nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒10‒10
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Exclusive Contracts with Complementary Inputs By Hiroshi Kitamura; Noriaki Matsushima; Misato Sato
  2. How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements? By Hiroshi Kitamura; Noriaki Matsushima; Misato Sato
  3. The Limits of Price Discrimination By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  4. On dynamic games with randomly arriving players By Pierre Bernhard; Marc Deschamps
  5. Nash equilibrium uniqueness in nice games with isotone best replies By Ceparano, Maria Carmela; Quartieri, Federico
  6. Pay-What-You-Want in Competition By Samahita, Margaret
  7. Competition and Auctioning Licenses By Chatterjee, Rittwik; Chattopadhyay, Srobonti
  8. A model of patent trolls By CHOI, Jay Pil; GERLACH, Heiko
  9. An Economic Analysis of Debarment By Auriol, Emmanuelle; Fourati, Maleke
  10. Attribute Search in Online Retail Grocery Markets By Timothy Richards; Stephen Hamilton
  11. Retail Market Power in a Shopping Basket Model of Supermarket Competition By Timothy Richards; Stephen Hamilton; Koichi Yonezawa
  12. Search and Price Dispersion in Online Grocery markets By Timothy Richards; Stephen Hamilton; William Allender
  13. Competitive pricing strategies in social networks By Chen, Ying-Ju; Zenou, Yves; Zhou, Junjie
  14. Optimal Product Variety in Radio Markets By Steven Berry; Alon Eizenberg; Joel Waldfogel
  15. Can a Platform Make Profit with Consumer' Mobility? A Two-Sided Monopoly Model with Random Endogenous Side-Swiching By Pierre Andreoletti; Pierre Gaze; Maxime Menuet
  16. Does Google Content Degrade Google Search? Experimental Evidence By Michael Luca; Timothy Wu; Sebastian Couvidat; Daniel Frank; William Seltzer
  17. Agricultural marketing cooperatives with direct selling: A cooperative–non-cooperative game By Maxime Agbo; Damien Rousselière; Julien Salanié
  18. EU Air Transport Liberalisation Process, Impacts and Future Considerations By Guillaume Burghouwt; Pablo Mendes De Leon; Jaap De Wit
  19. Measurement of the Relationship Between Service Quality and Brand Loyalty with Structural Equation Modeling: A Research on Users of Smartphone Brands By Mehmet Nejat ÖZÜPEK; Murat KOÇY; Murat ERDO
  20. The Ethiopian Commodity Exchange and spatial price dispersion By Camilla Andersson; Mintewab Bezabih; Andrea Mannberg
  21. Network Business Environment for Open Innovation in SMEs By Ţoniş BuceaManea, Rocsana; Catană, Mădălin Gabriel; Tonoiu, Sergiu

  1. By: Hiroshi Kitamura; Noriaki Matsushima; Misato Sato
    Abstract: This study constructs a model of anticompetitive exclusive contracts in the presence of complementary inputs. A downstream firm transforms multiple complementary inputs into final products. When complementary input suppliers have market power, upstream competition within a given input market benefits not only the downstream firm (by lowering the input price) but also complementary input suppliers (by raising complementary input prices). The downstream firm is thus unable to earn higher profits even when socially efficient entry is allowed. Hence, the inefficient incumbent supplier can deter socially efficient entry by using exclusive contracts even in the absence of economies of scale and downstream competition. These results have important implications for antitrust agencies, showing the importance of considering the existence of complementary inputs when examining cases of potential anticompetitive exclusive dealing.
    Date: 2015–01
  2. By: Hiroshi Kitamura; Noriaki Matsushima; Misato Sato
    Abstract: This study constructs a model to examine anticompetitive exclusive supply contracts that prevent an upstream supplier from selling input to a new downstream firm. With regard to the technology to transform input produced by the supplier, as an entrant becomes increasingly efficient, its input demand can decrease, and thus, the supplier earns smaller profits when a socially efficient entry is allowed. Hence, an inefficient incumbent can deter a socially efficient entry through exclusive supply contracts, even in the framework of the Chicago School argument, which comprises a single seller, buyer, and entrant.
    Date: 2013–08
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, Princeton University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the surplus generated by efficient trade.
