nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒01‒29
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Strategy Revision Opportunities and Collusion By Matthew Embrey; Friederike Mengel; Ronald Peeters
  2. Do Merger Efficiencies Always Mitigate Price Increases? By Zhiqi Chen; Gang Li
  3. A Model of Biased Intermediation By Cornière (de), Alexandre; Taylor, Greg
  4. A New Approach to Free Entry Markets in Mixed Oligopolies: Welfare Implications By Lee, Sang-Ho; Matsumura, Toshihiro; Sato, Susumu
  5. License and entry strategies for outside innovator in duopoly By Hattori, Masahiko; Tanaka, Yasuhito
  6. On measuring welfare changes when varieties are endogenous By Behrens, Kristian; Kanemoto, Yoshitsugu; Murata, Yasusada
  7. Catching-up and falling behind: Effects of learning in an R&D differential game with spillovers By Anton Bondarev; Alfred Greiner
  8. End of 9-Endings and Price Perceptions. By Haipeng (Allan) Chen; Daniel Levy; Avichai Snir
  9. Ownership Concentration and Strategic Supply Reduction By Ulrich Doraszelski; Katja Seim; Michael Sinkinson; Peichun Wang
  10. Political Determinants of Competition in the Mobile Telecommunication Industry By Mara Faccio; Luigi Zingales
  11. How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree By Fackler, Thomas A.; Nagler, Markus; Schnitzer, Monika; Watzinger, Martin
  12. Impact of Coordinated Capacity Mechanisms on the European Power Market By Michael Bucksteeg; Stephan Spiecker; Christoph Weber
  13. Imperfect Markets versus Imperfect Regulation in U.S. Electricity Generation By Steve Cicala
  14. The Effects of Internet Book Piracy: The Case of Japanese Comics By Tatsuo Tanaka
  15. Technology adoption in emission trading programs with market power By André, Francisco J.; Arguedas, Carmen.
  17. The Effect of Market Segmentation on Consumer Welfare: The Case of Organic and Conventional Fruits and Vegetables By McFadden, Brandon; Mullally, Conner
  18. Exit, Tweets and Loyalty By Joshua S. Gans; Avi Goldfarb; Mara Lederman
  19. Measuring the degree of Oligopsony Power in Kazakh grain processing industry: Evidence from PTA approach By Chezhia, Giorgi

  1. By: Matthew Embrey (University of Sussex); Friederike Mengel (University of Essex and Maastricht University); Ronald Peeters (Maastricht University)
    Abstract: This paper studies whether and how strategy revision opportunities affect levels of collusion in indefinitely repeated two-player games. Consistent with standard theory, we find that such opportunities do not affect strategy choices, or collusion levels, if the game is of strategic substitutes. In contrast, there is a strong and positive effect for games of strategic complements. Revision opportunities lead to more collusion. We discuss alternative explanations for this result.
    Keywords: strategy revision opportunities, cooperation, repeated games, complements vs. substitutes
    JEL: C73 C92 D43
    Date: 2016–02
  2. By: Zhiqi Chen (Department of Economics, Carleton University); Gang Li (School of Economics, Nanjing University)
    Abstract: In a Cournot model with differentiated products, we demonstrate that merger efficiencies in the form of lower marginal costs for the merging firms (the insiders) lead to higher post- merger prices under certain conditions. Specifically, when the degree of substitutability is low between the products offered by the two insiders but high between those by an insider and an outsider, increased merger efficiencies may exert upward rather than downward pressure on the prices of the merging firms. Our results suggest that in cases where firms engage in quantity competition, antitrust authorities should not presume that merger efficiencies will necessarily mitigate the anticompetitive effects of the merger. Prices can go up because of large efficiencies.
    Keywords: Merger efficiencies, Cournot model, Product differentiation
    JEL: L13 L40
    Date: 2017–01–09
  3. By: Cornière (de), Alexandre; Taylor, Greg
    Abstract: This paper studies situations in which some consumers rely on a potentially biased intermediary to choose among downstream firms. We introduce the notion that firms' and consumers' payoffs can be congruent or conflicting, and show that this has important implications for the effects of bias. Under congruence, the firm towards which the intermediary is biased invests more than its rival and consumers can be better-off than under no bias. Under conflict, bias hurts consumers and the favored firm charges higher prices. We study various oft-proposed policies for dealing with a biased intermediary and show that the efficacy of each intervention depends strongly on whether the environment exhibits congruence or conflict. We discuss how the model relates to recent issues in online markets.
