nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒10‒30
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Evidence for the Effects of Mergers on Market Power and Efficiency By Bruce A. Blonigen; Justin R. Pierce
  2. The strategic value of partial vertical integration By Fiocco, Raffaele
  3. Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions By Asker, John; Bar-Isaac, Heski
  4. Grantbacks, Territorial Restraints, and the Type of Follow-On Innovation: The "But for..." Defense By Ambashi, Masahito; Régibeau, Pierre; Rockett, Katharine
  5. Contract contingency in vertically related markets By Bacchiega, Emanuele; Bonroy, Olivier; Petrakis, Emmanuel
  6. A Consumer-Surplus Standard in Merger Approvals, Foreign Direct Investment, and Welfare By Onur A. Koska
  7. Acquisitions, markups, efficiency, and product quality: Evidence from India By Stiebale, Joel; Vencappa, Dev
  8. Facilitating collusion by exchanging non-verifiable sales reports By David Spector
  9. Strategic Technology Adoption and Entry Deterrence in the US Local Broadband Markets By Tedi Skiti
  10. Market Power and Heterogeneous Pass-through in German Electricity Retail By Tomaso Duso; Florian Szücs
  11. Strategic use of external benefits for entry deterrence: the case of a mobile telephony market By Mikołaj Czajkowski; Maciej Sobolewski
  12. Competitiveness and subsidy or tax policy for new technology adoption in duopoly By Hattori, Masahiko; Tanaka, Yasuhito
  13. Innovation Led Alliances: Theory and application to the GM Plant Industry By Rousselière, Samira; Rousselière, Damien; Ramani, Shyama
  14. Strategic grouping and search for quality journalism, online versus offline By Matthew Ellman; Tomás Rodríguez Barraquer
  15. Estimating Auctions with Externalities: The Case of USFS Timber Auctions By Kuehn, Joseph
  16. The Competitive Effects of Online Education By David J. Deming; Michael Lovenheim; Richard W. Patterson
  17. What’s in a Name? Information, Heterogeneity, and Quality in a Theory of Nested Names By Yu, Jianyu; Bouamra-Mechemache, Zohra; Zago, Angelo
  18. Investigating market power in the Belgian pork production chain By Maes, Dries; Vancauteren, Mark; Van Passel, Steven

  1. By: Bruce A. Blonigen; Justin R. Pierce
    Abstract: Study of the impact of mergers and acquisitions (M&As) on productivity and market power has been complicated by the difficulty of separating these two effects. We use newly-developed techniques to separately estimate productivity and markups across a wide range of industries using detailed plant-level data. Employing a difference-in-differences framework, we find that M&As are associated with increases in average markups, but find little evidence for effects on plant-level productivity. We also examine whether M&As increase efficiency through reallocation of production to more efficient plants or through reductions in administrative operations, but again find little evidence for these channels, on average. The results are robust to a range of approaches to address the endogeneity of firms’ merger decisions.
    JEL: D22 G34 L22
    Date: 2016–10
  2. By: Fiocco, Raffaele
    Abstract: We investigate the strategic incentives for partial vertical integration, namely, partial ownership agreements between manufacturers and retailers, when retailers privately know their costs and engage in differentiated good price competition. The partial misalignment between the profit objectives within a partially integrated manufacturer-retailer hierarchy entails a higher retail price than under full integration. This `information vertical effect' translates into an opposite `competition horizontal effect': the partially integrated hierarchy's commitment to a higher price induces the competitor to increase its price, which strategically relaxes competition. Our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions. Keywords: asymmetric information, partial vertical integration, vertical mergers, vertical restraints. JEL Classification: D82, L13, L42.
    Keywords: Informació -- Aspectes econòmics, Competència econòmica, 33 - Economia,
    Date: 2016
  3. By: Asker, John; Bar-Isaac, Heski
    Abstract: We consider vertical contracts where the retail market may involve search frictions. Minimum advertised price restrictions (MAP) act as a restraint on customers' information and so can increase search frictions in the retail sector. Such restraints, thereby, soften retail competition - an impact also generated by resale price maintenance (RPM). However, by accommodating (consumer or retailer) heterogeneity, MAP can allow for higher manufacturer profits than RPM. We show that they can do so through facilitating price discrimination among consumers; encouraging service provision; and facilitating manufacturer collusion. Thus, welfare effects may be positive or negative compared to RPM or to the absence of such restrictions.
