nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒08‒01
twenty papers chosen by
Russell Pittman
United States Department of Justice

  1. Vertical integration and accommodation effects under Cournot competition By Christos Constantatos; Ioannis Pinopoulos
  2. A dynamic model of quality competition with endogenous prices By Roberto Cellini; Luigi Siciliani; Odd Rune Straume
  3. Is Dynamic Competition Socially Beneficial? The Case of Price as Investment By Yaroslav Kryukov; Ulrich Doraszelski; David Besanko
  4. On the emergence of scale-free production networks By Stanislao Gualdi; Antoine Mandel
  5. Market games as social dilemmas By Iván Barreda Tarrazona; Aurora García-Gallego; Nikolaos Georgantzis; Nikolas Ziros
  6. Necessarily welfare-improving privatization By Kenji Fujiwara
  7. Antitrust Enforcement and Foreign Competition: Special Interest Theory Reconsidered By Büthe, Tim; Morgan, Stephen
  8. Reputation and Pricing on the e-Market: Evidence from a Major French Platform By Grégory Jolivet; Bruno Jullien; Fabien Postel-Vinay
  9. Substitution between Online and Offline Advertising: Evidence from the Carbonated Soft Drink Industry By He, Xi; Lopez, Rigoberto A.; Liu, Yizao
  10. Content Aggregation by Platforms: The Case of the News Media By Lesley Chiou; Catherine Tucker
  11. Oligopoly Power in the Food Industries Revisited: A Stochastic Frontier Approach By Lopez, Rigoberto A.; Zheng, Hualu; Azzam, Azzeddine
  13. Competition in Local Food Markets By Connolly, Cristina; Klaiber, H. Allen
  14. How can differences in German raw milk prices be explained? An empirical investigation of market power asymmetries By Zavelberg, Yvonne; Wieck, Christine; Heckelei, Thomas
  15. Energy Price Transmission and Retail Milk Prices By Li, Xun; Lopez, Rigoberto A.
  16. Impact of Chinese acquisition of a US Company on Consumer Willingness to Pay By Zhang, Yu Yvette; Palma, Marco A.; Jin, Shaosheng
  17. Price Transmission in Vertical Dairy Chains: The Italian Case By Weaver, R. D.; Rosa, F.; Vasciaveo, M.
  18. Trade diversion and high food prices - The impact of the Russian pig meat import ban By Djuric, Ivan; Götz, Linde; Glauben, Thomas
  19. Dynamic Changes in Spatial Competition for Fertilizer By Wilson, William W.; Shakya, Sumadhur; Dahl, Bruce
  20. Market size and innovation: An application to the French seed market for large crops By Charlot, Sylvie; Dridi, Chokri; Lemarié, Stéphane

  1. By: Christos Constantatos (Department of Economics, University of Macedonia); Ioannis Pinopoulos (Department of Economics, University of Macedonia)
    Abstract: We consider a two-tier industry where a vertically integrated firm sells input to, and competes against a downstream rival. We show that when the upstream divi- sion of the integrated firm uses a two-part tari¤ contract, the downstream division will behave less agressively despite common presumption that Cournot conjectures preclude such behavior. By limiting its quantity, the downstream division increases rival's profits that can be recouped by the upstream division via a fixed fee. This ac- commodation e¤ect allows the integrated firm to achieve full decisions-coordination between its divisions, and Stackelberg-leader profits, even though downstream deci- sions are taken simultaneously.
    Keywords: Vertical integration, accommodation effect, two-part tariffs, product differentiation, Cournot competition.
    JEL: L4 L22
    Date: 2015–06
  2. By: Roberto Cellini (Department of Economics, University of Catania); Luigi Siciliani (yDepartment of Economics and Related Studies, University of York); Odd Rune Straume
    Abstract: We develop a dynamic model of price and quality competition in order to analyse the effects of competition intensity on quality provision and to which extent an unregulated market is able to provide a socially optimal quality level. Using a differential-game approach with price and quality competition on a Hotelling line, we compare the benchmark open-loop solution against the feedback closed-loop solution, which implies strategic dynamic interaction over time. We fi…nd that steady-state quality in the closed-loop solution is (i) increasing in the degree of competition between fi…rms, (ii) lower than in the open-loop solution, and (iii) lower than the socially optimal level. In contrast, steady-state quality in the open-loop solution is at the socially optimal level and independent of competition intensity. Thus, our analysis identifi…es dynamic strategic interactions between competing fi…rms as an independent source of inefficiency in quality provision.
