nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒10‒20
nineteen papers chosen by
Russell Pittman
US Government

  1. Horizontal Product Differentiation: Disclosure and Competition By Maarten C. W. Janssen; Mariya Teteryanikova
  2. Exclusionary Pricing in a Two-Sided Market By Motta, Massimo; Vasconcelos, Helder
  3. The Role of Coordination Bias in Platform Competition By Hanna Halaburda; Yaron Yehezkel
  4. Multi-market Collusion with Territorial Allocation By ADITYA BHATTACHARJEA; UDAY BHANU SINHA
  5. Cartelization Through Buyer Groups By Chris Doyle; Martijn A. Han; ;
  6. Strategic Delegation Improves Cartel Stability By Martijn A. Han; ; ;
  7. Monopoly Pricing in the Presence of Social Learning By Bar Ifrach; Costis Maglaras; Marco Scarsini
  8. Estimation of Dynamic Discrete Choice Models in Continuous Time By Peter Arcidiacono; Patrick Bayer; Jason R. Blevins; Paul B. Ellickson
  9. Estimating random coefficients logit demand models using aggregate data By David Vincent
  10. Costly Reporting, Ex-post Monitoring, and Commercial Piracy: A Game Theoretic Analysis By Ishita Chatterjee
  11. Quels remèdes pour les abus de position dominante ? Une analyse économique des décisions de la Commission européenne By Patrice Bougette; Frédéric Marty
  12. El control de Fusiones y Adquisiciones en Argentina (1999-2011): Indicadores de desempeño. By Greco, Esteban M.; Petrecolla, Diego; Romero, Carlos A.; Romero Gómez, Exequiel
  13. Sales and Firm Entry: The Case of Wal-Mart By Glandon, PJ; Jaremski, Matthew
  14. Auctions for Online Display Advertising Exchanges: Approximations and Design By Santiago R. Balseiro; Omar Besbes; Gabriel Y. Weintraub
  15. Group Coupons: Interpersonal Bundling on the Internet By Yongmin Chen; Tianle Zhang
  16. The safety and soundness effects of bank M&As in the EU: does prudential regulation have any impact? By Jens Hagendorff; María J. Nieto; Larry D. Wall
  17. Are Bar Associations Anticompetitive? An Empirical Analysis of Recommended Prices for Legal Services in Spain By Zurimendi, Aitor; Ciarreta Antuñano, Aitor; Espinosa Alejos, María Paz
  18. Is a "firm" a firm? A Stackelberg experiment By Hildenbrand, Andreas
  19. Markups and Entry in a DSGE Model By Cavallari, Lilia

  1. By: Maarten C. W. Janssen; Mariya Teteryanikova
    Abstract: The unraveling argument says that when a rm may produce dierent qualities and quality is unknown to consumers, the rm has an incentive to disclose the private information as in any pool of rms there is a best quality rm and this rm has an incentive to disclose. Recent literature has established that this argument does not carry over to an environment where the product is not vertically, but horizontally dierentiated. This paper argues that with horizontally dierentiated products, competition restores the unraveling argument. In a duopoly market we show that all equilibria of the disclosure game have rms fully disclosing the variety they produce.
    JEL: D43 D82 M37
    Date: 2012–07
  2. By: Motta, Massimo; Vasconcelos, Helder
    Abstract: In this paper we provide a new way of modelling two-sided markets, and we then use this model to study anti-competitive conduct in an asymmetric two-sided market which captures the main features of some recent antitrust cases. We show that below-cost pricing on one market side can allow an incumbent firm to exclude a more efficient rival which does not have a customer base yet. This exclusionary behaviour is the more likely to occur the more mature the market and the stronger the established customer base of the incumbent.
    Keywords: Demand externalities; Predation; Two-sided markets
    JEL: L11 L13 L41
    Date: 2012–10
  3. By: Hanna Halaburda (Strategy Unit, Harvard Business School); Yaron Yehezkel (Faculty of Management, Tel-Aviv University)
    Abstract: This paper considers platform competition in a two-sided market that includes buyers and sellers. One of the platforms benefits from a favorable coordination bias in the market, in that the two sides are more likely to join the advantaged platform. We find that the degree of the coordination bias affects the platform's decision regarding the business model (i.e., whether to subsidize buyers or sellers), the access fees and the size of the platform. A slight increase in the coordination bias may induce the advantaged platform to switch from subsidizing sellers to subsidizing buyers, or induce the disadvantaged platform to switch from subsidizing buyers to subsidizing sellers. Moreover, in the former case the advantaged platform switches from oversupplying to undersupplying sellers, while in the latter case the disadvantaged platform switches from undersupplying to oversupplying sellers.
