nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒11‒06
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Information acquisition, signaling and learning in duopoly By Jeitschko, Thomas D.; Liu, Ting; Wang, Tao
  2. Non-comparative and comparative advertising in oligopolistic markets By Alipranti, Maria; Mitrokostas, Evangelos; Petrakis, Emmanuel
  3. Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions By John Asker; Heski Bar-Isaac
  4. Beyond the Arrow effect: a Schumpeterian theory of multi-quality firms * By Hélène Latzer
  5. Cartel Dating By H. Peter Boswijk; Maurice J.G. Bun; Maarten Pieter Schinkel
  6. Innovation Network By Daron Acemoglu; Ufuk Akcigit; William Kerr
  7. Patent Disclosures and Standard-Setting By Josh Lerner; Haris Tabakovic; Jean Tirole
  8. Price Competition in the Presence of a Web Aggregator By Oksana Loginova; Andrea Mantovani
  9. Rockets and feathers: Asymmetric pricing and consumer search - Evidence from electricity retailing By Heim, Sven
  10. Financial Industry Dynamics By Richard Lowery; Tim Landvoigt
  11. Data as a common in the sharing economy: a general policy proposal By Bruno Carballa
  12. Oligopoly Power in the Food Industries Revisited: A Stochastic Frontier Approach By Lopez, Rigoberto A.; Zheng, Hualu; Azzam, Azzeddine
  13. Changes in the exerted market power in the farming sector and the food industry in Poland, and the business cycle By Kufel-Gajda, Justyna
  14. The Welfare Effects of Brand Portfolio Strategies in the Soft Drink Industry: A Structural Bargaining Approach with Limited Data By Bonnet, Céline; Bouamra-Mechemache, Zohra; Molina, Hugo
  15. Should we cry over the spilt milk? Market power and structural change along dairy supply chains in EU Countries By Cavicchioli, Daniele; Cacchiarelli, Luca; Pretolani, Roberto
  16. The food industry structure under the effect of increasing number of regional products and small processing entities in the Czech Republic By Bošková, Iveta; Ratinger, Tomáš; Kličková, Kristýna
  17. Retail Prices in a City By Eizenberg, Alon; Lach, Saul; Yiftach, Merav
  18. The effects of competition on medical service provision By Brosig-Koch, Jeannette; Hehenkamp, Burkhard; Kokot, Johanna
  19. Limit Pricing, Climate Policies, and Imperfect Substitution By Gerard van der Meijden; Cees Withagen

  1. By: Jeitschko, Thomas D.; Liu, Ting; Wang, Tao
    Abstract: We study firms' incentives to acquire private information in a setting where subsequent competition leads to firms' later signaling their private information to rivals. Due to signaling, equilibrium prices are distorted, and so while firms benefit from obtaining more precise private information, the value of information is reduced by the price distortion. Thus, compared with firms that do not attempt to manipulate rivals' beliefs, signaling firms acquire less precise information. An industry-wide trade-association acquiring information increases firm profit and may also increase consumer surplus, so allowing such collective action may be in the interest of regulatory authorities.
    Keywords: information acquisition,signaling,product differentiation
    JEL: D4 D8 L1
    Date: 2016
  2. By: Alipranti, Maria; Mitrokostas, Evangelos; Petrakis, Emmanuel
    Abstract: We study firms' advertising strategies in an oligopolistic market in which both non-comparative and comparative advertising are present. We show that in equilibrium firms mix over the two types of advertising, with the intensity of comparative advertising exceeding that of non-comparative advertising; moreover, that the intensity of comparative increases relatively to non-comparative advertising as market competition intensifies. Interestingly, the use of comparative advertising may lead to higher consumers' surplus and welfare in a mixed advertising market than in the absence of advertising or when either comparative or non-comparative advertising is not present.
    Keywords: Comparative Advertising,Non-comparative advertising,Oligopoly,Product Differentiation
    JEL: L13 M37
    Date: 2016
  3. By: John Asker; Heski Bar-Isaac
    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.