    Keywords: Competition; Quality; Differential-games
    JEL: H42 I11 L13
    Date: 2015
  3. By: Yaroslav Kryukov (Carnegie-Mellon University); Ulrich Doraszelski (University of Pennsylvania); David Besanko (Northwestern University)
    Abstract: --
    Date: 2015
  4. By: Stanislao Gualdi (Chair of Quantitative Finance - Laboratoire de Mathématiques Appliquées aux Systèmes - Ecole Centrale Paris); Antoine Mandel (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: Building upon the standard model of monopolistic competition on the market for intermediary goods, we propose a simple dynamical model of the formation of production networks. The model subsumes the standard general equilibrium approach and robustly reproduces key stylized facts of firms' demographics. Firms' growth rates are negatively correlated with size and follow a core double-exponential distribution followed by fat tails. Firms' size and production network are power-law distributed. These properties emerge because continuous inflow of new firms shifts away the model from a steady state to a disequilibrium regime in which firms get scaled according to their resistance to competitive forces.
    Abstract: Nous développons à partir du modèle standard de compétition monopolistique sur le marché des biens intermédiaires un modèle dynamique simple de la formation des réseaux de production. Le modèle reproduit de manière robuste un ensemble de faits stylisés sur la démographie des entreprises. Le taux de croissance des entreprises sont corrélés négativement avec leur taille et suivent une distribution en double-exponentielle. La distribution de la taille des entreprises et la structure du réseau de production ont des propriétés d'invariance d'échelle. L'émergence de ces propriétés s'expliquent par l'influx permanent de nouvelles entreprises qui conduit le modèle dans un régime de déséquilibre dynamique où les tailles des entreprises s'échelonnent en fonction de leur résistance à la pression concurrentielle.
    Date: 2015–07
  5. By: Iván Barreda Tarrazona (LEE & Economics Department, Universitat Jaume I, Castellón, Spain); Aurora García-Gallego (LEE & Economics Department, Universitat Jaume I, Castellón, Spain); Nikolaos Georgantzis (UJI-LEE, Spain and Agriculture Policy and Development, University of Reading, UK); Nikolas Ziros (Department of Economics, University of Cyprus, Cyprus)
    Abstract: We study an experimental exchange market based on Shapley and Shubik (1977). Two types of players with different preferences and endowments independently submit quantities of the goods they wish to exchange in the market. We implement a case in which the Nash equilibrium involves minimum exchange or no trade at all. This is almost never confirmed by our laboratory data. On the contrary, after a sufficiently large number of periods, convergence close to full trade is obtained, which can be supported as an epsilon symmetric strategy evolutionary stable equilibrium. We also study cheap talk communication within pairs of traders from the same (horizontal) and opposite (vertical) sides of the market. As predicted by the theory, horizontal communication restricts trade, whereas vertical communication leads to higher bids, but always lower or equal than those achieved tacitly by learning alone. Vertical messages limit the collusive effect of horizontal communication when the former precede the latter. Results do not differ when players are allowed to choose the communication mode.
    Keywords: Efficiency, strategic market games, experiments, vertical communication, horizontal communication Technology
    JEL: D43 C91 C73
    Date: 2015
  6. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines the welfare effect of privatization in a mixed oligopoly model where multiple oligopolistic industries compete for a common factor. We find that privatization necessarily improves welfare in a benchmark case with symmetric costs across all oligopolistic industries. Moreover, we show that a production subsidy necessarily reduces welfare regardless of the level of privatization.
