior to an arrival: negotiations result in either immediate agreement, a weak deadline effect—settling at a particular date before the deadline, a strong deadline effect—settling at the deadline, or impasse, depending on the level of optimism. Our findings match stylized facts.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":null,"pages":null},"PeriodicalIF":2.3,"publicationDate":"2019-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12273","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47235546","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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