    Keywords: First degree price discrimination, Second degree price discrimination, Third degree price discrimination, Private information, Privacy, Bayes correlated equilibrium, Concavification
    JEL: C72 D82 D83
    Date: 2013–05
  4. By: Pierre Bernhard (BIOCORE team, INRIA Sophia Antipolis-Méditerranée); Marc Deschamps (CRESE, BETA-CNRS and OFCE-Sciences Po., Univ. Bourgogne Franche-Comté)
    Abstract: We consider a dynamic game where additional players (assumed identical, even if there will be a mild departure from that hypothesis) join the game randomly according to a Bernoulli process. The problem solved here is that of computing their expected payoff as a function of time and the number of players present when they arrive, if the strategies are given. We consider both a finite horizon game and an infinite horizon, discounted game. As illustrations, we discuss some examples relating to oligopoly theory (Cournot, Stackelberg, cartel).
    Keywords: Dynamic game, Bernoulli process of entry, Oligopoly
    JEL: C72 C61 D21 L13
    Date: 2015–09
  5. By: Ceparano, Maria Carmela; Quartieri, Federico
    Abstract: We prove the existence of a unique pure-strategy Nash equilibrium in nice games with isotone chain-concave best replies and compact strategy sets. We establish a preliminary fixpoint uniqueness argument showing sufficient assumptions on the best replies of a nice game that guarantee the existence of exactly one Nash equilibrium. Then, by means of a comparative statics analysis, we examine the necessity and sufficiency of the conditions on (marginal) utility functions for such assumptions to be satisfied; in particular, we find necessary and sufficient conditions for the isotonicity and chain-concavity of best replies. We extend the results on Nash equilibrium uniqueness to nice games with upper unbounded strategy sets and we present "dual" results for games with isotone chain-convex best replies. A final application to Bayesian games is exhibited.
    Keywords: Nash equilibrium uniqueness; Chain-concave best replies; Nice games; Comparative statics; Strategic complementarity.
    JEL: C61 C72
    Date: 2015–10–05
  6. By: Samahita, Margaret (Department of Economics, Lund University)
    Abstract: Pay-What-You-Want (PWYW) pricing schemes are popular in certain industries and not others. We model the seller's choice of pricing scheme under various market structures assuming consumers share their surplus. We show that the profitability and popularity of PWYW depend not only on consumers' preferences, but also on market structure, product characteristics and sellers' strategies. While there is no equilibrium where PWYW dominates the market, given a sufficiently high level of surplus-sharing and product differentiation, it is chosen by the second mover to avoid Bertrand competition. The equilibrium results and their associated market characteristics are consistent with empirical examples of PWYW.
    Keywords: Pay-what-you-want; competition; product differentiation; market behavior; market structure
    JEL: D11 D42 D43 L11 L12 L13
    Date: 2015–09–15
  7. By: Chatterjee, Rittwik; Chattopadhyay, Srobonti
    Abstract: Promoting competition in domestic markets is very often an important policy concern of governments in context of developmental objectives. Direct government intervention of different forms to promote competition becomes all the more necessary especially in the markets that have higher tendencies to concentrate. For example, in the market for telecom spectrum licenses, many countries impose ceilings on the number of licenses that a single individual company can possess. It is commonly believed that in the markets where permission from government is required for fresh operation or expansion of operation, e.g. through licenses, larger number of licenses lead to higher competition. But some earlier literature show that increasing the number of licenses might actually be detrimental to competition contrary to popular belief. This paper considers a situation where there is an incumbent monopolist in a market; the government is auctioning two new licenses, one for this same market and another one for a completely new market where no firm had been operating so far. A number of potential entrants are willing to bid for both the licenses. The incumbent firm is allowed to purchase only one of these licenses. If it purchases the license for its own market it can retain its monopoly position. The selling procedure dictates that only the potential entrants will be bidding and in order to purchase the license in its existing market, the incumbent monopolist has to match the highest bid in that auction. Alternatively, it can bid for the entry license for the new market. This paper tries to identify under what conditions the incumbent firm will bid for the outside market. It also tries to find under what conditions providing some other options to the incumbent firm leads to increased competition in the existing market, thus contributing to developmental prospects by enhancing social welfare.
    Keywords: Auction, Competition, Licensing
    JEL: D44
    Date: 2015–09–19
  8. By: CHOI, Jay Pil; GERLACH, Heiko
    Abstract: This paper develops a model of patent trolls to understand various litigation strategies employed by nonpracticing entities (NPE). We show that when a NPE faces multiple potential infringers who use related technologies, it can gain a credible threat to litigate even when it has no such credibility vis-à-vis any single potential infringer in isolation. This is due to an information externality generated by an early litigation outcome for subsequent litigation. Successful litigation creates an option value against future potential infringers through Bayesian updating. This renders a credible litigation threat against the initial defendant and allows the NPE to extract more rents. We discuss policy implications including the adoption of the British system of “loser-pays” fee shifting and the use of injunctive relief.