    Keywords: intermediary, bias, regulation.
    JEL: D21 L15 L40
    Date: 2017–01
  4. By: Lee, Sang-Ho; Matsumura, Toshihiro; Sato, Susumu
    Abstract: This study formulates a new model of mixed oligopolies in free entry markets. A state-owned public enterprise is established before the game, private enterprises enter the market, and then the government chooses the degree of privatization of the public enterprise (Entry-then-Privatization Model). We find that under general demand and cost functions, the timing of privatization does not affect consumer surplus or the output of each private firm, while it does affect the equilibrium degree of privatization, number of entering firms, and output of the public firm. The equilibrium degree of privatization is too high (low) for both domestic and world welfare if private firms are domestic (foreign).
    Keywords: timing of privatization, commitment, state-owned public enterprises; foreign competition
    JEL: H42 L13
    Date: 2017–01
  5. By: Hattori, Masahiko; Tanaka, Yasuhito
    Abstract: In Proposition 4 of Kamien and Tauman(1986), assuming linear demand and cost functions with fixed fee licensing it was argued that for the outside innovating firm under oligopoly when the number of firms is small (or very large), strategy to enter the market with license of its cost-reducing technology to the incumbent firm (entry with license strategy) is more profitable than strategy to license its technology to the incumbent firm without entering the market (license without entry strategy). However, their result depends on their definition of license fee, and it is inappropriate if the innovating firm can enter the market. If we adopt an alternative more appropriate definition based on the threat by entry of the innovating firm, license without entry strategy is more profitable in the case of linear demand and cost functions. Also we investigate the problem in the case of quadratic cost functions in which entry with license strategy may be optimal. Further we will show that the optimal strategies for the innovating firm when license fees are determined under the assumption that the licensor takes all benefit of new technology and its optimal strategies when license fees are determined according to Nash bargaining solution are the same.
    Keywords: entry, license, duopoly, cost-reducing innovation, innovating firm, incumbent firm
    JEL: D43 L13
    Date: 2017–01–27
  6. By: Behrens, Kristian; Kanemoto, Yoshitsugu; Murata, Yasusada
    Abstract: Extant studies take it for granted that there is a one-to-one mapping from a change in the equilibrium allocation to a change in welfare. We show that such a premise does not apply to fairly standard models of monopolistic competition. For any change in the equilibrium allocation, there exist an infinite number of possible welfare changes when the mass of varieties consumed differs between the two equilibria. Our results thus reveal a fundamental difficulty in measuring welfare changes when varieties are endogenous.
    Keywords: monopolistic competition; welfare changes
    JEL: D60 L13
    Date: 2017–01
  7. By: Anton Bondarev; Alfred Greiner (University of Basel)
    Abstract: In this paper we analyze the dynamics of an R&D di erential game allowing for technological spillovers and sigmoid learning functions of multiproduct oligopolies. We demonstrate how the presence of learning together with spillovers may generate a rich set of outcomes, varying from constant leadership to catching-up and falling behind as well as from technology lock-in to a situation with a large number of high quality products. These types of outcomes are qualitatively di erent both from the single rm dynamics with learning and from the duopoly case with spillovers and without learning.
    Keywords: endogenous market structure; learning by doing; technological spillovers; heterogeneous innovations; differential games
    JEL: C61 C73 L13 L16 O32 O33
    Date: 2017
  8. By: Haipeng (Allan) Chen; Daniel Levy (Bar-Ilan University); Avichai Snir (Bar-Ilan University)
    Abstract: We take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9-endings. In January 2014, the Israeli parliament has passed a law prohibiting the use of non 0-ending prices. We find that one year after 9-ending prices have disappeared, 90-ending prices acquired the same status as 9-ending prices had before the law was passed. 90-ending prices became the new psychological price points. The retailers and the shoppers both reacted to the regulatory intervention optimally, which has eliminated the regulation’s intended effect.