    Keywords: platform competition, two-sided markets, coordination bias
    JEL: L11 L14
    Date: 2012–08
  4. By: ADITYA BHATTACHARJEA (Department of Economics, Delhi School of Economics, Delhi, India); UDAY BHANU SINHA (Department of Economics, Delhi School of Economics, Delhi, India)
    Abstract: This paper develops a supergame model of collusion between price-setting oligopolists located in different markets separated by trade costs. The firms produce a homogenous good and sustain collusion based on territorial allocation of markets. We first show, in a more general framework than some earlier literature, that a reduction in trade costs can paradoxically increase the sustainability of collusion. Then we prove a new paradox where the scope for collusion may be enhanced by an increase in the number of firms. We discuss several implications for trade and antitrust policy in this context.
    Keywords: Multimarket contact, collusion, trade costs, territorial allocation, cartels
    Date: 2012–10
  5. By: Chris Doyle; Martijn A. Han; ;
    Abstract: Retailers may enjoy stable cartel rents in their output market through the formation of a buyer group in their input market. A buyer group allows retailers to credibly commit to increased input prices, which serve to reduce combined final output to the monopoly level; increased input costs are then refunded from suppliers to retailers through slotting allowances or rebates. The stability of such an “implied cartel” depends on the retailers’ incentives to secretly source from a supplier outside of the buyer group arrangement at lower input prices. Cheating is limited if retailers sign exclusive dealing or minimum purchase provisions. We discuss the relevancy of our findings for antitrust policy.
    Keywords: buyer groups, collusion, exclusive dealing, minimum purchase clauses, rebates
    JEL: K21 L13 L41 L42
    Date: 2012–10
  6. By: Martijn A. Han; ; ;
    Abstract: Fershtman and Judd (1987) and Sklivas (1987) show that strategic delegation reduces firm profits in the one-shot Cournot game. Allowing for infinitely repeated interaction, strategic delegation can increase firm profits as it improves cartel stability.
    Keywords: strategic delegation, collusion, cartel stability
    JEL: D43 L13 L20 L41
    Date: 2012–10
  7. By: Bar Ifrach (Management Science and Engineering, Stanford University); Costis Maglaras (Columbia Business School, Columbia University); Marco Scarsini (Dipartimento di Economia e Finanza, LUISS)
    Abstract: A monopolist offers a product to a market of consumers with heterogeneous quality preferences. Although initially uninformed about the product quality, they learn by observing past purchase decisions and reviews of other consumers. Our goal is to analyze the social learning mechanism and its effect on the seller's pricing decision. Consumers follow an intuitive non-Bayesian decision rule and, under some conditions, eventually learn the product's quality. We show how the learning trajectory can be approximated in settings with high demand intensity via a mean-field approximation that highlights the dynamics of this learning process, its dependence on the price, and the market heterogeneity with respect to quality preferences. Two pricing policies are studied: a static price, and one with a single price change. Finally, numerical experiments suggest that pricing policies that account for social learning may increase revenues considerably relative to policies that do not.
    Keywords: learning, information aggregation, bounded rationality, pricing, optimal pricing
    JEL: D49 D83
    Date: 2012–08
  8. By: Peter Arcidiacono; Patrick Bayer; Jason R. Blevins; Paul B. Ellickson
    Abstract: This paper provides a method for estimating large-scale dynamic discrete choice models within a continuous time framework. An advantage of our model is that state changes occur sequentially, rather than simultaneously, avoiding a substantial curse of dimensionality that arises in multi-agent settings. Eliminating this computational bottleneck is the key to providing a seamless link between estimating the model and performing post-estimation counterfactuals. While recently developed two-step estimation techniques have made it possible to estimate large-scale problems, solving for equilibria remains computationally challenging. By modeling decisions in continuous time, we are able to take advantage of the recent advances in estimation while preserving a tight link between estimation and policy experiments. We address the most commonly encountered situation in empirical work in which only discrete-time data are available and the actual sequence of events that occur between two points in time is unobserved. We apply our techniques to examine the effects of Walmart’s entry into the retail grocery industry, showing that even the threat of entry by Walmart has a substantial effect on market structure.
    JEL: C13 C35 L11 L13
    Date: 2012–10
  9. By: David Vincent (Deloitte LLP, London)
    Abstract: Discrete choice demand models are popular in applied analysis and can be estimated using market-level data on product shares and characteristics. The random parameters logit model is an extension to the traditional specification and can accommodate heterogeneity in consumer preferences and rich patterns of substitution over a large number of products. The purpose of this presentation is to set out a Stata program that estimates the parameters of this model by using the algorithm proposed by Berry, Levinsohn, and Pakes (Econometrica, 1995) and that can also address the potential issues of price endogeneity. The estimator is coded in Mata and involves an inner-loop contraction mapping to invert the market shares, followed by an outer loop search over the parameters that minimizes a GMM objective function. The estimator allows the user to specify the variables that have random parameters and contains an additional option to generate a matrix of own and cross-price elasticities of demand.
