nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒07‒16
fifteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Collusive Vertical Relations By S. Bolatto; L. Lambertini
  2. Strategic compatibility choice, network alliance, and welfare By Tsuyoshi Toshimitsu
  3. Auctions for essential inputs By Rey, Patrick; Salant, David
  4. Application Bundling in System Markets By de Cornière, Alexandre; Taylor, Greg
  5. Private Label Positioning and Product Line By Caprice, Stéphane
  6. Demand uncertainty, product differentiation, and entry timing under spatial competition By Takeshi Ebina; Noriaki Matsushima; Katsumasa Nishide
  7. Monopolistic Competition, As You Like It By Paolo Bertoletti; Federico Etro
  8. Quantifying the Coordinated Effects of Partial Horizontal Acquisitions By Duarte Brito; Ricardo Ribeiro; Helder Vasconcelos
  9. Template-Type: ReDIF-Paper 1.0 By Noriaki Matsushima; Shohei Yoshida; Noriaki Matsushima; Shohei Yoshida
  10. Public Firm in Mixed Oligopolistic Structure: A Theoretical Exposition By Chatterjee, Susmita; Chattopadhyay, Srobonti; Chatterjee, Rittwik; Dutta, Debabrata
  11. Hunting unicorns? Experimental evidence on predatory pricing policies By Aaron Edlin; Catherine Roux; Armin Schmutzler; Christian Thöni
  12. The influence of the concentration on the performance of firms in retail industry in the Republic of Croatia By Ivan Kristek; Mladen Pancić; Hrvoje Serdarušić
  13. The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets By Tomaso Duso; Jo Seldeslachts; Florian Szücs
  14. The Impact of Price Controls in Two-sided Markets : Evidence from US Debit Card Interchange Fee Regulation By Mark D. Manuszak; Krzysztof Wozniak
  15. Pricing and Efficiency Decisions for Letter and Parcel Markets when Industrial Relations Matter By De Donder, Philippe; Rodriguez, Frank; Soteri, Soterios

  1. By: S. Bolatto; L. Lambertini
    Abstract: We investigate the possibility for two vertically related firms to at least partially collude on the wholesale price over an infinite horizon to mitigate or eliminate the effects of double marginalisation, thereby avoiding contracts which might not be enforceable. We characterise alternative scenarios envisaging different deviations by the upstream firm and different punishments. This allows us to show that the most efficient case is that in which the upstream firm deviates along its best reply function and the punishment prescribes the disruption of the vertical relation for good after a deviation from the collusive path.
    JEL: D43 L13 L42
    Date: 2017–06
  2. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Based on a simple model of compatibility choice under differentiated Cournot duopoly with network externalities, we consider how the levels of a network externality and product substitutability affect the choice of compatibility. In particular, if the level of network externality is larger than that of product substitutability, there are multiple equilibria involving imperfect and perfect compatibility. Furthermore, we demonstrate the conditions for constructing such a network alliance so that firms provide perfectly compatible products. The network alliance is stable and socially optimal.
    Keywords: Compatibility; Network Externality; Fulfilled Expectation; Cournot Competition; Horizontally Differentiated Product; Network Alliance
    JEL: D21 D43 D62 L15
    Date: 2017–07
  3. By: Rey, Patrick; Salant, David
    Abstract: We study the design of auctions for the allocation of essential inputs, such as spectrum rights, transmission capacity or airport landing slots, to firms using these inputs to compete in a downstream market. When welfare matters in addition to auction revenues, there is a trade-off: provisions aimed at fostering post-auction competition in the downstream market typically result in lower prices for consumers, but also in lower auction proceeds. We first characterize the optimal auction design from the standpoints of consumer and total welfare. We then examine how various regulatory instruments can be used to implement the desired allocation.
    Keywords: Auctions; Market design; Essential inputs; Regulation; Antitrust.
    JEL: D43 D44 D47 D61 L13 L42 L43 L51
    Date: 2017–06–07
  4. By: de Cornière, Alexandre; Taylor, Greg
    Abstract: Motivated by recent investigations over Google's practices in the smartphone industry, we study bundling in markets for devices that allow consumers to use applications. The presence of applications on a device increases demand for it, and application developers earn revenues by interacting with consumers. A firm that controls multiple applications can offer them to device manufacturers either individually or as a bundle. We present a novel mechanism through which anticompetitive bundling can be profitable: Bundling reduces rival application developers' willingness to pay manufacturers for inclusion on their devices, and allows a multiapplication developer to capture a larger share of industry profit. Bundling can also strengthen competition between manufacturers and thereby increase consumer surplus, even if it leads to foreclosure of application developers and a loss in product variety.