    JEL: K21 L13 L15 L22 L42
    Date: 2016–10
  4. By: Hélène Latzer (CEREC - Université Saint-Louis - Bruxelles, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper introduces multi-quality firms within a Schumpeterian framework. Featuring non-homothetic preferences and income disparities in an otherwise standard quality-ladder model, we show that the resulting differences in the willingness to pay for quality among consumers generate both positive investments in R&D by industry leaders and positive market shares for more than one quality, hence allowing for the emergence of multi-product firms within a vertical innovation framework. This positive investment in R&D by incumbents is obtained with complete equal treatment in the R&D field between the incumbent patentholder and the challengers: in our framework , the incentive for a leader to invest in R&D stems from the possibility for an incumbent having innovated twice in a row to efficiently discriminate between rich and poor consumers displaying differences in their willingness to pay for quality. We hence exemplify a so far overlooked demand-driven rationale for innovation by incumbents. Such a framework also makes it possible to analyze the impact of inequality both on long-term growth and on the allocation of R&D activities between challengers and incumbents. We find that an increase in the income gap positively impacts an econ-omy's growth rate, partly shifting R&D activities from challengers to incumbents. On the other hand, a greater income concentration is detrimental for growth, diminishing both the incumbents' and the challengers' R&D activities.
    Keywords: Growth,Innovation,Income inequality
    Date: 2016–10–25
  5. By: H. Peter Boswijk (University of Amsterdam, The Netherlands); Maurice J.G. Bun (University of Amsterdam, The Netherlands); Maarten Pieter Schinkel (University of Amsterdam, The Netherlands)
    Abstract: The begin and end dates of cartels are often ambiguous, despite competition authorities stating them with precision. The legally established infringement period(s), based on documentary evidence, need not coincide with the period(s) of actual cartel effects. In this paper, we show that misdating cartel effects leads to a (weak) overestimation of but-for prices and an underestimation of overcharges. Total overcharges based on comparing but-for prices to actual prices are a (weak) underestimation of the true amount overcharged, irrespective of the type and size of the misdating. The bias in antitrust damage estimation based on predicted cartel prices can have either sign. We extend the before-during-and-after method with an empirical cartel dating procedure that uses multiple structural break tests to determine the actual begin and end date(s) of the effects of collusive agreements. Empirical findings in the European Sodium Chlorate cartel corroborate our theoretical results.
    Keywords: Cartel; antitrust damages; dates; structural change; break test; but-for
    JEL: C22 C51 L41
    Date: 2016–11–01
  6. By: Daron Acemoglu; Ufuk Akcigit; William Kerr
    Abstract: Technological progress builds upon itself, with the expansion of invention in one domain propelling future work in linked fields. Our analysis uses 1.8 million U.S. patents and their citation properties to map the innovation network and its strength. Past innovation network structures are calculated using citation patterns across technology classes during 1975-1994. The interaction of this pre-existing network structure with patent growth in upstream technology fields has strong predictive power on future innovation after 1995. This pattern is consistent with the idea that when there is more past upstream innovation for a particular technology class to build on, then that technology class innovates more.
    JEL: D85 O31 O32 O33 O34
    Date: 2016–10
  7. By: Josh Lerner; Haris Tabakovic; Jean Tirole
    Abstract: A key role of standard setting organizations (SSOs) is to aggregate information on relevant intellectual property (IP) claims before deciding on a standard. This article explores the firms’ strategies in response to IP disclosure requirements—in particular, the choice between specific and generic disclosures of IP—and the optimal response by SSOs, including the royalty rate setting. We show that firms with a stronger downstream presence are more likely to opt for a generic disclosure, as are those with lower quality patents. We empirically examine patent disclosures made to seven large SSOs, and find results consistent with theoretical predictions.
    JEL: L24 O34
    Date: 2016–10
  8. By: Oksana Loginova (Department of Economics, University of Missouri); Andrea Mantovani (Department of Economics, University of Bologna)
    Abstract: In this paper we examine the impact of a web aggregator on firms and consumers in a horizontally differentiated market. When a firm pays a fee to be listed on the aggregator's website, its location and price become observable to e-users (consumers who visit the website). We consider two settings, depending on the possibility for online firms to offer discounts to e-users. In equilibrium, not all firms will go online - some will choose to remain offline. Online firms attract more customers due to reduced mismatch costs, but face a tougher price competition. When the proportion of e-users is relatively low, price discrimination may hurt the firms. Therefore, less of them can afford to go online. The opposite holds when e-users predominate; price discrimination yields a higher number of online restaurants than uniform pricing. Finally, we evaluate the aggregator's optimal policy regarding the fee and whether to impose uniform pricing or to allow price discrimination. We discover that, unless the proportion of e-users is relatively low, the aggregator induces only a few restaurants to go online.
