nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒04‒23
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus By Charles J. Thomas
  2. Article 101 TFEU and market integration By Pablo Ibáñez Colomo
  3. How Antitrust Enforcement Can Spur Innovation By Watzinger, Martin; Fackler, Thomas A.; Nagler, Markus
  4. Defining the Relevant Market in the Digital Platform Industry (Japanese) By KAWAHAMA Noboru; TAKEDA Kuninobu
  5. Regulating 'platform power' By Orla Lynskey
  6. Price regulation in the social market economy By Niamh Dunne
  7. Information Transparency in B2B Auction Markets: The Role of Winner Identity Disclosure By Lu, Y.; Gupta, A.; Ketter, W.; van Heck, H.W.G.M.
  8. Emission taxation, green innovations and inverted-U aggregate R&D efforts in a linear state oligopoly game By D. Dragone; L. Lambertini; A. Palestini
  9. Technology lock-in with horizontal and vertical innovations through limited R&D spending By Anton Bondarev; Bondarev Anton; Greiner Alfred
  10. Bid-Ask Spread Determination in the FX Swap Market: Competition, Collusion or a Convention? By Alexis Stenfors; ;
  11. Competition for the Market: A Policy Framework for Improving Bus Operation along EDSA By Llanto, Gilberto M.; Gerochi, Hope A.
  12. The expansion of regional supermarket chains and implications for local suppliers: A comparison of findings from South Africa, Botswana, Zambia, and Zimbabwe By Reena das Nair; Shingie Chisoro
  13. Private Information and Insurance Rejections: A comment By Attar, Andrea; Mariotti, Thomas; Salanié, François
  14. Competition Policy vs. Industrial Policy as a Growth Strategy By Tatsuo Hatta

  1. By: Charles J. Thomas (Economic Science Institute & Argyros School of Business and Economics Chapman University)
    Abstract: In a simple model I show consumer surplus can increase after competing sellers consummate a profitable merger that generates no cost savings. This finding contrasts sharply with the conventional wisdom that horizontal mergers without efficiencies must enhance sellers’ market power to be profitable, thereby harming buyers. The model fits industries in which individual buyers conduct distinct procurement contests for which sellers incur costs to participate, say to assess their product’s fit with the buyer’s preferences. Mergers benefit buyers by inducing stronger contest-level entry, echoing common claims from merging parties that their merger is beneficial because it creates a stronger competitor.
    Keywords: mergers, efficiencies, consumer surplus, antitrust
    JEL: D4 D44 L1 L4
    Date: 2017
  2. By: Pablo Ibáñez Colomo
    Abstract: Market integration is an objective of Article 101 TFEU. As a result, agreements aimed at partitioning national markets are in principle restrictive of competition by object. The case law on this point has been consistent since Consten-Grundig. Making sense of it, however, remains a challenge. The purpose of this piece is to show, first, how the methodological approach followed by the Court of Justice changes when market integration considerations are at stake. Secondly, it explains why and when restrictions on cross-border trade have been found not to restrict competition by object within the meaning of Article 101(1) TFEU. An agreement aimed at partitioning national markets is not as such contrary to Article 101(1) TFEU if the analysis of the counterfactual reveals that it does not restrict inter-brand and/or intra-brand competition that would have existed in its absence. It is possible to think of three scenarios in this regard: (i) an agreement may be objectively necessary to achieve the aims sought by the parties; (ii) a clause may be objectively necessary for an agreement and (iii) competition is precluded by the underlying regulatory context (as is the case, in particular, when the exercise of intellectual property rights is at stake).
    JEL: L81
    Date: 2016–03–15
  3. By: Watzinger, Martin (University of Munich); Fackler, Thomas A. (University of Munich); Nagler, Markus (University of Munich)
    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: ;
    JEL: O30 O33 O34 K21 L40
    Date: 2017–03–25
  4. By: KAWAHAMA Noboru; TAKEDA Kuninobu
    Abstract: Digital platforms have generated a variety of innovation and tremendous benefits in our lives. But at the same time, there is concern that their characteristics such as multi-sidedness or economies of scale might give rise to monopolistic gatekeepers in the information and communications technology (ICT) sectors, and that these gatekeepers might abuse their dominant positions to force clients to accept unfavorable contracts or eliminate rivals. It has been discussed actively worldwide whether competition laws should be applied to digital platformers, and, if so, whether traditional market power analysis works well or not. We address these problems by focusing on the "relevant market." Defining a relevant market has long been believed to be a prerequisite for market power analysis. However, there seems to be some difficulty in defining it for analyzing digital platforms. For example, when considering the interdependency between two or more distinct groups of customers, how many markets do we define? Platformers sometimes provide services for free. Can we define a relevant market in such situation? It is widely known the volume of data dictates the market position of the platformers. Can we evaluate the value of data in defining markets? We discuss these and other market definition problems under the title of "free market," "innovation market," and "data market."
