nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒06‒11
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Duopolistic competition in markets where consumers have switching costs By Guillem Roig
  2. Targeted Advertising and Costly Consumer Search By Roberto Burguet; Vaiva Petrikaite
  3. Dynamic Pricing with Search Frictions By Daniel Garcia
  4. Empirical Models of Firms and Industries By Aguirregabiria, Victor; Slade, Margaret
  5. Sequential Supply Decision and Market Efficiency: Theory and Evidence By In Kyung Kim; Yoon-Jin Lee; Young-Ro Yoon
  6. Discriminatory Information Disclosure By Hao Li; Xianwen Shi
  7. Innovation and product market concentration: Schumpeter, Arrow and the inverted-U shape curve By F. Delbono; L. Lambertini
  8. Stepping up the game: The role of innovation in the sharing economy By Demary, Vera
  9. Resale in Second-Price Auctions with Costly Participation By Gorkem Celik; Okan Yilankaya
  10. Cartel dating By H. Peter Boswijk; Maurice J.G. Bun; Maarten Pieter Schinkel
  11. The Design and Price of Information By Dirk Bergemann; Alessandro Bonatti; Alex Smolin
  12. Vertical Integration and Product Availability in the Movie Theater Industry By In Kyung Kim; Vladyslav Nora
  13. The Hospital as a Multi-Product Firm: The Effect of Hospital Competition on Value-Added Indicators of Clinical Quality By Matthew Skellern
  14. Acquiring Banking Networks By Ross Levine; Chen Lin; Zigan Wang

  1. By: Guillem Roig
    Abstract: In a dynamic competition model where firms initially share half of the market and consumers have switching costs, consumers' sophistication, lifespan and concentration impact the possibility to set collusive prices. I first show that with strategic long-run consumers, collusion is harder to implement than when consumers are not strategic: with sophisticated consumers, a deviating fi rm can cash-in the rents that a buyer obtains after switching. I then study the consequences of relaxing buyers concentration and show that collusion is then easier to maintain than with non-strategic consumers: with strategic consumers a firm must offer a low price at the moment of deviation as consumers can bene t from increased competition, emerging from an asymmetric market structure, without having to pay switching costs. The paper suggests simple policy recommendations: it does not suffice to educate consumers about the competitive effects of their current purchasing decisions, but central purchasing agencies also need to be promoted.
    Keywords: Switching cost, Price collusion; Strategic consumers
    JEL: D43 L13 L12
    Date: 2017–05–25
  2. By: Roberto Burguet; Vaiva Petrikaite
    Abstract: We study a market with horizontally differentiated products and sequential consumer search. Firms send adverts to consumers to inform about their existence. Advertising may be either random or targeted. Targeting increases search intensity, which intensifies competition. However, targeted consumers draw higher valuations on average, which creates incentives to raise prices. The first effect dominates when search costs are sufficiently low, but the second may prevail when search costs are high. As a result, with high search costs, targeting results in higher prices and lower consumer surplus, while the opposite holds true when search costs are low. A larger advertising cost helps firms segment the market if they can target adverts.
    Keywords: random advertising, targeted advertising, horizontal differentiation, sequential search
    JEL: L13 D83
    Date: 2017–06
  3. By: Daniel Garcia
    Abstract: This paper studies dynamic pricing in markets with search frictions. Sellers have a single unit of a good and post prices in every trading period. Buyers have to incur a search cost to match with a new seller and upon matching they observe the price and the realization of some idiosyncratic match value. There is no discounting but trade ends at an exogenously given deadline. We show that equilibrium involves trading in nitely many trading periods and the volume of trade increases over time. Under mild conditions on the buyerto- seller ratio and the distribution of valuations, prices decrease at increasing rates as the deadline approaches. We derive the gains from trade in equilibrium and their distribution between buyers and sellers. For the case in which the measures of buyers and sellers coincide, we provide a full characterization of the (unique) equilibrium for a class of distribution functions. We nally discuss implications for market design, including the use of platform fees and cancellation policies.