    Date: 2016–10
  4. By: Ambashi, Masahito; Régibeau, Pierre; Rockett, Katharine
    Abstract: We analyse the effect of grantback clauses in licensing contracts. While competition authorities fear that grantback clauses might decrease the licensee's ex post incentives to innovate, a standard defence is that grantback clauses are required for the patent-owner to agree to license its technology in the first place. We examine the validity of this "but for" defense and the equilibrium effect of grantback clauses on the innovation incentives of the licensee for both non-severable and severable innovations. Under the 2004 EU Technology Transfer Guidelines, and the guidelines for some other jurisdictions, grantback clauses that apply to "non-severable" (read "infringing") innovations are considered to be less controversial than clauses that apply to "severable" innovations.. We show, to the contrary, that grantback clauses do not increase the patent-holder's incentives to license when non-severable innovations are at stake but they do when severable innovations are concerned - suggesting that the "but fo" defense might be valid for severable innovations but not for non-severable ones. Moreover we show that, for severable innovations, grantback clauses can increase the range of parameters for which follow-on innovation by the licensee occurs.
    Keywords: grantbacks; innovation; licensing
    JEL: K21 L24 O31
    Date: 2016–10
  5. By: Bacchiega, Emanuele; Bonroy, Olivier; Petrakis, Emmanuel
    Abstract: We study the optimal contract choice of an upstream monopolist producing an essential input that may sell to two vertically differentiated downstream firms. The upstream supplier can offer an exclusive contract to one of the firms or non-exclusive contracts to both firms. Each of the latter can be made contingent or not on the breakdown of the negotiations between the upstream supplier and the rival downstream firm. The distribution of bargaining power during the contract terms negotiations is the main driving force of the monopolist's choices. A powerful supplier always opts for an exclusive contract. By contrast, a weaker supplier offers non-exclusive contracts and makes each of them contingent or non-contingent such as to guarantee the most favorable outside option in its negotiations. Our main results hold under an horizontally differentiated downstream market too.
    Keywords: Vertical relationships, exclusive vs. non-exclusive relationships, contract contingency, two-part tariff, product differentiation, International Relations/Trade,
    Date: 2016
  6. By: Onur A. Koska (Department of Economics, METU)
    Abstract: This study scrutinizes the ramifications of a consumer-surplus standard in approvals of mergers & acquisitions (i) on an investor's choice between acquiring a firm's existing assets (via negotiations or auctions) and investing in new assets under both complete and incomplete information; and (ii) on welfare. Any firm acquisition fulfilling the consumer-surplus standard is in the best interest of the investor, who prefers to be well informed on acquisition gains and prefers sequential offers. A local firm appropriates a bigger share from acquisition gains in an auction, and prefers generating information asymmetries. Welfare improves with a larger scope for ex-post firm heterogeneity.
    Keywords: Merger Policy; Acquisitions; Greenfield Investment; Welfare; Incomplete Cost Information
    JEL: F23
    Date: 2016–10
  7. By: Stiebale, Joel; Vencappa, Dev
    Abstract: This paper uses a rich panel data set of Indian manufacturing firms to analyze the effects of domestic and international acquisitions on various outcomes at target firm and product level. We apply recent methodological advances in the estimation of production functions together with information on prices and quantities to estimate physical productivity, markups, marginal costs and proxies for product quality. Using a propensity score reweighting estimator, we find that acquisitions are associated with increases in quantities and markups and lower marginal costs on average. These changes are most pronounced if acquirers are located in technologically advanced countries. We also provide evidence that the quality of products increases while quality-adjusted prices fall upon acquisitions.
    Keywords: Foreign Direct Investment,Foreign Ownership,Mergers and Acquisitions,Multi-Product Firms,Productivity
    JEL: F61 F23 G34 L25 D22 D24
    Date: 2016
  8. By: David Spector (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), PSE - Paris School of Economics)
    Abstract: A number of collusive agreements involve the exchange of self-reported sales data between firms, which use them to monitor compliance with a target market share allocation. This paper shows that such communication between competitors may facilitate collusion even if all private information becomes public after a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars as a tool for mutual disciplining. In some cases, efficient collusion cannot occur unless firms are able to engage in such communication.