    Keywords: patent portfolios, patent litigation, non-practicing entities, patent troll
    JEL: D43 L13 O3
    Date: 2015–09
  9. By: Auriol, Emmanuelle; Fourati, Maleke
    Abstract: With a view to reducing the consequences of corruption in public procurement, many governments have introduced debarment of suppliers found guilty of corrup- tion and some other forms of crime. This paper explores the market effects of debarment on public procurement. Debarment is found to make little difference in markets with high competition, while in markets with low competition it may deter corruption as long as firms value public procurement contracts in the future and there is a certain risk of being detected in corruption. On the other hand, debarment when it works has an anti-competitive effect, and this effect will contribute to facilitate collusion between suppliers. Debarment may work as a tool against collusion, but only if targeting one firm at the time (such as a ring-leader or the specific beneficiary when the collusion is detected) and not all the members of a cartel. If designed with an understanding of the market mechanisms at play, debarment can deter both collusion and corruption, thus improving the results of public procurement. If so, most current debarment regimes need modification.
    Keywords: Debarment, Corruption, Collusion, Procurement
    JEL: H57 K21 K23 K42 L41
    Date: 2015–09–11
  10. By: Timothy Richards (Arizona State University); Stephen Hamilton (Department of Economics, California Polytechnic State University)
    Abstract: Online shopping is common in many categories of retail goods. The recent trend towards online retailing has created an unprecedented empirical opportunity to examine consumer search behavior using click stream data. In this paper we examine consumer search intensity across a wide range of grocery products that differ in the depth of product assortment. We develop a model of attribute search in which consumers search within a chosen retailer for products that match their tastes, and that equilibrium prices reflect retailers’ expectations of how intensively consumers intend to shop. The model predicts an inverse relationship between product variety and attribute search in which greater product variety reduces search intensity and leads to higher retail prices. We test these hypotheses using consumer data on online search and purchase behavior from the comScore Web Behavior Panel. Our results indicate that consumer’s search less and pay higher retail prices in categories with deeper product assortments, a finding that suggests deeper product assortments can produce anti-competitive effects in retail food markets mediated through equilibrium responses in consumer search.
    Keywords: consumer search, variety, retail prices, attribute search, market power.
    JEL: D12 D83 L13 L81
    Date: 2015–09
  11. By: Timothy Richards (Arizona State University); Stephen Hamilton (Department of Economics, California Polytechnic State University); Koichi Yonezawa (Technical University of Munich)
    Abstract: Supermarket consumers typically purchase more than one item ata time. Modeling demand relationship among items in consumers' shopping baskets is therfore essential to understanding how retailers set prices. To date, models of price competition among retailers typically assume consumers make discrete choices among categories in the store or derive utility from independent goods that is unaffected by basket composition. In this paper, we develop a model of price competition among items in consumer shopping baskets. We derive inferences for market power under complementary categories and compare outcomes with the prediction of models that assume discrete choice among independent categories. We show that complementarity generates substantially greater pricing power for retailers than independent goods, resulting in less competitive behavior.
  12. By: Timothy Richards (Arizona State University); Stephen Hamilton (Department of Economics, California Polytechnic State University); William Allender (McMaster University)
    Abstract: Prices for similar products often differ between retail outlets, leading consumers to actively search for products that meet their needs at the lowest possible price. Prices differ among retailers, and search intensity differs among consumers because search is a costly activity and consumers differ in their costs of search. How variety and the multiproduct nature of retailing affect search costs, search intensity, and the dispersion of prices, however, is not well understood. In this paper, we use online grocery pricing data form four retailers in the UK to estimate search costs and equilibrium price dispersions. When consumers search for singe products, we find that variety reduces the cost of search and induces consumers to search less, which increases the pricing power of online retailers. However, when consumers search for multiple products, search costs still fall in variety, but consumers search more intensively across stores, potentially increasing the competitiveness of online retail markets.