    Keywords: Mixed oligopoly, privatization, subsidization, general equilibrium
    JEL: L13 L32 L33
    Date: 2015–07
  7. By: Büthe, Tim; Morgan, Stephen
    Keywords: Antitrust, International Trade, Competition Policy, International Relations/Trade, Political Economy, Research Methods/ Statistical Methods,
    Date: 2015
  8. By: Grégory Jolivet (Centre d'économie de la Sorbonne); Bruno Jullien (Toulouse School of Economics (TSE)); Fabien Postel-Vinay (Departement d'Economie de Sciences Po)
    Abstract: We use an exhaustive data set from one of France's largest e-commerce platforms,, to estimate a statistical causal effect of a seller's reputation (and size) on transaction prices for a large range of product categories (books, CDs, video games or DVDs), product conditions (used or new) and seller types (individual or professional sellers). We go beyond the results currently available by tackling the issue of seller unobserved heterogeneity and the dynamics of reputation (and size) in price equations. Our results show large-scale empirical evidence of a significant, positive and strong effect of seller reputation on prices.
    Keywords: e-Market; e-Commerce platform; Reputation; Price
    Date: 2014–05
  9. By: He, Xi; Lopez, Rigoberto A.; Liu, Yizao
    Abstract: As in previous studies on traditional media, previous work has assumed that online and offline advertising are substitutes. However, empirical evidence for this premise is lacking. This paper investigates the substitution between online advertising and offline advertising as well as the impact of the introduction of new media technology on the cost of advertising. Using a rich dataset of monthly observations for 52 carbonated soft drink brands between 2005 and 2011, we estimate a translog cost function that considers the mix of on/off line advertising and online advertising adoption at the brand level. As in previous work, we find that TV and print media are close substitutes. Surprisingly, however, we find that online advertising is a complement to rather than a substitute for both TV and print media advertising. This might be explained by online advertising’s targeting younger market segments and acting as a reinforcement of TV and print media advertising exposure. Further results show that the adoption of online advertising has lowered the cost of advertising for achieving a sales target but that its role as a complement rather than a substitute is weakening.
    Keywords: Online advertising, media substitution, translog cost function, CSDs, Agricultural and Food Policy, Marketing, L13, M37, D12,
    Date: 2015
  10. By: Lesley Chiou; Catherine Tucker
    Abstract: The digitization of content has led to the emergence of platforms that draw information from multiple sources. Policymakers are concerned that these new platforms threaten incentives for the production of original content. As a result, policymakers are contemplating regulations that would force aggregation platforms to pay or require an explicit "opt-in" for content providers. To understand the possible consequences and underlying rationale of such laws, we explore whether aggregation of content by a single platform encourages users to "skim" content or to investigate in depth. We study a contract dispute that led a major aggregator to remove information from a major content provider. We find that after the removal, users were less likely to investigate additional, related content in depth, particularly sources that were horizontally or vertically differentiated.
    JEL: L63 L82 L86 L88
    Date: 2015–07
  11. By: Lopez, Rigoberto A.; Zheng, Hualu; Azzam, Azzeddine
    Abstract: Since the late 1980s, the analysis of market power in the food industries has shifted from analyzing market concentration (structure) towards empirically measuring how far a market diverges from perfect competition (conduct). The New Empirical Industrial Organization (NEIO; usually offspring of the work of Appelbaum, 1982, or Bresnahan, 1982) has dominated the food economics literature on market power in the past 25 years (see Kaiser and Suzuki, 2006, for a summary of NEIO applications to food industries) and continues to do so (Cakir and Balagtas, 2012; Hovhannisyan and Gould, 2012; Cleary and Lopez, 2014). NEIO studies, in general, find a significant degree of oligopoly power in the food industries (Bhuyan and Lopez, 1997; Lopez, Azzam and Liron, 2002; Sheldon and Sperling, 2003). This study estimates mark-ups and oligopoly power for U.S. food industries using a stochastic frontier (SF; Kumbhakar, Baardsen and Lien, 2012; Baraigi and Azzam, 2014) approach, where mark-ups are treated as systematic deviations from a marginal cost pricing frontier. We apply the analysis to 36 U.S. food industries using NBER-CES Manufacturing Industry Database (2014), which covers a span of 31 years from 1979 to 2009. Empirical results show that all the food industries in the sample exercise at least some degree of oligopoly power, but most in a moderate manner. The estimated mean Lerner index is approximately 0.06, generally much lower than obtained using the conventional NEIO approaches. The SF model used provides a novel and promising framework to test and measure the degree of market power in agricultural and food markets.