    JEL: D11 D83 L13
    Date: 2017–05
  4. By: Aguirregabiria, Victor; Slade, Margaret
    Abstract: We review important developments in Empirical Industrial Organization (IO) over the last three decades. The paper is organized around six topics: collusion, demand, productivity, industry dynamics, inter-firm contracts, and auctions. We present models that are workhorses in empirical IO, and describe applications. For each topic, we discuss at least one empirical application using Canadian data.
    Keywords: Collusion; demand for differentiated products; dynamic structural models; empirical auction models; Empirical IO; inter-firm contracts; production functions
    JEL: C57 L10 L20 L30 L40 L50
    Date: 2017–06
  5. By: In Kyung Kim (Department of Economics, Nazarbayev University); Yoon-Jin Lee (Department of Economics, Kansas State University); Young-Ro Yoon (Department of Economics, Wayne State University)
    Abstract: In a homogeneous goods market, due to the lack of the preemption effect, each firm’s demand is likely to be proportional to its share of total output. Firms are inclined to supply more to increase their market shares, but should also consider the potential cost from excess supply. Thus, firms should make strategic decisions on how much to supply. We study this topic by considering an oligopoly market in which firms make decisions sequentially under a fixed price. We first provide a theoretical model and find the conditions under which either an efficient supply or oversupply occurs. Our model proposes two practical ways to evaluate the efficiency of a market, specifically regarding excess supply, that do not require information about market demand. Using these, we evaluate the efficiency of the Korean movie theater industry. Our empirical findings indicate oversupply of seating capacity in that industry.
    Keywords: oversupply, first mover advantage, market efficiency, movie theater industry
    JEL: L13 L22 L82
    Date: 2017–03
  6. By: Hao Li; Xianwen Shi
    Abstract: A seller designs a mechanism to sell a single object to a potential buyer whose private type is his incomplete information about his valuation. The seller can disclose additional information to the buyer about his valuation without observing its realization. In both discrete-type and continuous-type settings, we show that discriminatory disclosure - releasing different amounts of additional information to different buyer types - dominates full disclosure in terms of seller revenue. An implication is that the orthogonal decomposition technique, while an important tool in dynamic mechanism design, is generally invalid when information disclosure is part of the design.
    Keywords: Sequential Screening, Information Disclosure, Dynamic Mechanism Design, Orthogonal Decomposition
    JEL: D82 D42 C73
    Date: 2017–05–29
  7. By: F. Delbono; L. Lambertini
    Abstract: We investigate the relationship between market concentration and industry innovative effort within a familiar two-stage model of R&D race in which fi rms compete à la Cournot in the product market. With the help of numerical simulations, we show that such a setting is rich enough to generate Arrovian, Schumpeterian and inverted-U curves. We interpret these different patterns on the basis of the relative strength of the technological incentive and the strategic incentive.
    JEL: L13 O31
    Date: 2017–06
  8. By: Demary, Vera
    Abstract: While the sharing economy is generally perceived to be very innovative, it has hardly been analyzed what defines this innovativeness. The main aspect for the sharing economy as a whole is the peer-to-peer (P2P) organization of its businesses. This allows sharing platforms to enter markets more easily, consequently increasing com-petition in these markets. In addition to that, many sharing platforms are also techno-logically innovative or apply a tested concept in a new setting. Increased competition may result in even more innovation in order to keep customers satisfied and boost the benefit these derive from participating in the sharing economy. However, in most affected markets, there is no level playing field yet between the established incum-bents and the new sharing platform entrants. This calls for urgent action on the side of policy-makers to foster innovation in the sharing economy while enabling fair com-petition.
    JEL: L12 L51 L86 O31
    Date: 2017
  9. By: Gorkem Celik (ESSEC Business School and THEMA Research Center, France); Okan Yilankaya
    Abstract: We study sealed-bid second-price auctions with costly participation and resale. Each bidder chooses to participate in the auction if her valuation is higher than her optimally chosen participation cutoff. If resale is not allowed and the bidder valuations are drawn from a strictly convex distribution function, the symmetric equilibrium (where all bidders use the same cutoff) is less efficient than a class of two-cutoff asymmetric equilibria. Existence of these equilibria without resale is sufficient for existence of similarly constructed two-cutoff equilibria with resale. Moreover, the equilibria with resale are more asymmetric and (under a sufficient condition) more efficient than the corresponding equilibria without resale.