  13. By: Chen, Ying-Ju; Zenou, Yves; Zhou, Junjie
    Abstract: We study pricing strategies of competing firms who sell heterogeneous products to a group of customers in a social network. Goods are substitutes and each customer gains network externalities from her neighbors who consume the same products. We show that there is a unique subgame-perfect equilibrium where, first, firms choose the prices of each good for each consumer, and, then, individuals decide their consumption of the goods. We also fully characterize the equilibrium prices for any network structure, and relate these equilibrium outcomes to the familiar Katz-Bonacich network centrality measures. Contrary to the monopoly case, the equilibrium price of a customer not only depends on her own characteristics but also on others' characteristics. We show that firms price discriminate and charge lower prices to more central consumers. This means that more central consumers obtain a larger discount because of their impact in terms of consumption on their neighbors. We also show that the firms' equilibrium profits can decrease when either the network becomes denser or network effects are higher.
    Keywords: competition; differentiated products; pricing; social networks
    JEL: D43 D85 L13 L14
    Date: 2015–10
  14. By: Steven Berry (Cowles Foundation, Yale University); Alon Eizenberg (= Dept. of Economics, Hebrew University of Jerusalem); Joel Waldfogel (Carlson School, University of Minnesota)
    Abstract: A vast theoretical literature shows that inefficient market structures may arise in free entry equilibria. Previous empirical work demonstrated that excessive entry may obtain in local radio markets. Our paper extends that literature by relaxing the assumption that stations are symmetric, allowing instead for endogenous station differentiation along both (observed) horizontal and (unobserved) vertical dimensions. We find that, in most broadcasting formats, a social planner who takes into account the welfare of market participants (stations and advertisers) would eliminate 50%-60% of the stations observed in equilibrium. In 80%-94.9% of markets that have high quality stations in the observed equilibrium, welfare could be unambiguously improved by converting one such station into low quality broadcasting. In contrast, it is never unambiguously welfare-enhancing to convert an observed low quality station into a high quality one. This suggests local over-provision of quality in the observed equilibrium, in addition to the finding of excessive entry.
    Keywords: Product differentiation, Excess entry, Radio
    JEL: L11 L13 L82
    Date: 2015–10
  15. By: Pierre Andreoletti (MAPMO - Mathématiques - Analyse, Probabilités, Modélisation - Orléans - CNRS - UO - Université d'Orléans); Pierre Gaze (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans); Maxime Menuet (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans)
    Abstract: We model a specific two-sided monopoly market in which agents can switch from a side to the other. We define two periods of time. In the first period, agents buy the platform services on each side and in the second period of time, they can possibly enhance their satisfaction by going to the other face of the platform. We analyze the link between mobility, consumer’s utility, prices and profit. We show that mobility is a valuable feature which can be compared with an increase of product quality. Finally, the firm is able to capture the mobility in its monopoly’s profit. The relative size of each group then appears as a strategical variable for the firm.
    Keywords: externalities,side-switching,two-sided markets
    Date: 2015
  16. By: Michael Luca (Harvard Business School, Negotiation, Organizations & Markets Unit); Timothy Wu (Columbia Law School); Sebastian Couvidat (; Daniel Frank (; William Seltzer (
    Abstract: While Google is known primarily as a search engine, it has increasingly developed and promoted its own content as an alternative to results from other websites. By prominently displaying Google content in response to search queries, Google is able to use its dominance in search to gain customers for this content. This may reduce consumer welfare if the internal content is inferior to organic search results. In this paper, we provide a legal and empirical analysis of this practice in the domain of online reviews. We first identify the conditions under which universal search would be considered anticompetitive. We then empirically investigate the impact of this practice on consumer welfare. To investigate, we implement a randomized controlled trial in which we vary the search results that subjects are shown - comparing Google's current policy of favorable treatment of Google content to results in which external content is displayed. We find that users are roughly 40% more likely to engage with universal search results (which receive favored placement) when the results are organically determined relative to when they contain only Google content. To shed further light on the underlying mechanisms, we show that users are more likely to engage with the OneBox when there are more reviews, holding content constant. This suggests that Google is reducing consumer welfare by excluding reviews from other platforms in the OneBox.
    Date: 2015–09
  17. By: Maxime Agbo (African School of Economics); Damien Rousselière (AGROCAMPUS OUEST [Le Rheu] - UR1 - Université de Rennes 1, Granem - Groupe de Recherche ANgevin en Economie et Management - UA - Université d'Angers - Agrocampus Ouest - Institut National de l'Horticulture et du Paysage); Julien Salanié (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS)
    Abstract: We build a theoretical model to study a market structure of a marketing cooperative with direct selling, in which many farmers are members of an agricultural marketing cooperative. They can sell their production either to the cooperative or on an oligopolistic local market. We show that the decision to sell to the cooperative induces an anti-competitive effect on the direct selling market. The cooperative facilitates collusion on the local market by making farmers softer competitors on that market. Conversely, direct selling may create a "healthy emulation" among farmers, leading to more production benefiting the cooperative.
