nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒06‒14
fifteen papers chosen by
Russell Pittman
US Government

  1. Mergers, managerial incentives, and efficiencies By Jovanovic, Dragan
  2. Optimal Selling Mechanisms under Imperfect Commitment: Extending to the Multi-Period Case By Juan I. Beccuti
  3. Sellouts, Beliefs, and Bandwagon Behavior By Nick Vikander
  4. Existence of Monotone Equilibria in First-Price Auctions with Resale By Charles Z. Zheng
  5. Equilibrium Downstream Mark-up and Upstream Free Entry By Ioannis Pinopoulos
  6. Buyer power in large buyer groups? By Lisa Bruttel
  7. An Efficient and Incentive Compatible Dynamic Auction for Multiple Complements By Ning Sun; Zaifu Yang
  8. The Effects of Non-binding Retail-price Recommendations on Consumer and Retailer Behavior By Lisa Bruttel
  9. Debt, Managers and Cartels By Salvatore Piccolo; Giancarlo Spagnolo
  10. Market Outcomes and Dynamic Patent Buyouts By Alberto Galasso; Matthew Mitchell; Gabor Virag
  11. On the antitrust economics of the electronic books industry By Gaudin, Germain; White, Alexander
  12. The Impact of Service Bundling on Consumer Switching Behaviour: Evidence from UK Communication Markets By Tim Burnett
  13. Consumer benefits from the EU Digital Single Market: evidence from household appliances markets By Nestor Duch-Brown; Bertin Martens
  14. The impact of retail mergers on food prices: evidence from France By Marie-Laure Allain; Claire Chambolle; Stéphane Turolla; Sofia Villas-Boas
  15. Risk Aversion and Dynamic Games Between Hydroelectric Operators under Uncertainty By Abdessalem Abbassi; Ahlem Dakhlaoui; Lota D.Tamini

  1. By: Jovanovic, Dragan
    Abstract: We analyze the effects of synergies from horizontal mergers in a Cournot oligopoly where principals provide their agents with incentives to cut marginal costs prior to choosing output. We stress that synergies come at a cost which possibly leads to a countervailing incentive effect: The merged firm's principal may be induced to stifle managerial incentives in order to reduce her agency costs. Whenever this incentive effect dominates the well-known direct synergy effect, synergies actually reduce consumer surplus which opposes the use of an efficiency defense in merger control. --
    Keywords: Managerial Incentives,Horizontal Mergers,Merger Control,Productive Efficiency Gains,Synergies,Efficiency Defense
    JEL: D21 D86 L22 L41
    Date: 2014
  2. By: Juan I. Beccuti
    Abstract: This paper studies the optimal mechanism for a seller (she) that sells, in a sequence of periods, an indivisible object per period to the same buyer (he). Buyer's willingness to pay remains constant along time and is his private information. The seller can commit to the current period mechanism but not to future ones. Our main result is that a seller cannot do better than posting a price in every period. We give a complete characterization of the optimal mechanism and equilibrium payoffs for every prior. Also, we show that, when agents are arbitrarily patient, the seller does not learn about buyer's type except in extreme cases, posting a price equal to the minimum buyer's willingness to pay in every period. This result is a reminiscence of the Coase's conjecture, where a monopolist cannot exert her monopoly power due to the lack of long-term commitment.
    Keywords: asymmetric information; dynamics; optimal mechanism; imperfect commitment
    JEL: D82
    Date: 2014–05
  3. By: Nick Vikander (Department of Economics, Copenhagen University)
    Abstract: This paper examines how a firm can strategically use sellouts to influence beliefs about its good's popularity. A monopolist faces a market of conformist consumers, whose willingness to pay is increasing in their beliefs about aggregate demand. Consumers are broadly rational but have limited strategic reasoning about the firm's incentives. I show that in a dynamic setting, the firm can use current sellouts to mislead consumers about future demand and increase future profits. Sellouts tend to occur when demand is low, they are accompanied by introductory pricing, and certain consumers benefit from others being misled.
    Keywords: sellouts, conformity, bounded rationality, obfuscation
    JEL: D03 D42 D83
    Date: 2014–04–01
  4. By: Charles Z. Zheng (University of Western Ontario)
    Abstract: Existence of a monotone pure-strategy perfect Bayesian equilibrium is proved for a multistage game of first-price auctions with interbidder resale, with any finite number of ex ante different bidders. Endogenous gains at resale complicate the winner’s curse and upset previous fixed-point methods to prove existence of monotone equilibria. This paper restructures the fixed-point approach with respect to comparative statics of the resale mechanisms strategically chosen after the auction. Despite speculation possibilities and the discontinuity-inducing uniform tie-breaking rule, at our equilibrium any bid that stands a chance to win is strictly increasing in the bidder’s use value.