    Date: 2012–09–22
  10. By: Ishita Chatterjee (Business School, University of Western Australia)
    Abstract: This paper examines the regulatory authority’s decision, following a report from the legal firm, on monitoring commercial piracy in a market characterised by asymmetric product differentiation. I show that with ex-post monitoring the government will monitor piracy under both price and quantity competition if the legal firm’s political influence is sufficiently high. The study also finds that there exists a unique level of the relative cross-price impact of the pirate’s price on the legal firm’s output, above which monitoring will be higher under quantity competition, and below which monitoring will be higher under price competition. Moreover, I show that when the government can credibly commit to monitor piracy the legal firm’s investment on innovation is higher under quantity competition than under price competition.
    Date: 2012
  11. By: Patrice Bougette (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université de Nice Sophia Antipolis (UNS)); Frédéric Marty (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université de Nice Sophia Antipolis (UNS), OFCE - Observatoire français des conjonctures économiques - FNSP)
    Abstract: L'efficacité d'une autorité de concurrence se reconnaît entre autre dans sa capacité à choisir et à mettre en oeuvre ses remèdes. Jusqu'à présent, une littérature économique dense s'est développée autour d'études rétrospectives en matière de concentrations pour juger de l'efficacité du contrôle et des remèdes retenus. En revanche, peu d'attention a été consacrée aux remèdes dans le cadre d'un autre grand pilier de la politique de concurrence, à savoir les pratiques unilatérales. Nous nous proposons ici de combler ce vide en essayant d'en cerner les principaux enjeux et d'analyser les affaires les plus emblématiques. Nous prenons comme cadre d'analyse le niveau européen avec l'antitrust américain comme point de comparaison.
    Keywords: Remèdes ; Abus de position dominante ; Pratiques unilatérales ; Commission européenne
    Date: 2012
  12. By: Greco, Esteban M.; Petrecolla, Diego; Romero, Carlos A.; Romero Gómez, Exequiel
    Abstract: This paper presents a statistical analysis of the mergers and acquisitions (M&A) evaluated by the Argentinean competition authority, from 1999 to 2011. In particular, we analyze the evolution of the quantity of cases using different classifications and cross checks in accordance with the nature of the operations (horizontal, vertical, conglomerate), the result of the evaluation (authorization, its denial or conditioning), the economic sector affected and the duration of the procedures. The latter shows a significantly growing tendency since 2006. The analysis developed allows us to obtain quantitative indicators of the merger control and produces results and conclusions useful, both from the perspective of firms planning operations in Argentina and for the performance evaluation and design of public policies.
    Keywords: Mergers Acquisitions Competition Policy
    JEL: K21 L49
    Date: 2012–09
  13. By: Glandon, PJ (Department of Economics, Colgate University); Jaremski, Matthew (Department of Economics, Colgate University)
    Abstract: Temporary price reductions or “sales†have become increasingly important in the evolution of the price level. We present a model of repeated price competition to illustrate how entry causes incumbents to alternate between high and low prices. Using a six year panel of weekly observations from a grocery chain, we find that individual stores employ more sales as the distance to Wal-Mart falls. Moreover, the increase in the frequency of sales was concentrated on the most popular products, suggesting the use of a loss-leader strategy.
    Keywords: Wal-Mart, Retail Prices, Price Competition, Temporary Sales Prices
    JEL: E30 L11 L13
    Date: 2012
  14. By: Santiago R. Balseiro (Graduate School of Business, Columbia University); Omar Besbes (Graduate School of Business, Columbia University); Gabriel Y. Weintraub (Graduate School of Business, Columbia University)
    Abstract: Ad Exchanges are emerging Internet markets where advertisers may purchase display ad placements, in real-time and based on specific viewer information, directly from publishers via a simple auction mechanism. Advertisers join these markets with a pre-specified budget and participate in multiple second-price auctions over the length of a campaign. This paper studies the competitive landscape that arises in Ad Exchanges and the implications for publishers' decisions. Our first main contribution is to introduce the novel notion of a Fluid Mean Field Equilibrium (FMFE) that is behaviorally appealing, computationally tractable, and in some important cases yields a closed-form characterization. Moreover, we show that a FMFE approximates well the rational behavior of advertisers in large markets. Our second main contribution is to use this framework to provide sharp prescriptions for key auction design decisions that publishers face in these markets, such as the reserve price, the allocation of impressions to the exchange versus an alternative channel, and the disclosure of viewers' information. Notably, we show that proper adjustment of the reserve price is key in (1) making profitable for the publisher to try selling all impressions in the exchange before utilizing the alternative channel; and (2) compensating for the thinner markets created by greater disclosure of viewers' information.