    Keywords: online reviews aggregators, price discrimination, competition
    JEL: C72 D43 D61 L11 L13 M31
    Date: 2015–03–12
  9. By: Heim, Sven
    Abstract: Recent theories suggest that consumers' search efforts are a function of prices and prices changes, respectively. This may help to explain the 'rockets and feathers' phenomenon often assigned to collusion - prices rise like rockets when costs increase and fall like feathers when costs decrease. This paper empirically investigates the relation between cost pass-through and consumer search intensity for the German electricity retail market utilizing a unique panel dataset on retail electricity prices and consumer search intensity at online comparison sites for retail electricity, both at the zip code level. The main findings are 1) consumers search non-linear with regard to prices and price changes. They search more when prices are high and they decrease search efforts substantially when prices fall but only increase search efforts slightly when prices rise, 2) costs are passed-through asymmetrically with positive cost shocks causing higher pass-through rates than cost decreases and 3) search intensity significantly impacts price adjustments and controlling for search intensity eliminates large parts of the asymmetry. I compare this finding with a counterfactual - the entrants - where all consumers are fully informed. In this case consumer search does not affect cost pass-through.
    Keywords: Information,Cost Pass-through,Consumer Search,Rockets and Feathers
    JEL: D83 L11
    Date: 2016
  10. By: Richard Lowery (University of Texas, Austin); Tim Landvoigt (The University of Texas at Austin)
    Abstract: To explain the sources of heterogeneity and fragility in the financial sector, we develop a dynamic model of entry, exit, and firm quality in the market for issuance and trading of complex financial securities. Firm quality has two dimensions; security production expertise, which creates a positive externality for other firms, and trading expertise, which allows firms to obtain more favorable prices when trading with other firms. We find that increasing the quality of securities, which in the model increases the scope for investment in trading expertise, leads to markets that exhibit greater concentration, firm heterogeneity, fragility, and price dispersion.
    Date: 2016
  11. By: Bruno Carballa (Centre d'Economie de l'Université de Paris Nord (CEPN))
    Abstract: It is nowadays a common place to say that the sharing economy is not really about sharing but about making profits and benefiting a few much more than others. A movement that takes the best of the technologies of sharing economy platforms but orients it to benefiting all, platform cooperativism, is on the rise. Nonetheless, it is far from being popular and nothing indicates that it will. This paper investigates the reasons why dominant platforms remain dominant and proposes a policy that aims at curtailing their dominance, fostering platform cooperativism and maximizing the beneficial societal effects that can be derived from exploiting the data generated in platforms. The paper is structured as follows. Section 1 reviews current definitions of the sharing economy, points out their contributions and limitations and offers a novel and more accurate definition. Section 2 briefly introduces platform cooperativism to show why it can be a tool to fix many of the problems of the sharing economy. Section 3 explains and discusses market power mechanisms specific to the sharing economy that help dominant platforms to remain dominant. Some already existing and proposed solutions to counter these market power mechanisms such as reputation passports, a market for personal data and antitrust remedies are evaluated. Section 4 presents a general policy proposal based on making data a common in the sharing economy using reciprocity licenses. Section 5 offers some clarifications regarding the proposal and sketches some of its shortcomings and open questions that arise from it.
    Keywords: sharing economy, platform cooperativism, data, commons, market power, reciprocity licenses
    Date: 2016–10
  12. By: Lopez, Rigoberto A. (University of Connecticut); Zheng, Hualu (University of Connecticut); Azzam, Azzeddine (University of Nebraska-Lincoln)
    Abstract: 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: oligopoly power, market power, food industries, stochastic frontier
    Date: 2015–07
  13. By: Kufel-Gajda, Justyna
    Keywords: Agricultural and Food Policy,
    Date: 2016
  14. By: Bonnet, Céline; Bouamra-Mechemache, Zohra; Molina, Hugo
    Keywords: Agricultural and Food Policy,
    Date: 2016
  15. By: Cavicchioli, Daniele; Cacchiarelli, Luca; Pretolani, Roberto
    Keywords: Agricultural and Food Policy,
    Date: 2016
  16. By: Bošková, Iveta; Ratinger, Tomáš; Kličková, Kristýna
    Keywords: Agricultural and Food Policy,
    Date: 2016
  17. By: Eizenberg, Alon; Lach, Saul; Yiftach, Merav
    Abstract: We study grocery price differentials across neighborhoods in a large metropolitan area (the city of Jerusalem, Israel). Prices in commercial areas are persistently lower than in residential neighborhoods. We also observe substantial price variation within residential neighborhoods: retailers that operate in peripheral, non-affluent neighborhoods charge some of the highest prices in the city. Using CPI data on prices and neighborhood-level credit card data on expenditure patterns, we estimate a model in which households choose where to shop and how many units of a composite good to purchase. The data and the estimates are consistent with very strong spatial segmentation. Combined with a pricing equation, the demand estimates are used to simulate interventions aimed at reducing the cost of grocery shopping. We calculate the impact on the prices charged in each neighborhood and on the expected price paid by its residents - a weighted average of the prices paid at each destination, with the weights being the probabilities of shopping at each destination. Focusing on prices alone provides an incomplete picture and may even be misleading. Specifically, we find that interventions that make the commercial areas more attractive and accessible yield only minor price reductions, yet expected prices decrease in a pronounced fashion. The benefits are particularly strong for residents of the peripheral, non-affluent neighborhoods.