    Keywords: Antitrust; Bundling; Mobile telecommunications
    JEL: L4 L86
    Date: 2017–07
  5. By: Caprice, Stéphane
    Abstract: This article examines (i) how retailers position private label products, (ii) why private labels are sold in some product categories but not in others, and why some national brand products may have difficulty in accessing retailers' shelves, (iii) why some private label products are positioned as "premium" brands, and (iv) how consumers' surplus and total welfare are affected by private labels. We find that private label positioning leads to less differentiation in product category, which structurally changes a retailer's product line in return. Consumer welfare and total welfare are lower.
    Keywords: Private Label; National brand; Product Line.
    JEL: L13 L81
    Date: 2017–05
  6. By: Takeshi Ebina; Noriaki Matsushima; Katsumasa Nishide
    Abstract: We investigate the entry timing and location decisions under market-size uncertainty with Brownian motions in a continuous-time spatial competition duopoly model a la d’Aspremont et al. (1979). Under a sequential equilibrium, the threshold of the follower non-monotonically increases in volatility, which is in stark contrast to the extant results in the real options literature. Also, although the follower's entry timing tends to be late as the volatility becomes amplified, the leader is more likely to increase the degree of product differentiation as the volatility gets higher. Finally, we compare the equilibrium entry decisions with the second-best ones.
    Date: 2017–07
  7. By: Paolo Bertoletti (Department of Economics and Management, University of Pavia); Federico Etro (Department of Economics, University of Venice Ca' Foscari)
    Abstract: We study imperfect and monopolistic competition with asymmetric preferences over a variety of goods provided by heterogeneous firms. We show how to compute equilibria through the Morishima elasticities of substitution. Simple pricing rules and closed-form solutions emerge under monopolistic competition when demands depend on common aggregators. This is the case for Generalized Additively Separable preferences (encompassing additive preferences and their Gorman-Pollak extensions), implicitly additive preferences and others. For applications to trade, with markups variable across goods of different quality, and to macroeconomics, with markups depending on aggregate variables, we propose specifications of indirectly additive, self-dual addilog and implicit CES preferences.
    Keywords: Imperfect competition, Monopolistic competition, Asymmetric preferences, Heterogeneous firms
    JEL: D11 D43 L11
    Date: 2017–06
  8. By: Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia | Universidade de Évora, CEFAGE-UE); Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School); Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and Center for Economics and Finance)
    Abstract: Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to quantify the coordinated effects of such acquisitions on differentiated products industries, by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained. The methodology can deal with settings involving all type of owners and ownership rights: owners that can be internal to the industry (rival firms) and external to the industry; and ownership rights that can involve financial interests and corporate control, can be direct and indirect, can be partial or full. We provide an empirical application of our proposed methodology to several acquisitions in the wet shaving industry. The results seem to suggest that the incentives of (i) the acquiring party’s firm to coordinate are non-decreasing after an acquisition (independently of whether it involves full or partial financial or corporate control rights, by internal or external owners), (ii) the acquired firm to coordinate are non-decreasing after acquisitions involving full or partial corporate control rights, but non-increasing after acquisitions involving full or partial financial rights, and (iii) the remaining firms in the industry to coordinate are non-increasing after an acquisition (again, independently of whether it involves full or partial financial or corporate control rights, by internal or external owners).
    Keywords: Antitrust, Coordinated Effects, Partial Acquisitions, Oligopoly, Differentiated Products, Demand Estimation
    JEL: D12 C54 L13 L41 L66
    Date: 2017–07
  9. By: Noriaki Matsushima; Shohei Yoshida; Noriaki Matsushima; Shohei Yoshida
    Abstract: We consider a downstream oligopoly model with one dominant and several fringe retailers, who purchase a manufacturing product from a monopoly supplier. We then examine how the supplier's outside option influences the relation between the dominant retailer's bargaining power and the equilibrium retail price. If the market demand shrinks due to a breakdown of bargaining between the supplier and the dominant retailer, who works as a sales promoter for the product, there is a negative relation between the bargaining power and the retail price.
    Date: 2016–10
  10. By: Chatterjee, Susmita; Chattopadhyay, Srobonti; Chatterjee, Rittwik; Dutta, Debabrata
    Abstract: The logic for state monopoly of public utilities arises from increasing returns to scale and the concern that private business in these areas results in monopolistic exploitation of consumers. The state monopoly however is fraught with the danger of production inefficiency. In this backdrop, the market form of mixed oligopoly is contemplated in markets like health, education, electricity, gas, telecommunications etc, where public and private sector coexists. The private firms maximize profit but the public firm maximizes social welfare. Despite this theoretical exposition, it is often observed that public firms fail to make contributions according to their potentiality. The public firm in an industry with rapid change in technology can perform inefficiently due to decision making delay, adherence to social obligation. The policy makers must rise to these occasions then survival of public firms will be smooth. The option of public private partnership also derives affirmative results for the society and the particular industry per se.