    Keywords: none available
    Date: 2014
  5. By: Ioannis Pinopoulos (Department of Economics, University of Macedonia)
    Abstract: In a successive Cournot oligopoly with upstream free entry, we show that the equilibrium downstream mark-up may increase with the number of downstream firms.
    Keywords: Vertical relations, Cournot competition, Free entry, Mark-up.
    JEL: D43 L11 L13
    Date: 2014–06
  6. By: Lisa Bruttel
    Abstract: This paper studies the exertion of market power in large buyer groups confronting an incumbent monopolist and a potential market entrant in a repeated trade situation. In the experiment, buyer power can either occur as demand withholding when only the incumbent is present in the market, or it can take the form of buying at higher prices from the entrant in order to foster future re-entry. Comparing markets with groups of two and eight buyers, we find that both forms are prevalent irrespective of the number of buyers. However, a control treatment shows that seemingly strategic behavior is better explained by inequality aversion of the buyers towards the two different sellers.
    Keywords: buyer power, market entry, experiment
    Date: 2014
  7. By: Ning Sun; Zaifu Yang
    Abstract: This article proposes an efficient and incentive compatible dynamic auction for selling multiple complementary goods to finitely many bidders. The goods are traded in discrete quantities. The seller has a reserve price for every bundle of goods and determines which bundles to sell based on prevailing prices. The auctioneer announces a current price for every bundle of goods and a supply set of goods, every bidder subsequently responds with a set of goods demanded at these prices, and then the auctioneer adjusts prices. We prove that even when bidders can exercise their market power strategically, this dynamic auction always induces them to bid truthfully as price-takers, resulting in an efficient allocation, its supporting Walrasian equilibrium price for every bundle of goods, and a generalized Vickrey-Clarke-Groves payment for every bidder.
    Keywords: Dynamic auction, complements, incomplete information, incentive, efficiency, ex post perfect equilibrium, indivisibility.
    JEL: D44
    Date: 2014–05
  8. By: Lisa Bruttel
    Abstract: This paper presents results from an experiment on the effects of retail-price recommendations (RPRs) on consumer and retailer behavior. Despite their non-binding nature, RPRs may influence consumersÕ willingness to pay by setting a reference point. Loss averse consumers will then be reluctant to pay a price higher than the recommended one. Furthermore, at a given price level consumers will demand a larger quantity the higher the RPR is. We find evidence for both effects. They are stronger when the price recommendation contains information about the value of the product to the consumer instead of providing an uncorrelated anchor only. Retailers in this study react to RPRs in a similar way as consumers do, but they do not anticipate consumersÕ behavior well.
    Keywords: recommended retail price, consumer behavior, retailer behavior, experiment
    Date: 2014
  9. By: Salvatore Piccolo (Università Cattolica del Sacro Cuore di Milano and CSEF); Giancarlo Spagnolo (SITE Stockholm School of Economics, DEF Tor Vergata, and CEPR)
    Abstract: We propose a theory of anticompetitive effects of debt finance based on the interaction between capital structure, managerial incentives, and firms ability to sustain collusive agreements. Shareholders' commitments not to expropriate debtholders through managers with valuable reputations or common incentive schemes greatly facilitate collusive behavior in product markets. Disclosure rules aimed at improving transparency in corporate governance or network-based credit markets can confer credibility to such arrangements even in environments where firms lack commitment power, thereby inducing collusion through leverage in otherwise competitive downstream industries. Managers are happy with the arrangement since they share in the collusive rent.
    Keywords: Bankruptcy, capital structure, collusion, corporate governance, credit markets, disclosure rules, financial regulation, managerial incentives, product market competition.
    JEL: D21 G32 L13 L41
    Date: 2014–06–06
  10. By: Alberto Galasso; Matthew Mitchell; Gabor Virag
    Abstract: Patents are a useful but imperfect reward for innovation. In sectors like pharmaceuticals, where monopoly distortions seem particularly severe, there is growing international political pressure to identify alternatives to patents that could lower prices. Innovation prizes and other non-patent rewards are becoming more prevalent in government’s innovation policy, and are also widely implemented by private philanthropists. In this paper we develop a model in which a patent buyout is effective, using information from market outcomes as a guide to the payment amount. We allow for the fact that sales may be manipulable by the innovator in search of the buyout payment, and show that in a wide variety of cases the optimal policy in our model still involves some form of patent buyout. The buyout uses two key pieces of information: market outcomes observed during the patent’s life, and the competitive outcome after the patent is bought out. We show that such dynamic market information can be effective at determining both marginal and total willingness to pay of consumers in many important cases, and therefore can generate the right innovation incentives in our model.