    Keywords: consumer mobility; Retail prices; spatial segmentation
    JEL: L10 L11 L13
    Date: 2016–10
  18. By: Brosig-Koch, Jeannette; Hehenkamp, Burkhard; Kokot, Johanna
    Abstract: We explore how competition between physicians affects medical service provision. Previous research has shown that, without competition, physicians deviate from patient-optimal treatment under payment systems like capitation and fee-for-service. While competition might reduce these distortions, physicians usually interact with each other repeatedly over time and only a fraction of patients switches providers at all. Both patterns might prevent competition to work in the desired direction. To analyze the behavioral effects of competition, we develop a theoretical benchmark which is then tested in a controlled laboratory experiment. Experimental conditions vary physician payment and patient characteristics. Real patients benefit from treatment decisions made in the experiment. Our results reveal that, in line with the theoretical prediction, introducing competition can reduce overprovision and underprovision, respectively. The observed effects depend on patient characteristics and the payment system, though. Tacit collusion is observed and particularly pronounced with fee-for-service payment, but it appears to be less frequent than in related experimental research on price competition.
    Abstract: In der vorliegenden Studie untersuchen wir, wie sich Wettbewerb zwischen Ärzten auf deren Behandlungsentscheidungen auswirkt. Bisherige Forschungsergebnisse zeigen, dass ohne Wettbewerb die Behandlungsentscheidungen von Ärzten bei klassischen Vergütungssystemen wie der Einzelleistungsvergütung oder der Kopfpauschale von den patientenoptimalen Entscheidungen abweichen. Während diese Abweichungen grundsätzlich durch Wettbewerb reduziert werden könnten, ist davon auszugehen, dass Ärzte typischerweise wiederholt miteinander interagieren und dass nur ein Teil der Patienten den Arzt wechselt. Beides könnte die positiven Effekte des Wettbewerbs verringern. Um die Verhaltenswirkungen von Wettbewerb zu analysieren, entwickeln wir ein spieltheoretisches Modell, das wir mit Hilfe kontrollierter Laborexperimente testen. Die experimentellen Anordnungen variieren bezüglich der Arztvergütung und der Charakteristika der Patienten. Reale Patienten profitieren von den im Experiment getroffenen Behandlungsentscheidungen. Unsere Ergebnisse zeigen, dass Wettbewerb im Einklang mit der theoretischen Prognose Überbehandlung und Unterbehandlung reduzieren kann. Die beobachteten Effekte hängen jedoch von den Charakteristika der Patienten und der Arztvergütung ab. Wir finden auch stillschweigende Kollusion, insbesondere bei der Einzelleistungsvergütung. Diese tritt jedoch in geringerem Ausmaß auf als in vergleichbaren experimentellen Studien zum Preiswettbewerb.
    Keywords: physician competition,fee-for-service,capitation,laboratory experiment
    JEL: I11 D43 C91 C72
    Date: 2016
  19. By: Gerard van der Meijden (VU University Amsterdam, the Netherlands); Cees Withagen (VU University Amsterdam, the Netherlands)
    Abstract: The effects of climate policies are often studied under the assumption of perfectly competitive markets for fossil fuels. In this paper, we allow for monopolistic fossil fuel supply. We show that, if fossil and renewable energy sources are perfect substitutes, a phase will exist during which the monopolist chooses a limit pricing strategy. If limit pricing occurs from the beginning, a renewables subsidy increases initial extraction, whereas a carbon tax leaves initial extraction unaffected. However, if the initially fossil fuels are cheaper than renewables, a renewables subsidy and a carbon tax lower initial extraction, contrary to the case under perfect competition. Both policy instruments lower cumulative extraction. If fossil fuels and renewables are imperfect but good substitutes, the monopolist will exhibit `limit pricing resembling' behavior, by keeping the effective price of fossil close to that of renewables for considerable time. The empirical question whether energy demand is elastic or inelastic has less drastic implications for the fossil price and extraction paths than under perfect substitutability.
    Keywords: Limit pricing; non-renewable resource; monopoly; climate policies
    JEL: Q31 Q42 Q54 Q58
    Date: 2016–10–21

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