    Keywords: auction design, revenue management, ad exchange, display advertising, internet, budget constraints, dynamic games, mean field, fl uid approximation
    JEL: C73 L86
    Date: 2012–09
  15. By: Yongmin Chen (Department of Economics, University of Colorado, Boulder); Tianle Zhang (Faculty of Business, Hong Kong Polytechnic University)
    Abstract: Sellers sometimes offer goods for sale under both a regular price and a discount for group purchase if the consumer group reaches some minimum size. This selling practice, which we term interpersonal bundling, has been popularized on the Internet by companies such as Groupon. We explain why interpersonal bundling is a profitable strategy in the presence of demand uncertainty, and how it may further boost profits by stimulating product information dissemination. Other reasons for its profitability are also discussed. We provide sufficient conditions for interpersonal bundling to dominate separate selling, and identify factors that determine the size of its profit advantage.
    Keywords: Interpersonal Bundling, Group Coupon, Group Discount, Demand Uncertainty
    JEL: D4 L1 M3
    Date: 2012–09
  16. By: Jens Hagendorff (University of Edinburgh); María J. Nieto (Banco de España); Larry D. Wall (Federal Reserve Bank of Atlanta)
    Abstract: This paper studies the impact of European bank mergers and acquisitions on changes in key safety and soundness measures of both acquirers and targets. We find that capitalization, profi tability and liquidity show signs of statistically and economically significant mean reversion for acquirers. Also, acquirers in cross-border deals tended to perform better when their home country prudential supervisors and deposit insurance funding systems were stricter than the target‘s. For target banks, the most consistent findings from the crosssectional regressions are that stronger supervision and tougher deposit insurance funding regimes tend to result in positive post-merger changes in liquidity and performance
    Keywords: banks, mergers, Europe
    JEL: G21 G34 G28
    Date: 2012–10
  17. By: Zurimendi, Aitor; Ciarreta Antuñano, Aitor; Espinosa Alejos, María Paz
    Abstract: The European Commission Report on Competition in Professional Services found that recommended prices by professional bodies have a significant negative effect on competition since they may facilitate the coordination of prices between service providers and/or mislead consumers about reasonable price levels. Professional associations argue, first, that a fee schedule may help their members to properly calculate the cost of services avoiding excessive charges and reducing consumers’ searching costs and, second, that recommended prices are very useful for cost appraisal if a litigant is condemned to pay the legal expenses of the opposing party. Thus, recommended fee schedules could be justified to some extent if they represented the cost of providing the services. We test this hypothesis using crossâ€section data on a subset of recommended prices by 52 Spanish bar associations and cost data on their territorial jurisdictions. Our empirical results indicate that prices recommended by bar associations are unrelated to the cost of legal services and therefore we conclude that recommended prices have merely an anticompetitive effect.
    Keywords: professional associations, recommended prices, anticompetitive conduct
    JEL: K21
    Date: 2012
  18. By: Hildenbrand, Andreas
    Abstract: Industrial organization is mainly concerned with the behavior of large firms, especially when it comes to oligopoly theory. Experimental industrial organization therefore faces a problem: How can firms be brought into the laboratory? The main approach relies on framing: Call individuals firms! This experimental approach is not in line with modern industrial organization, according to which a firm's market behavior is also determined by its organizational structure. In this paper, a Stackelberg experiment is considered in order to answer the question whether framing individual decision making as organizational decision making or implementing an organizational structure is more effective in generating profit-maximizing behavior. Firms are either represented by individuals or by teams. Teams are organized according to Alchian and Demsetz's (1972) contractual view of the firm. I find that teams' quantity choices are more in line with the assumption of profit maximization than individuals' choices. Compared to individuals, teams appear to be less inequality averse. --
    Keywords: industrial organization,Stackelberg game,individual behaviour,team behaviour,framing,experimental economics
    JEL: C72 C91 C92 D43 L13
    Date: 2012
  19. By: Cavallari, Lilia
    Abstract: This paper provides a DSGE model with firm entry. Simulations show that the model matches the synchronization of markups and entry observed in the data while at the same time reproducing empirically plausible moments for key macroeconomic variables. Sticky prices are essential for these results.
    Keywords: endogenous entry; firm dynamics; monopolistic competition; market power; markups
    JEL: E32 E37
    Date: 2012–10–08

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