    Date: 2017–04
  5. By: Orla Lynskey
    Abstract: Increasing regulatory and doctrinal attention has recently focused on the problem of ‘platform power’. Yet calls for regulation of online platforms fail to identify the problems such regulation would target, and as a result appear to lack merit. In this paper, two claims are advanced. First, that the concept of ‘platform power’ is both an under and over-inclusive regulatory target and, as such, should be replaced by the broader concept of a ‘digital gatekeeper’. Second, that existing legal mechanisms do not adequately reflect the power over information flows and individual behaviour that gatekeepers can exercise. In particular, this gatekeeper power can have implications for individual rights that competition law and economic regulation are not designed to capture. Moreover, the technological design, and complexity, of digital gatekeepers renders their operations impervious to scrutiny by individual users, thereby exacerbating these potential implications.
    JEL: L81
    Date: 2017–02–21
  6. By: Niamh Dunne
    Abstract: Establishing open and undistorted competition within the internal market is a primary goal of the EU legal framework. Price controls, by contrast, are among the clearest derogations from this overarching objective. Yet much price regulation continues to occur within the internal market. The treatment of such regulation thus raises challenging questions, both substantive and institutional, about the nature of economic governance in the context of the EU’s ‘highly competitive social market economy’. This article begins with a consideration of price regulation, both in economic terms and in relation to its place within the institutional and ideological structure of the EU. It then examines differing approaches seen in EU law: from a sceptical prohibitive approach, to a cautious yet more receptive permissive approach, to an essentially prescriptive approach incorporating price regulation into the fabric of the internal market. The aim is to contribute to a more nuanced understanding of the challenges facing the pursuit of ‘open and undistorted competition’ within a modern social market economy.
    JEL: L81
    Date: 2017–02–21
  7. By: Lu, Y.; Gupta, A.; Ketter, W.; van Heck, H.W.G.M.
    Abstract: We study the impact of information transparency in B2B auctions. Specifically, we measure the effect of concealing winners’ identities on auction outcomes using a large-scale, quasi-natural field experiment. Contrary to the conventional wisdom that “the more information, the better,” we find that concealing winners’ identities leads to a significant increase in price by approximately 6%, and such effect holds true across both online and offline channels as well as different types of bidders. We further explore the mechanism that drives the observed effect. The empirical analysis suggests that the price increase may primarily stem from the disruption of imitative bidding which relies on the identification of fellow competitors. Our findings have important implications for the design of auction markets, especially multi-channel B2B markets.
    Keywords: Auction design, field experiment, information transparency, identity disclosure, sequential auctions
    Date: 2017–04–10
  8. By: D. Dragone; L. Lambertini; A. Palestini
    Abstract: We revisit the well known differential Cournot game with polluting emissions dating back to Benchekroun and Long (1998), proposing a version of the model in which environmental taxation is levied on emissions rather than the environmental damage. This allows to attain strong time consistency under open-loop information, and yields two main results which can be summarized as follows: (i) to attain a fully green technology in steady state, the regulator may equivalently adopt an appropriate tax rate (for any given number of firms) or regulate market access (for any given tax rate); (ii) if the environmental damage depends on emissions only (i.e., not on industry output) then the aggregate green R&D effort takes an inverted-U shape, in accordance with Aghion et al. (2005), and the industry structure maximising aggregate green innovation also minimises individual and aggregate emissions.
    JEL: C73 H23 L13 O31 Q52
    Date: 2017–04
  9. By: Anton Bondarev; Bondarev Anton; Greiner Alfred (University of Basel)
    Abstract: In this paper we analyze an inter-temporal optimization problem of a representative firm that invests in horizontal and vertical innovations and that faces a constraint with respect to total R&D spending. We find that there can exist two different steady-states of the economy when the amount of research spending falls short of an endogenously determined threshold: one with higher productivities and less new technologies being developed, and the other with more technoligies being created and lower productivities. But, for a higher amount of R&D spending the steady-state becomes uniqueand the firm produces the whole spectrum of available technologies. Thus, a lock-in effect may arise that, however, van be overcome by raising R&D spending sufficiently.
    Keywords: Multiple steady-states, lock-in, innovations, R&D constraint, optimal control
    JEL: C61 D92 O32
    Date: 2017
  10. By: Alexis Stenfors (Portsmouth Business School); ;
    Abstract: Following a series of manipulation scandals in the global foreign exchange and money markets, recent lawsuits, regulatory reform proposals and bank compliance changes have explicitly targeted anti-competitive behaviour. By empirically investigating the determination of bid-ask spreads in foreign exchange swap markets, this paper addresses some contradictions where reciprocality, trust and conventions remain fundamental and logical. By doing so, the paper critically reflects upon the bid-ask spread in traditional market microstructure theory, the definition of the spread as a ‘component of price’ in antitrust law, and the policy implications in light of the recent regulatory investigations into financial benchmarks and OTC markets.
