nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒05‒16
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Upstream incentives to encourage downstream competition in a vertically separated industry By Joel Sandonís Díez; Javier M. López Cuñat
  2. Firm-Specific Information and Explicit Collusion in Experimental Oligopolies By Francisco Gomez-Martin; Sander Onderstal; Joep Sonnemans
  3. The Role of Critical Mass in Establishing a Successful Network Market: An Experimental Investigation By Bradley J. Ruffle, Avi Weiss, Amir Etziony
  4. Market Structure and Exchange Rate Pass-Through By Auer, Raphael; Schoenle, Raphael
  5. National Brands versus Private Labels versus Niche Products: a graphical representation of consumers' perception By Gaviglio, Anna; Demartini, Eugenio; Pirani, Alberto; Marescotti, Maria Elena; Bertocchi, Mattia
  6. Bargaining agenda in public and private monopoly. By Fanti, Luciano; Buccella, Domenico
  7. On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products By Gayle, Philip; Wu, Chi-Yin
  8. Portfolio Considerations in Differentiated Product Purchases: An Application to the Japanese Automobile Market By Wakamori, Naoki
  9. Illiquidity in the Japanese Day-Ahead Electricity Market By Shin S. Ikeda
  10. Show me yours and I'll show you mine : Sharing borrower information in a competitive credit market By de Haas, R.T.A.; Bos, J.; Millone, Matteo
  11. Patterns of Product Assortment and Price-Cost Margins across the Food Retailing Landscape By Chenarides, Lauren; Jaenicke, Edward C.; Volpe, Richard J.
  12. CO2 abatement policies in the power sector under an oligopolistic gas market By Hecking, Harald
  13. Structure of global buyer-supplier networks and its implications for conflict minerals regulations By Takayuki Mizuno; Takaaki Ohnishi; Tsutomu Watanabe

  1. By: Joel Sandonís Díez (Universidad de Alicante); Javier M. López Cuñat (Universidad de Alicante)
    Date: 2015–04
  2. By: Francisco Gomez-Martin (University of Amsterdam); Sander Onderstal (University of Amsterdam); Joep Sonnemans (University of Amsterdam)
    Abstract: We experimentally study the effect of information about competitors’ actions on cartel stability and firms’ incentives to form cartels in Cournot markets. As in previous experiments, markets become very competitive when individualized information is available and participants cannot communicate. In contrast, when communication is possible, results reverse: Markets become less competitive and cartels become more stable when individualized information is available. We also observe that the extra profits that firms obtain thanks to the possibility to communicate are higher when individualized information is present, suggesting that firms have greater incentives to form cartels in that situation.
    Keywords: Cournot oligopoly; Cartels; Information; Experiments
    JEL: C92 L13 L41
    Date: 2015–05–10
  3. By: Bradley J. Ruffle, Avi Weiss, Amir Etziony (Wilfrid Laurier University)
    Abstract: A network market is a market in which the benefit each consumer derives from a good is an increasing function of the number of consumers who own the same or similar goods. A major obstacle that plagues the introduction of a network good is the ability to reach critical mass, namely, the minimum number of buyers required to render purchase worthwhile. This can be likened to a coordination game with multiple Pareto-ranked equilibria. Through a series of experiments, we study consumers' ability to coordinate on purchasing the network good. Our results highlight the central importance of the level of the critical mass. Neither an improved reward-risk ratio through lower prices nor previous success at a lower critical mass facilitates the establishment of a network market when the critical mass is sufficiently high.
    Keywords: experimental economics, network goods, coordination game, critical mass
    JEL: C92 L19
    Date: 2015–05–12
  4. By: Auer, Raphael; Schoenle, Raphael
    Abstract: We study firm-level pricing behavior through the lens of exchange rate pass-through and provide new evidence on how firm-level market shares and price complementarities affect pass-through decisions. Using micro-data from U.S. import prices, we identify two facts: First, exactly the firms that react the most with their prices to changes in their own costs are also the ones that react the least to changing competitor prices. Second, the response of import Prices to exchange rate changes is U-shaped in market share while it is hump-shaped in response to competitor prices. We show that both facts are consistent with a model based on Dornbusch (1987) that generates variable markups through a nested-CES demand system. Finally, based on the model, we find that direct cost pass-through and price complementarities play approximately equally important roles in determining pass-through but also partly offset each other. This suggests that equilibrium feedback effects in pricing are large. Omission of either channel in an empirical analysis results in a failure to explain how market structure affects price-setting in industry equilibrium.
    Keywords: exchange rate pass-through; price complementarities; price setting; U.S. import prices
    JEL: E3 E31 F41
    Date: 2015–05
  5. By: Gaviglio, Anna; Demartini, Eugenio; Pirani, Alberto; Marescotti, Maria Elena; Bertocchi, Mattia
    Keywords: Consumer/Household Economics, Food Consumption/Nutrition/Food Safety,
    Date: 2015–03
  6. By: Fanti, Luciano; Buccella, Domenico
    Abstract: This paper analyses the choice of the bargaining agenda in a public/private unionised monopoly. Both the public and private monopolist always prefers the Right-To-Manage (RTM) to the Efficient Bargaining (EB) agenda. Private monopoly is socially preferred to the public one and conflict of interests on the preferred agenda arises between Government on one side and workers and consumers on the other side. In case of threat of market entry, the public (private) monopolist may strategically commit to RTM (EB) to deter entrance. If RTM is the ex-ante industry practice, a public incumbent company cannot use the EB agenda as a strategic tool to deter entry, while an incumbent private company can use it. An opposite result holds when EB is the established practice in the industry: the incumbent public company can use RTM to deter entry, while the incumbent private company cannot. The social welfare implications are analysed.