    Keywords: competition,direct selling,local market,marketing cooperative
    Date: 2014
  18. By: Guillaume Burghouwt; Pablo Mendes De Leon; Jaap De Wit
    Abstract: The stepwise liberalisation of the EU internal aviation market resulted in 1993 in an open internal market that generated a series of supply side responses, which are partly comparable with the changes demonstrated in the deregulated US domestic air transport market. However, the starting point was quite different between these two markets. For example, until the deregulation in 1978, US legacy carriers operated a domestic crisscross network whereas the two flag carriers, Pan Am and TWA operated at various US gateways in stand-alone international networks based on the bilateral air service agreements concluded between the US and other states. After the deregulation, domestic major carriers transformed their crisscross domestic networks into radial hub and spoke networks (except the Delta hub at Atlanta that already existed before the deregulation). The domestic hubs in these networks also became the launching platforms for international operations when these domestic major carriers started to use their domestic feed for international operations. All in all, the former domestic major carriers became the new flag carriers in international markets, whereas the former two flag carriers went bankrupt due to the lack of domestic feed in order to adequately compete with these new internationally operating airlines.
    Date: 2015–01
  19. By: Mehmet Nejat ÖZÜPEK (Selcuk University Faculty of Communication); Murat KOÇY (Necmettin Erbakan University Faculty of Tourism); Murat ERDO (Necmettin Erbakan University Faculty of Tourism)
    Abstract: In today's rapidly changing and differentiating competitive environment, brands operating in smart phone industry must change, renew and improve service quality constantly to be able to respond immediately to changing customer expectations each passing day. Nowadays, criteria such as the quality of the manufactured product or service, customer satisfaction, trust in brand, brand loyalty and contribution to society have replaced the conventional performance indicators showing market share and profit levels of brands. Accordingly, the aim of this study is to investigate the impact of service quality to brand loyalty. In this context, a conceptual model was created in order to determine the impact of quality of service on brand loyalty through Structural Equation Model (SEM). The relationship between the variables in the model was tested by using data of the surveys applied to 353 Smartphone users and hypotheses put forward theoretically were examined. In addition, frequency analysis, and Confirmatory Factor Analysis (CFA) and Structural Equation Models applications were used in the analysis of research. In the model put forward theoretically, quality of service affects brand loyalty in a general integrity. Also, the hypotheses that service quality has a direct impact on perceived quality and customer satisfaction, perceived quality and customer satisfaction has a direct impact on trust and also trust has a direct impact on the brand loyalty are supported.
    Keywords: Service Quality, Brand Loyalty, Customer Satisfaction, Perceived Quality, Trust
    JEL: M30 M31 M37
  20. By: Camilla Andersson; Mintewab Bezabih; Andrea Mannberg
    Abstract: In this article, we study the impact of an institutional intervention on market efficiency in Ethiopia. More specifically, we study whether regional warehouses that are connected to a national commodity exchange reduces transaction cost and price dispersion between regions. In order to identify the causal effect we take advantage of the fact that the warehouses that are connected to the Ethiopian Commodity Exchange were sequentially rolled out. Using retail price data and information about warehouse operation from 2007-2012, we find that the average price spread between market pairs is reduced by 0.86-1.775 ETB when both markets have an operating warehouse. This is a substantial reduction considering that the average price spread over the full period is 3.33 ETB.
    Date: 2015–09
  21. By: Ţoniş BuceaManea, Rocsana; Catană, Mădălin Gabriel; Tonoiu, Sergiu
    Abstract: The SMEs represent an important factor of growth in both developed and developing countries, into which, however, they face different obstacles in the process of innovation. This paper analyses how open communication and collaboration can help SMEs in their struggle for sustainable innovation and profitable market competition. Based on a literature review, a number of obstacles that SMEs have to overcome in their current activity and possible support to be competitive are revealed. The main benefits and particularities of implementing open innovation in SMEs are presented. The necessity of a supportive business environment for SMEs is demonstrated. An outline of an improved model for SMEs is presented. Introduction
    Keywords: open innovation, small and medium-sized enterprises (SMEs), network business environment, technological infrastructure, legal framework, model of innovation for SMEs.
    JEL: M15
    Date: 2014

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