    JEL: O30 O34
    Date: 2014–06
  11. By: Gaudin, Germain; White, Alexander
    Abstract: We show that the rise in ebook prices following Apple's entry into the market can be explained by Amazon's Kindle device losing its essential position. When consumers began accessing Amazon's ebooks using third-party devices, such as the iPad, Amazon's incentive to keep ebook prices low diminished. This explanation contrasts with a recent U.S. court decision claiming that price increases stem from a switch in the form of contracts used by ebook publishers and retailers. We show that, if contracts revert to their prior form, as stipulated by the court decision, this will likely push ebook prices up even further. --
    Keywords: Electronic Books,Antitrust in High-Tech Industries,Vertical Contracting,Wholesale vs. Agency Agreements,Media Economics
    JEL: D21 D40 L23 L4 L42 L51 L82 L86
    Date: 2014
  12. By: Tim Burnett
    Abstract: This paper empirically analyses the impact of the bundling of four common home communication services with a single supplier on the probability that an individual changes supplier using a survey-elicited dataset of 2,871 individuals. Implementing a random effects probit approach to control for individual heterogeneity, the results strongly show that when individuals bundle their service then they are significantly less likely to change supplier. A second result indicates that service- and supplier- related variables are better predictors of an individual's likelihood of switching than are the characteristics of the individual, suggesting that future research in this area should prioritise their inclusion.
    Keywords: Bundling, Consumers, Panel-data, Regulation, Switching, telecommunications
    JEL: C3 C5 D1 L5 L8
    Date: 2014–05
  13. By: Nestor Duch-Brown (European Commission – JRC - IPTS); Bertin Martens (European Commission – JRC - IPTS)
    Abstract: This paper investigates price differences between online and offline retail channels in the EU Digital Single Market. Using price and sales data for ten different product categories sold both offline and online in 21 EU countries in 2009, and correcting for product characteristics, we find evidence that confirms the theory: online prices are lower than offline prices, price dispersion also tends to be lower online and online demand is more price-elastic than offline demand. In addition, from our demand estimates we compute the consumers' welfare effects of different scenarios. Our results indicate that a full price convergence across EU member states towards the lowest observed average price would significantly benefit consumers. Moreover, eliminating e-commerce would reduce consumer surplus in €34 billion while an increase in online sales between 10% and 25% would represent a change in consumer welfare in the range of €3.4 billion to €13 billion.
    Keywords: price dispersion; e-commerce; consumer welfare
    JEL: L11 L15 L68
    Date: 2014–06
  14. By: Marie-Laure Allain (Ecole Nationale Polytechnique); Claire Chambolle (Alimentation et Sciences Sociales); Stéphane Turolla (Structures et Marchés Agricoles, Ressources et Territoires, INRA); Sofia Villas-Boas (ARE, University of California, Berkeley)
    Abstract: Using consumer panel data, we analyze the impact of a merger in the retail sector on food prices in France. In order to capture the local dimension of retail competition, we define local markets as catchment areas around each store. We develop a difference-in-differences analysis to compare price changes in local markets where the merger did modify the ownership structure (treated group) to price changes in local markets where the merger did not affect the ownership structure (control group). We find that prices of competing firms in areas where the merger occurred (treated group) increased significantly relative to the control areas where existing firms were not affected by a merger. In fact, our findings suggest that the merger significantly raised the competitors' prices. These results are consistent with a combination of local concentration and a decrease in differentiation.
    Keywords: Ex-post merger evaluation, Retail grocery sector, Difference-in-differences, commerce de detail, prix à la consommation, marché local, enquêtealimentation, compétitivitéconsommateurfrance
    JEL: K21 L11 L66
    Date: 2013
  15. By: Abdessalem Abbassi; Ahlem Dakhlaoui; Lota D.Tamini
    Abstract: This article analyses management of hydropower dams within monopolistic and oligopolistic competition and when hydroelectricity producers are risk averse and face demand uncertainty. In each type of market structure we analytically determine the water release path in closed-loop equilibrium. We show how a monopoly can manage its hydropower dams by additional pumping or storage depending on the relative abundance of water between different regions to smooth the effect of uncertainty on electricity prices. In the oligopolistic case with symmetric risk aversion coefficient, we determine the conditions under which the relative scarcity (abundance) of water in the dam of a hydroelectric operator can favor additional strategic pumping (storage) in its competitor’s dams. When there is asymmetry of the risk aversion coefficient, the firm’s hydroelectricity production increases as its competitor’s risk aversion increases, if and only if the average recharge speed of the competitor’s dam exceeds a certain threshold, which is an increasing function of its average water inflows.
    Keywords: Closed-loop Cournot competition, electricity wholesale market, hydropower dams, demand uncertainty, asymmetric risk aversion
    JEL: L94 Q25 C61 C73
    Date: 2014

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