    Keywords: Foreign exchange, LIBOR, market microstructure theory, bid-ask spreads, collusion, OTC markets
    JEL: D4 F3 G1 G3 K2
    Date: 2017–04–18
  11. By: Llanto, Gilberto M.; Gerochi, Hope A.
    Abstract: The EDSA bus market is fiercely competitive. In theory, allowing competition among many bus operators is expected to result in cost-effective and reliable transport services, and efficient use of roads. However, in reality, the outcomes are far different: daylong traffic jam and poor bus service along Metro Manila's most important road artery. This paper examined an option proposed by some quarters that consolidating bus operation along EDSA will solve road congestion. It was thought that having fewer but bigger bus operators will be the solution. Based on a review of country experiences, this paper argues that one way to address road congestion and other market failures in the bus markets is to shift the regulatory framework for bus transport services from the current competition "in the market" (the status quo) toward competition "for the market". Bus consolidation is an initial step to relieve the roads of traffic congestion, but it is not a sufficient condition for sustainable quality bus service. However, casting bus consolidation within a competition for the market regulatory framework presents a better and more workable option for improving bus transport services in EDSA. The alternative regulatory approach called "competition for the market framework" provides a stronger incentive for bus operators to consolidate because a competitive tendering mechanism is used to select an optimum number of formal bus transport operators that will serve the market. Government takes more control of critical aspects of bus services (design of the bus network, quality standards, frequency, among others), which, thus, provide an opportunity to address the market failures that are inherent in liberalized urban bus markets. The government via its pipeline of bus rapid-transit (BRT) projects--including one being prepared for EDSA--seems to lean in favor of this framework. To be effective and to encourage the application of this new framework also to non-BRT corridors, complementary reforms have to be implemented in parallel and these would include improving the capacity of regulatory agencies, institutions (rules of the game), procurement, contract monitoring, and traffic management.
    Keywords: Philippines, urban bus market, market failures, consolidation, competition-for-the-market, competitive tendering, bus-rapid-transit system (BRTS), competition-in-the market, bus transport, traffic management, bus regulation, urban transport
    Date: 2017
  12. By: Reena das Nair; Shingie Chisoro
    Abstract: Since the early 2000s, there has been rapid growth in the number and spread of supermarkets in southern Africa. This paper is a synthesis of key findings of studies undertaken in Botswana, South Africa, Zambia, and Zimbabwe on the expansion of supermarkets and the impact this has had on suppliers and the competitive landscape in the region. Supermarkets are driving trade patterns in processed foods and household consumables within the region, opening up large markets for suppliers. If supermarkets are to become a key route to regional markets for suppliers, national policies and laws that currently exist need to be harmonized across the region with a wider view of developing regional value chains. Among key findings of the studies, supermarket procurement and sourcing strategies as well as buyer power are seen to affect the participation of suppliers in supermarket value chains, and affect the development of their capabilities. The impact on the competitive landscape of the spread of supermarkets in each country is also assessed, highlighting concerns of strategic behaviour that dominant supermarkets can engage in to exclude rivals.
    Date: 2016
  13. By: Attar, Andrea; Mariotti, Thomas; Salanié, François
    Abstract: We show that a necessary and sufficient condition for entry to be unprofitable in markets with adverse selection is that that no buyer type be willing to trade at a price above the expected unit cost of serving those types who are weakly more eager to trade than her. We provide two applications of this result. First, we characterize cases in which market breakdown occurs, thereby generalizing the main result of Hendren (2013). Second, we characterize entry-proof tariffs on nonexclusive active markets, thereby generalizing the main result of Glosten (1994). Our analysis paves the way to new tests of adverse selection, notably besides the case of inactive markets studied by Hendren (2013).
    Keywords: Adverse Selection, Entry Proofness, Market Breakdown, Nonexclusivity.
    JEL: D43 D82 D86
    Date: 2017–03
  14. By: Tatsuo Hatta
    Abstract: This paper examines the rationale behind industrial policy and competition policy as growth strategies, and shows that competition policy, rather than industrial policy, generated the rapid economic growth in post-war Japan. It also reveals that Japan's growth rate was lowered from the mid-1970s due to newly introduced industrial policies and paucity of further competition policy. The current Abe government recognises the need for competition policies in Japan to recover from the low-growth period. The paper describes the types of competition policy carried out under Abenomics, especially in strategic special economic zones.
    Keywords: Abenomics, completion policy, industrial policy, growth strategy, trade, liberalisation, privatisation
    Date: 2017–03

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