    Keywords: second price auctions, resale, participation cost, endogenous entry, endogenous valuations
    JEL: C72 D44 D82
    Date: 2016–11
  10. By: H. Peter Boswijk; Maurice J.G. Bun; Maarten Pieter Schinkel (University of Amsterdam)
    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.
    Date: 2016–10–31
  11. By: Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT); Alex Smolin (Dept. of Economics, Yale University)
    Abstract: A data buyer faces a decision problem under uncertainty. He can augment his initial private information with supplemental data from a data seller. His willingness to pay for supplemental data is determined by the quality of his initial private information. The data seller optimally offers a menu of statistical experiments. We establish the properties that any revenue-maximizing menu of experiments must satisfy. Every experiment is a non-dispersed stochastic matrix, and every menu contains a fully informative experiment. In the cases of binary states and actions, or binary types, we provide an explicit construction of the optimal menu of experiments.
    Keywords: Information design, Price of information, Statistical experiments, Mechanism design, Price discrimination, Hypothesis testing
    JEL: D42 D82 D83
    Date: 2017–06
  12. By: In Kyung Kim (Nazarbayev University); Vladyslav Nora (Nazarbayev University)
    Abstract: We examine the effects of integration between distribution and exhibition on product mix and availability in the movie theater industry. Our model predicts that integrated theaters engage in foreclosure, but also have higher incentives to acquire demand information. We estimate that integrated theaters allocate more seats to their own titles, mostly at the expense of small independent movies. However, we find that despite this foreclosure effect integrated theaters match demand better turning away significantly fewer consumers and achieving higher consumer welfare than independent theaters. Our results suggest that the efficiency gains of vertical integration dominate the losses from foreclosure.
    Keywords: vertical integration, foreclosure, product availability, movie theater industry
    JEL: L13 L22 L82
    Date: 2017–01
  13. By: Matthew Skellern
    Abstract: There is increasing international interest in using Patient Reported Outcome Measures (PROMs) to assess health care provider performance. PROMs are a fundamental advance on existing indicators of health care quality in two respects: they equate outcomes with value added (i.e. health gain) from treatment rather than post-treatment health status, and they allow clinical quality to be measured at the level of the individual medical intervention to a far greater extent than existing failure-based indicators of quality such as mortality or readmissions. Most existing econometric studies of hospital competition and quality equate outcomes with post-treatment health status, and use mortality rates of various kinds as indicators of overall hospital performance, in spite of the fact that mortality is a relatively uncommon outcome in the spheres of hospital activity - such as elective surgery - in which competition for patients does occur. This paper contributes to the development of a value-added, multi-product conception of hospital quality by studying the impact of a major competition-promoting reform to the English NHS in 2006, in which patients were allowed to choose which hospital they attended for elective surgery, on PROMs of health gain from hip and knee replacement, groin hernia repair, and varicose vein surgery. In contrast to the existing literature, I find that the competition brought about by the introduction of patient choice of hospital may have had a negative effect on clinical quality. I put forward a theoretical framework that explains these findings, and conclude by arguing that future research should model the hospital as a multi-product firm, and capture clinical quality using value-added outcome measures.
    Keywords: health care, hospital competition, price regulation, prospective reimbursement, patient choice, health care quality, vertical product quality, performance measurement, multi-tasking, value added
    JEL: C21 D21 H42 I11 I18 L1 L15 L32 R12
    Date: 2017–05
  14. By: Ross Levine; Chen Lin; Zigan Wang
    Abstract: Does the pre-deal geographic overlap of the subsidiaries and branches of two banks affect the probability that they merge and post-merger value creation and synergies? We compile comprehensive information on U.S. bank acquisitions from 1986 through 2014, construct several measures of network overlap, and design and implement a new identification strategy. We find that greater pre-deal network overlap (1) increases the likelihood that two banks merge, (2) boosts the cumulative abnormal returns of the acquirer, target, and combined banks, and (3) is associated with larger labor cost reductions, managerial turnover, loan quality improvements, and revenue enhancements at target banks.
    JEL: G21 G28 G34
    Date: 2017–06

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