    Keywords: Market Power, Food Industry, NEIO, Stochastic Frontier Approach, Agricultural and Food Policy, Industrial Organization, D43, L13, L66, Q13,
    Date: 2015
  12. By: Hovhannisyan, Vardges; Bozic, Marin
    Abstract: This study provides an empirical investigation of the relationship between grocery retail concentration and retail dairy prices in the US. We perform the analysis based on a unique dataset on store-level retail prices provided by the Information Resources Inc. Further, we consider alternative measures of retail concentration including revenue and store selling space-based Herfindahl Hirschman Index, which we compute using a Nielsen TDLinx dataset on store characteristics. Results from a reduced-from empirical framework estimated via panel data techniques indicate that grocery retail concentration affects dairy retail prices favorably. This central result is robust to the way that retail concentration is measured and is consistent with the empirical evidence from both the US and oversees.
    Keywords: Retail concentration, retail price, dairy food products, market power, Agricultural and Food Policy, Industrial Organization, D4,
    Date: 2015–05–27
  13. By: Connolly, Cristina; Klaiber, H. Allen
    Keywords: Local food, Competition, Direct-marketing, Agricultural and Food Policy,
    Date: 2015
  14. By: Zavelberg, Yvonne; Wieck, Christine; Heckelei, Thomas
    Abstract: Addressing the increasing concentration of dairy processors in Germany, this paper investigates imperfect competition on the German raw milk market. Using a panel data set of dairy processors’ price and processing data and related market information for the years 2001-2012, the conjectural variation approach allows analyzing market power of dairy processors towards raw milk producers. The paper contributes to the literature by providing an empirical up to date analysis of imperfect competition across and regions in Germany. The estimation results indicate an oligopsonistic market structure in Germany.
    Keywords: market power, imperfect competition, conjectural variation, dairy industry, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Industrial Organization, C10, L10, L13, L66, Q13, R10,
    Date: 2015
  15. By: Li, Xun; Lopez, Rigoberto A.
    Abstract: This paper estimates the pass-through between diesel fuel and retail milk prices at the product brand level, based on a random coefficient logit demand model along with a market channel marginal cost function in order to estimate energy price pass-through rates to the consumer. It takes into account the partial and net impact of energy prices through the multi-market effects on other inputs. It also exploits a natural experiment of energy hyperinflation and the great recession in 2008. Empirical results show that energy prices (e.g., diesel price) significantly impact the retail prices of milk products and are, therefore, an important determinant of food price inflation. Pass-through rates are estimated to be in the range from 0.15 to approximately 0.50 before March 2008 and from 0.09 to 0.19 after March 2009, with an average of 0.26. This indicates that a $1.00 per gallon increase in diesel prices would on average result in a 26¢ per gallon increase in the retail price of milk. Statistical test indicates pass-through rates before March 2008 are significantly higher than that after March 2008. Interestingly, private label brands have the lowest energy (diesel) pass-through rates, implying that compared to manufacturer brands, private label prices are more insulated from energy price shocks.
    Keywords: food, milk, energy, pricing, pass-through, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Industrial Organization, Marketing, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy, D22, L66, Q13, Q41,
    Date: 2015
  16. By: Zhang, Yu Yvette; Palma, Marco A.; Jin, Shaosheng
    Abstract: In this study, we explore how the acquisition of Smithfield, the world’s larger pork producer, by a Chinese firm Shuanghui, on consumers’ WTP to meat product using experimental auctions. Our results indicate that the acquisition benefits Shuanghui in particular and other Chinese firms in general in terms of consumer’s willingness to pay. On the other firms, the general impacts on US firms might be negative, probably due to expected lower price or reduced perceived difference between domestic and imported meat products.