    Keywords: Jeux répétés,Politique de la concurrence,Communication,Collusion
    Date: 2015–02
  9. By: Tedi Skiti (Department of Economics, Duke University)
    Abstract: How does strategic investment affect entry of new technologies and market structure? This article investigates the role of competition in firms’ technology adoption decisions in the U.S. wireline broadband industry. I present a model of strategic entry deterrence and study how internet service providers’ interactions affect their technology deployment at local markets. The goal is to capture an important trade-off: cable firms adopt a new cable system to provide higher speeds, but the adoption has a preemptive effect on fiber firms’ entry. I collect and combine unique firm-level data on broadband technology deployment and markets under entry threat for New York State. I provide evidence of strategic investment by cable incumbents to deter fiber entry. Counterfactual scenarios suggest that the industry has experienced 16% excessive investment in cable adoption and 12% underinvestment in fiber entry both of which are explained by these deterrence strategies. In addition, subsidies to cable incumbents in small markets reduce fiber entry rate by 50%. I also find that policies that promote statewide entry mitigate the effects from these deterrence strategies and increase fiber entry rate by 30%. These results have wide implications for technology diffusion, quality provision and optimal subsidy policy in markets with strategic technology adoption and entry threat.
    Keywords: Broadband, Strategic Investment, Technology Adoption, Entry Threat, Deterrence
    JEL: L13 L41 L96
    Date: 2016–09
  10. By: Tomaso Duso; Florian Szücs
    Abstract: We analyze the pass-through of cost changes to retail tariffs in the German electricity market over the 2007 to 2014 period. We find an average pass-through rate of around 60%, which significantly varies with demand factors: while the pass-through rate to baseline tariffs, where firms have higher market power, is only 50%, it increases to 70% in the competitive segment of the market. Although the pass-through rate of independent firms is significantly higher than that of other firms in the competitive market segment, the extent of supply-side heterogeneity is limited. Thus, the firms’ ability to exercise market power appears to be constrained by competition and largely determined by demand side factors. Finally, we find that the pass-through rate in the competitive market segment has been approaching unity over the past years, indicating a rise in competitive pressure.
    Keywords: Electricity retail, pass-through, Germany
    JEL: C23 D22 D43 L13 L94 Q41
    Date: 2016
  11. By: Mikołaj Czajkowski (Faculty of Economi Sciences, University of Warsaw); Maciej Sobolewski (Faculty of Economi Sciences, University of Warsaw)
    Abstract: Recent models of network competition demonstrate the incentives of incumbents to reduce receiver benefits in rival networks through excessive off-net pricing. Theoretical reasoning behind strategic use of call externalities assumes that receiving calls contributes to consumer utility. This paper tests this critical assumption with choice data elicited from users of mobile telephones. We find that receiver benefits are a significant driver of subscription choices and assess customer base stealing effect encountered by the late entrant. Our findings confirm that call externalities can be used to limit late entrants’ growth as has been observed in many European mobile telephony markets.
    Keywords: call externalities, personal network effects, entry deterrence, mobile telephony, stated preferences, discrete choice experiment
    JEL: L1 L86 D62
    Date: 2016
  12. By: Hattori, Masahiko; Tanaka, Yasuhito
    Abstract: We consider a problem of subsidy or tax policy for new technology adoption by duopolistic firms. The technology is developed in and transferred by a foreign country to the domestic country. It is free but each firm must expend some fixed set-up cost for education of its staff to adopt and use it. Assuming that each firm maximizes the weighted average of absolute and relative profits, we examine the relationship between competitiveness and subsidy or tax policies for technology adoption, and show that when firm behavior is not competitive (the weight on the relative profit is small), the optimal policy of the government may be taxation; when firm behavior is competitive (the weight on the relative profit is large), the optimal policy is subsidization or inaction and not taxation. However, if firm behavior is extremely competitive (close to perfect competition), taxation case re-emerges.
    Keywords: new technology adoption, duopoly, subsidy, tax
    JEL: D43 L13
    Date: 2016–10–21
  13. By: Rousselière, Samira; Rousselière, Damien; Ramani, Shyama
    Abstract: The objective of the present paper is to identify the determinants of the form of collaboration initiated between an upstream innovator and a downstream producer in order to incorporate a new input and commercialize an innovation consisting of a quality enhanced final product, with an empirical application to the GM plant industry. The choice of upstream firm between license, joint venture, merger or a subsidiary is modeled as a function of three parameters: degree of quality improvement engendered by the new input, the market share of the downstream producer and the capability of the downstream producer to incorporate the new input and commercialize it successfully. We also discuss the case where the downstream firm is a cooperative.