    Keywords: Public Firm, Public Private Partnership, Mixed Oligopoly
    JEL: H44 L13
    Date: 2017–04–04
  11. By: Aaron Edlin; Catherine Roux; Armin Schmutzler; Christian Thöni
    Abstract: We study the anticompetitive effects of predatory pricing and the efficacy of three policy responses. In a series of experiments where an incumbent and a potential entrant interact, we compare prices, market structures and welfare. Under a laissez-faire regime, the threat of post-entry price cuts discourages entry, and allows incumbents to charge monopoly prices. Current U.S. policy (Brooke Group) does not help. A policy suggested by Baumol (1979) lowers post-exit prices, while Edlin’s (2002) proposal reduces pre-entry prices and encourages entry. While both policies show outcomes after entry that are less competitive than under Laissez-Faire, they nevertheless increase consumer welfare.
    Keywords: Predatory pricing, entry deterrence, firm strategy, antitrust law, experiment
    JEL: D21 K21 L12 L13 C91
    Date: 2017–06
  12. By: Ivan Kristek (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku); Mladen Pancić (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku); Hrvoje Serdarušić (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku)
    Abstract: According to SCP paradigm (Structure-Conduct-Performance paradigm) the industry structure affects the behavior of firms in the industry, which affects their performance. The paradigm is consistent with the Neoclassical Theory of the Firm which assumes that there is a direct link between the industry structure, entrepreneurial conduct and performance. The basic principle of this paradigm might be the ability of entrepreneurs to exercise market power in a concentrated industry. High industry concentration is correlated with high profits, especially if the concentration level exceeds a certain critical level under the condition that there are some barriers to entry of new entrepreneurs in the industry. Economic theory supports the view that the industry concentration is in a positive relationship with efficiency, and it can be argued that the growth of industry concentration will increase the efficiency of industry. Current approaches in economic theory and recent empirical studies do not follow the SCP theory, they suggest that the above-average profits, which occur in most concentrated industry’s, are results of economic efficiency and effectiveness, and not a consequence of non-competitive behavior. In this paper we will try to give an answer to the above-mentioned issue present in economic theory. The study will try to demonstrate a statistically significant link between the measure of concentration and measure of efficiency in retail industry in the Republic of Croatia.
    Keywords: SCP, concentration, efficiency, retail industry
    JEL: D22 L11 L25 L81
    Date: 2017–04–05
  13. By: Tomaso Duso; Jo Seldeslachts; Florian Szücs
    Abstract: We investigate the impact of competition policy enforcement on the functioning of European energy markets, and how sectoral regulation influences these outcomes. For this purpose, we compile a new dataset on the European Commission’s (EC) and EU member states’ competition policy decisions, and combine it with firm- and sector-level data. We find that EC merger policy has a positive and robust impact on (i) the level of competition; (ii) investment; and (iii) productivity. This impact, however, only shows up in low-regulated sectors. Other competition policy decisions – EC state aid and anti-trust interventions; as well as all individual Member State policy variables – do not have a uniform effect on energy markets’ functioning. Our findings are consistent with the idea that the EC’s merger policy actions have been used to overcome significant obstacles to a well-functioning EU energy sector and may well have shaped the overall development of gas and electricity markets in Europe.
    Keywords: Ex-post evaluation, energy markets, competition policy
    JEL: D24 L4 L98 Q4
    Date: 2017
  14. By: Mark D. Manuszak; Krzysztof Wozniak
    Abstract: We study the pricing of deposit accounts following a regulation that capped debit card interchange fees in the United States and provide the first empirical investigation of the link between interchange fees and granular deposit account prices. This link is broadly predicted by the theoretical literature on two-sided markets, but the nature and magnitude of price changes are key empirical issues. To examine the ways that banks adjusted their account prices in response to the regulatory cap on interchange fees, we exploit the cap's differential applicability across banks and account types, while accounting for equilibrium spillover effects on banks exempt from the cap. Our results show that banks subject to the cap raised checking account prices by decreasing the availability of free accounts, raising monthly fees, and increasing minimum balance requirements, with different adjustment across account types. We also find that banks exempt from the cap adjusted prices as a competitive response to price changes made by regulated banks. Not accounting for such competitive responses underestimates the policy's impact on the market, for both banks subject to the cap and those exempt from it.
    Keywords: Equilibrium effects ; Financial supervision and regulation ; Interchange fees ; Retail banking and debit cards ; Two-sided markets
    JEL: G21 G28 L51
    Date: 2017–07–07
  15. By: De Donder, Philippe; Rodriguez, Frank; Soteri, Soterios
    Date: 2017–06

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