    Keywords: Merging & Acquisition, Multinational business, Consumer Willingness to Pay, Experiments, Auctions, Agribusiness, Consumer/Household Economics, Marketing, JEL Codes: C91, D44, D12, F23, Q13,
    Date: 2015
  17. By: Weaver, R. D.; Rosa, F.; Vasciaveo, M.
    Abstract: a theoretic level, price transmission does not provide a clear signal of competitiveness as many conditions may induce stickiness and even asymmetry in the speed of adjustment to positive and negative changes. While evidence from past EU studies for the dairy sector is mixed, several studies have found evidence of asymmetry in particular countries. However, none to our knowledge have considered evidence for Italy. We examine price dynamics within the chain and test for presence of asymmetry in the transmission of price changes along the chain. Using a parametric test of asymmetry in a multivariate VECM, we find strong evidence of symmetry in co-movement. To explore whether these results are robust with respect to nonlinearity we estimate threshold VECM models and also find strong evidence to reject asymmetry except for the transmission between raw milk and wholesale butter prices. While inference with respect to competitiveness of markets cannot be inferred from evidence of asymmetry, findings of symmetry confirm that the market organization and performance is not controlling price change to be asymmetric.
    Keywords: dairy sector, CMO, time series analysis, industrial organization, market efficiency, Agribusiness,
    Date: 2015–05
  18. By: Djuric, Ivan; Götz, Linde; Glauben, Thomas
    Abstract: In this paper we analyze the impact of the Russian ban on import of pig meat originating in the EU on the domestic pig meat price developments in Russia. We use a regime-switching price transmission model in order to identify possible changes in the long-run equilibrium between the pig meat prices of Russia and its main non-EU trading partners. Our results indicate the reduction of transaction costs in pig meat trade between Russia and its main non-EU trading partners, followed by the increase in transmission of price changes in the long-run. Though, our results indicate completely opposite results concerning domestic price relations between wholesale and end consumer pig meat prices in Russia. Overall, faced with the scarcity of pig meat on the domestic market, Russian consumers bear the biggest burden from the ban in the medium term by being faced with the significant increase in end consumer pig meat prices.
    Keywords: import ban, pig meat, price transmission, Russia, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Food Security and Poverty, International Relations/Trade, C22, I31, P22, Q11, Q17, Q18,
    Date: 2015
  19. By: Wilson, William W.; Shakya, Sumadhur; Dahl, Bruce
    Abstract: Changes are evolving that are impacting the U.S. nitrogen fertilizer industry. Changes in crops, increased demand, reductions in natural gas prices, and spatial competition among producers and imports are affecting the nitrogen fertilizer industry. A spatial competition model of the United States fertilizer sector was developed to determine the likely future spatial distribution of production and flows for nitrogen fertilizer. The model minimizes production and shipping costs from plants and imports to demand areas. A base model of 2010-12 was developed and a future case was modeled representative of 2018. The most valuable (lowest cost) origins for US processing are primarily in Louisiana, followed by others states with low natural gas prices. Shadow prices indicate several locations in Wyoming, Iowa, Georgia, Louisiana, Nebraska, Kansas, and North Dakota would be positive. Not all of proposed plants would be viable and if forced to operate at 75% of capacity or more only a few of the new plants including those located in Louisiana, Iowa and North Dakota would be viable.
    Keywords: Crop Production/Industries, Demand and Price Analysis, Farm Management,
    Date: 2014–06
  20. By: Charlot, Sylvie; Dridi, Chokri; Lemarié, Stéphane
    Abstract: The aim of this paper is to analyse the impact of market size on innovation in the seed industry. The analysis is based on a panel dataset that covers 19 large crops in France during the period 1989-2012. Our econometric analysis is based on a negative binomial specification and we conduct both cross section as well as panel data analysis. We show that the French crop area always has a positive and significant effect on the number of innovations introduced each year. Market size of foreign countries may be either positive or negative revealing synergy or substitution effects. When hybrid crops are considered, the innovation is mainly determined by a positive and very significant fixed effect, crop area having no more influence. This last result can be interpreted as market size being mainly dependent on crop area for non-hybrid crop and dependent of price mark-up for hybrid crops.
    Keywords: Seed Innovation, Market Size, Crops, Count Data, France, Agribusiness, Industrial Organization, C01, L66, O31, Q16,
    Date: 2015–05

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