    Keywords: biotechnology, cooperative, GMO, innovation, intellectual property, merger, joint venture, license, subsidiary, Research and Development/Tech Change/Emerging Technologies,
    Date: 2016
  14. By: Matthew Ellman (IAE-CSIC, BGSE); Tomás Rodríguez Barraquer (MOVE-UAB, BGSE)
    Abstract: This paper investigates how supply-side factors influence the search for quality content in online and offline environments. We show that lower fixed costs of online publishing reduce the incentives to bundle content, as compared to offline journalism. In the presence of asymmetric information over journalistic quality, bundling of content by journalists who publish as a group generates positive informational externalities for users. Journalists group assortatively, better journalists having better partners. Then a consumer who discovers one quality journalist, has found several. The online environment, by reducing the pressure to group up, can lower welfare in our baseline model. We establish conditions for this result and investigate a number of countervailing forces.
    Keywords: Media economics, quality, search, links, matching
    JEL: L13 L82
    Date: 2016–10
  15. By: Kuehn, Joseph
    Abstract: This paper studies how bidding strategies and auction outcomes are affected by downstream competition, particularly for USFS timber auctions. This is done by extending the auction estimation literature to a model where outside competition affects bidding behavior in that bidders are then not only concerned with whether they win the auction, but also the identity of the winner if it is not them. Applying the estimation technique to the case of timber auctions, I find that downstream competition in the lumber industry affects the bidding behavior of mill bidders, sometimes leading to the misallocation of timber tracts.
    Keywords: auction with externalities, auction estimation, timber auctions
    JEL: D44 L13 L40 L73
    Date: 2016–06
  16. By: David J. Deming; Michael Lovenheim; Richard W. Patterson
    Abstract: We study the impact of online degree programs on the market for U.S. higher education. Online degree programs increase the competitiveness of local education markets by providing additional options in areas that previously only had a small number of brick-and-mortar schools. We show that local postsecondary institutions in less competitive markets experienced relative enrollment declines following a regulatory change in 2006 that increased the market entry and enrollment of online institutions. Impacts on enrollment were concentrated among private non-selective institutions, which are likely to be the closest competitors to online degree programs. We also find increases in per-student instructional spending among public institutions. Our results suggest that by increasing competitive pressure on local schools, online education can be an important driver of innovation and productivity in U.S. higher education.
    JEL: I22 I23
    Date: 2016–10
  17. By: Yu, Jianyu; Bouamra-Mechemache, Zohra; Zago, Angelo
    Abstract: Collective labels are widespread in food markets, either separated or nested with private brands, in this latter case then known as nested names. We propose a model to explain the rationale of nested names, with collective labels being effective in reaching unaware consumers, while individual brands helping firms in reaching expert consumers. We also incorporate the decision-making process within the group of producers joining collective labels, taking into account their heterogeneity in providing quality. Results show that nested names emerge when consumers become more aware about the label's quality information and when producers become more heterogeneous. Welfare tough may decrease when the group switches to nested names, as they reduce incentives to provide quality for less efficient producers. The results provide insights also to the historical and recent trends in food industries, such as within-label differentiation and label fragmentation, and their welfare implications.
    Keywords: individual brands, collective labels, nested names, consumers' awareness, firms' heterogeneity in quality provision, Agricultural and Food Policy,
    Date: 2016
  18. By: Maes, Dries; Vancauteren, Mark; Van Passel, Steven
    Abstract: The Belgian pig production has been confronted with stagnating prices since the start of the century. While several studies have investigated the financial structure of the pork production chain, it remains unclear whether excessive market power from slaughterhouses, or meat retailers plays a role. Market power studies can reveal some of the market dynamics in this setting, but this type of research has not yet been applied to the Belgian pork market. This paper looks at potential oligopolies and oligopsonies in the pork production sector. A new model is build to focus on market power dynamics in the market for live pigs. This model distinguishes horizontal and vertical market power parameters both for pig farmers and for slaughterhouses. The results follow from an empirical application using slaughterhouses data for the period 2002-2011. The potential reasons and consequences of these market powers are discussed.
    Keywords: Market power, slaughterhouse, input elasticity, mark-up, Agricultural and Food Policy, Livestock Production/Industries,
    Date: 2016

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