    Keywords: 9-ending prices, psychological price points, sticky prices, rigid prices, price recall, price control, price regulation, integer constraint
    JEL: E31 L16 K20
    Date: 2017–02
  9. By: Ulrich Doraszelski; Katja Seim; Michael Sinkinson; Peichun Wang
    Abstract: We explore the sensitivity of the U.S. government's ongoing incentive auction to multi-license ownership by broadcasters. We document significant broadcast TV license purchases by private equity firms prior to the auction and perform a prospective analysis of the effect of ownership concentration on auction outcomes. We find that multi-license holders are able to raise spectrum acquisition costs by 22% by strategically withholding some of their licenses to increase the price for their remaining licenses. We analyze a potential rule change that reduces the distortion in payouts to license holders by up to 80%, but find that lower participation could greatly increase payouts and exacerbate strategic effects.
    JEL: L10
    Date: 2017–01
  10. By: Mara Faccio; Luigi Zingales
    Abstract: We study how political factors shape competition in the mobile telecommunication sector. We show that the way a government designs the rules of the game has an impact on concentration, competition, and prices. Pro-competition regulation reduces prices, but does not hurt quality of services or investments. More democratic governments tend to design more competitive rules, while more politically connected operators are able to distort the rules in their favor, restricting competition. Government intervention has large redistributive effects: U.S. consumers would gain $65bn a year if U.S. mobile service prices were in line with German ones and $44bn if they were in line with Danish ones.
    JEL: D72 L11 P16
    Date: 2017–01
  11. By: Fackler, Thomas A.; Nagler, Markus; Schnitzer, Monika; Watzinger, Martin
    Abstract: We study the 1956 consent decree against the Bell System to investigate whether patents held by a dominant firm are harmful for innovation and if so, whether compulsory licensing can provide an effective remedy. The consent decree settled an antitrust lawsuit that charged Bell with having foreclosed the market for telecommunications equipment. The terms of the decree allowed Bell to remain a vertically integrated monopolist in the telecommunications industry, but as a remedy, Bell had to license all its existing patents royalty-free. Thus, the path-breaking technologies developed by the Bell Laboratories became freely available to all US companies. We show that in the first five years compulsory licensing increased follow-on innovation building on Bell patents by 17%. This effect is driven mainly by young and small companies. Yet, innovation increased only outside the telecommunications equipment industry. The lack of a positive innovation effect in the telecommunications industry suggests that market foreclosure impedes innovation and that compulsory licensing without structural remedies is ineffective in ending it. The increase of follow-on innovation by small and young companies is in line with the hypothesis that patents held by a dominant firm act as a barrier to entry for start-ups. We show that the removal of this barrier increased long-run U.S. innovation, corroborating historical accounts.
    Keywords: Antitrust; Compulsory Licensing; innovation; Intellectual Property
    JEL: K21 L40 O3 O33 O34
    Date: 2017–01
  12. By: Michael Bucksteeg; Stephan Spiecker; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))
    Abstract: There is an ongoing debate on the introduction of capacity markets in most European countries while a few of them have already established capacity markets. Since the implementation of independent national capacity markets is not in line with the target of a pan-European internal electricity market we investigate the impacts of uncoordinated capacity markets compared with coordinated capacity markets. A probabilistic approach for the determination of capacity requirements is proposed and a European electricity market model (E2M2s) is applied for evaluation. The model simultaneously optimizes investments and dispatch of power plants. Besides the impact on generation investments, market prices and system costs we analyse effects on production and security of supply. While coordinated capacity markets reveal high potentials for cross border synergies and cost savings, uncoordinated and unilateral implementations can lead to inefficiencies, in particular free riding effects and endanger security of supply due to adverse allocation of generation capacity.
    Keywords: capacity markets, system adequacy, market design
    JEL: Q40
    Date: 2017–01
  13. By: Steve Cicala
    Abstract: This paper measures changes in electricity generation costs caused by the introduction of market mechanisms to determine output decisions in service areas that were previously using command-and-control-type operations. I use the staggered transition to markets from 1999- 2012 to evaluate the causal impact of liberalization using a nationwide panel of hourly data on electricity demand and unit-level costs, capacities, and output. To address the potentially confounding effects of unrelated fuel price changes, I use machine learning methods to predict the allocation of output to generating units in the absence of markets for counterfactual production patterns. I find that markets reduce production costs by $3B per year by reallocating output among existing power plants: Gains from trade across service areas increase by 20% based on a 10% increase in traded electricity, and costs from using uneconomical units fall 20% from a 10% reduction in their operation.