    Keywords: Public and private monopoly; Efficient Bargaining; Right-to-manage; Entry; Firm-union bargaining agenda
    JEL: H44 J51 L13
    Date: 2015–05
  7. By: Gayle, Philip; Wu, Chi-Yin
    Abstract: Analysts of air travel markets, which include antitrust authorities, are interested in understanding the extent to which the presence of intermediate stop(s) products influences the pricing of nonstop products. This paper uses a structural econometric model to investigate the potential pricing interdependence between these two product types in domestic air travel markets. Counterfactual experiments using the estimated model suggest that in many (but far from a majority) markets the current prices of nonstop products are at least 5% lower than they would otherwise be owing to the presence of intermediate-stop(s) products.
    Keywords: Substitutability and Pricing Interdependence between Differentiated Air Travel Products; Discrete Choice Demand Model; Random Coefficients Logit
    JEL: L13 L40 L93
    Date: 2015–05–05
  8. By: Wakamori, Naoki
    Abstract: Consumers often purchase more than one differentiated product, assembling a portfolio, which might potentially affect substitution patterns of demand and, as a consequence, oligopolistic firms’ pricing strategies. To study such consumers’ portfolio considerations, this paper develops and estimates a structural model that allows for flexible complementarities/substitutabilities, using Japanese household-level data on automobile purchases. My estimates suggest that complementarities arise when households purchase a combination of one small automobile and one minivan as their portfolio. Simulation results suggest that, due to such portfolio considerations, a policy proposal of repealing the current tax subsidies for small eco-friendly automobiles would not necessarily sharply decrease the demand.
    Keywords: Multiple Discrete Choices; Complementarities; Environmental Policy
    JEL: D43 L13 L62 Q58
    Date: 2015–04–21
  9. By: Shin S. Ikeda (National Graduate Institute for Policy Studies)
    Abstract: Historical data of system prices and traded quantities of electricity over the 48 half-hour intra-daily intervals in the Japan Electric Power Exchange are analyzed. Viewed as a panel dataset of the 48 dierent commodities in 7 dierent markets (days of a week) or 336 dierent contracts over 288 weeks, the data allow me to compute two representative measures of illiquidity, namely, Amihud's price-impact measure and Roll's implied spread cost measure from November 2006 to April 2012. These measures are based on the absolute weekly returns of each of 336 contracts divided by the corresponding volume of traded electricity, and on the rst-order serial covariance of weekly returns, respectively. Two measures closely comove but they contribute to the returns in dierent magnitudes, suggesting that each of them captures both common and distinctive aspects of illiquidity in the JEPX market. Once the lagged returns are controlled for in a dynamic panel framework, the in uence of price-impact measures on returns dominate that of spread measures. The price-impact measure and traded volume contribute the return variations in opposite signs, i.e., positively and negatively. It suggests that the assessment of illiquidity requires a careful treatment of these confounding factors.
    Date: 2015–05
  10. By: de Haas, R.T.A. (Tilburg University, Center For Economic Research); Bos, J.; Millone, Matteo
    Abstract: We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information—especially positive borrower information from the new registry—and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.
    Keywords: information sharing; credit market competition; hazard models
    JEL: D04 D82 G21 G28
    Date: 2015
  11. By: Chenarides, Lauren; Jaenicke, Edward C.; Volpe, Richard J.
    Keywords: Agricultural and Food Policy, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety,
    Date: 2015–03
  12. By: Hecking, Harald (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: The paper at hand examines the power system costs when a coal tax or a fixed bonus for renewables is combined with CO2 emissions trading. It explicitly accounts for the interaction between the power and the gas market and identifies three cost effects: First, a tax and a subsidy both cause deviations from the cost-efficient power market equilibrium. Second, these policies also impact the power sector's gas demand function as well as the gas market equilibrium and therefore have a feedback effect on power generation quantities indirectly via the gas price. Thirdly, by altering gas prices, a tax or a subsidy also indirectly affects the total costs of gas purchase by the power sector. However, the direction of the change in the gas price, and therefore the overall effect on power system costs, remains ambiguous. In a numerical analysis of the European power and gas market, I find using a simulation model integrating both markets that a coal tax affects gas prices ambiguously whereas a fixed bonus for renewables decreases gas prices. Furthermore, a coal tax increases power system costs, whereas a fixed bonus can decrease these costs because of the negative effect on the gas price. Lastly, the more market power that gas suppliers have, the stronger the outlined effects will be.
    Keywords: CO2 abatement; oligopoly; gas market; power market
    JEL: C60 L13 Q02 Q48
    Date: 2015–05–05
  13. By: Takayuki Mizuno (National Institute of Informatics); Takaaki Ohnishi (The University of Tokyo); Tsutomu Watanabe (The University of Tokyo)
    Abstract: We investigate the structure of global inter-firm linkages using a dataset that contains information on business partners for about 400,000 firms worldwide, including all the firms listed on the major stock exchanges. Among the firms, we examine three networks, which are based on customer-supplier, licensee-licensor, and strategic alliance relationships. First, we show that these networks all have scale-free topology and that the degree distribution for each follows a power law with an exponent of 1.5. The shortest path length is around six for all three networks. Second, we show through community structure analysis that the firms comprise a community with those firms that belong to the same industry but different home countries, indicating the globalization of firms' production activities. Finally, we discuss what such production globalization implies for the proliferation of conflict minerals (i.e., minerals extracted from conflict zones and sold to firms in other countries to perpetuate fighting) through global buyer-supplier linkages. We show that a limited number of firms belonging to some specific industries and countries plays an important role in the global proliferation of conflict minerals. Our numerical simulation shows that regulations on the purchases of conflict minerals by those firms would substantially reduce their worldwide use.
    Date: 2015–05

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