    JEL: D4 D61 L1 L5 L94 Q4
    Date: 2017–01
  14. By: Tatsuo Tanaka (Faculty of Economics, Keio University)
    Abstract: In this study, the effects of internet book piracy in the case of the Japanese comic book market were examined using direct measurement of product level piracy ratio and a massive deletion project as a natural experiment. Panel regression and difference-in-difference analysis consistently indicated that the effect of piracy is heterogeneous: piracy decreased the legitimate sales of ongoing comics, whereas the legitimate sales of completed comics increased. The latter result is interpreted as follows: piracy reminds consumers of past comics and stimulates sales in that market.
    Keywords: copyright, piracy, e-book, difference-in-difference, comic
    JEL: D12 L82 M3 O34
    Date: 2016–12–29
  15. By: André, Francisco J. (Departamento de Análisis Económico. Universidad Complutense de Madrid.); Arguedas, Carmen. (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: In this paper we study the relationship between market power in emission permit markets and endogenous technology adoption. The presence of market power results in a di- vergence of both abatement and technology adoption levels with respect to the benchmark scenario of perfect competition, as long as technology adoption becomes more e¤ective in reducing abatement costs. Also, the initial distribution of permits, in particular, the amount of permits initially given to the dominant rm, is crucial in determining over- or under-investment in relation to the benchmark model. Speci cally, if the dominant rm is initially endowed with more permits than the corresponding cost e¤ective allocation, this results in under- investment by the dominant rm and over- investment by the competitive fringe, regardless of the speci c amount of permits given to the latter rms. The results are reversed if the dominant rm is initially endowed with relatively few permits. Our ndings seem consistent with some empirical evidence about the performance of the power sector in the initial phases of the European Union Emission Trading System.
    Keywords: environmental policy, emission permits, market power, environmentally-friendly technologies
    JEL: C72 D43 D62 L51 Q55 Q58
    Date: 2017–01
  16. By: Meloyan, Artak; Bakhtavoryan, Rafael
    Abstract: No other form of promotional tools can substitute coupons in promotional campaigns. Due to their unique dual impact (price discount and informational stimulant) on consumption, coupons are widely used by different manufacturers and stores. However, to the best of our knowledge, no prior research has been done regarding the analysis of the impact of coupons on market shares of national brand and private label food products. To fill this void, the goal of this study was to examine the relationship between coupons and market shares in the context of national brand and private label food products by estimating the Almost Ideal Demand System model and using the Nielsen Homescan panel data on household purchases of ready-to-eat cereal, yogurt, and spaghetti sauce from January of 2012 through December of 2014. Estimation results revealed a significant relationship between coupon values and market shares of the food product brands considered. However, the effects of coupon values on the market shares were varied for national brands and private labels. In particular, with the exception of other brands of yogurt, for national brands, market share elasticities with respect to coupon values were positive, suggesting that market share of national brands increased with an increase in coupon values. For private label of cereal and spaghetti sauce, market share elasticities with respect to coupon values were negative, indicating that an increase in coupon values led to a decline in their market shares.
    Keywords: coupons, market shares, brands, demand system, Consumer/Household Economics, Demand and Price Analysis, D12,
    Date: 2017–01–16
  17. By: McFadden, Brandon; Mullally, Conner
    Keywords: Demand and Price Analysis,
    Date: 2017–01–18
  18. By: Joshua S. Gans; Avi Goldfarb; Mara Lederman
    Abstract: Hirschman’s Exit, Voice, and Loyalty highlights the role of “voice” in disciplining firms for low quality. We develop a formal model of voice as a relational contact between firms and consumers and show that voice is more likely to emerge in concentrated markets. We test this model using data on tweets to major U.S. airlines. We find that tweet volume increases when quality – measured by on-time performance – deteriorates, especially when the airline operates a large share of the flights in a market. We also find that airlines are more likely to respond to tweets from consumers in such markets.
    JEL: L13 L14 L93
    Date: 2017–01
  19. By: Chezhia, Giorgi
    Abstract: The selected paper presented at the IAMO Samarkand Conference
    Keywords: Crop Production/Industries,
    Date: 2016–11–02

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