nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒08‒27
eight papers chosen by
Russell Pittman
United States Department of Justice

  1. The Rise of Market Power and the Macroeconomic Implications By Jan De Loecker; Jan Eeckhout
  2. Fixed vs. Flexible Pricing in a Competitive Market By Selcuk, Cemil; Gokpinar, Bilal
  3. Intellectual Property Boxes and the Paradox of Price Discrimination By Ben Klemens
  4. Oligopoly in International Trade: Rise, Fall and Resurgence By Keith Head; Barbara J. Spencer
  5. Measuring Market Power in Professional Baseball, Basketball, Football and Hockey By Healy, Gerald T., III; Tan, Jing Ru; Orazem, Peter
  6. US Open Skies Agreements and Unlevel Playing Fields By William Morrison, Jaap de Wit
  7. Regional Purchasing Groups and Hospital Medicine Prices: Evidence from Group Creations By Toulemon, L.;
  8. Regional regulators in healthcare service under quality competition: A game theoretical model By Bisceglia, Michele; Cellini, Roberto; Grilli, Luca

  1. By: Jan De Loecker; Jan Eeckhout
    Abstract: We document the evolution of markups based on firm-level data for the US economy since 1950. Initially, markups are stable, even slightly decreasing. In 1980, average markups start to rise from 18% above marginal cost to 67% now. There is no strong pattern across industries, though markups tend to be higher, across all sectors of the economy, in smaller firms and most of the increase is due to an increase within industry. We do see a notable change in the distribution of markups with the increase exclusively due to a sharp increase in high markup firms. We then evaluate the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the last 3 decades: 1. decrease in labor share, 2. increase in capital share, 3. decrease in low skill wages, 4. decrease in labor force participation, 5. decrease in labor flows, 6. decrease in migration rates, 7. slowdown in aggregate output.
    JEL: D2 D4 E2 J3 K2 L1
    Date: 2017–08
  2. By: Selcuk, Cemil (Cardiff Business School); Gokpinar, Bilal (UCL School of Management)
    Abstract: We study the selection and dynamics of two popular pricing policies fixed price and flexible pricing in competitive markets. Our paper extends previous work in marketing, e.g. Desai and Purohit (2004) by focusing on decentralized markets with a dynamic and fully competitive framework while also considering possible non-economic aspects of bargaining. We construct and analyze a competitive search model which allows us to endogenize the expected demand depending on pricing rules and posted prices. Our analysis reveals that fixed price and flexible pricing policies generally coexist in the same marketplace, and each policy comes with its own list price and customer demographics. More specifically, if customers dislike haggling, then fixed pricing emerges as the unique equilibrium, but if customers get some additional satisfaction from the bargaining process, then both policies are offered, and the unique equilibrium exhibits full segmentation: Haggler customers avoid fixed-price firms and exclusively shop at flexible firms whereas non-haggler customers do the opposite. We also find that prices increase in customer satisfaction, implying that sellers take advantage of the positive utility enjoyed by hagglers in the form of higher prices. Finally, considering the presence of seasonal cycles in most markets, we analyze a scenario where market demand goes through periodic ups and downs and find that equilibrium prices remain mostly stable despite significant áuctuations in demand. This finding suggests a plausible competition-based explanation for the stability of prices.
    Keywords: housing; search; thin and thick markets; seasonality
    Date: 2017–08
  3. By: Ben Klemens (U.S. Treasury)
    Abstract: This paper considers the methods by which some existing laws and proposals offer different tax rates to different types of capital, a scheme variously known as a patent box, innovation box, or intellectual property box (IP box). It presents a model of international tax competition—what tax experts call a race to the bottom and competition experts call Bertrand competition—with some capital fixed and some easily moved across borders. The model finds that the highest expected tax revenue from mobile IP for a country hosting a large amount of fixed, non-IP capital comes from assigning a single tax rate to all types of capital—that is, from not implementing an IP box. In the context of Bertrand competition, firms optimize revenue when not engaging in price discrimination across types of customers. As a research and development (R&D) credit, several examples show that the IP box is more easily manipulated than a traditional credit on R&D expenses.
    Date: 2017–03
  4. By: Keith Head; Barbara J. Spencer
    Abstract: Large firms played a central role in the “new trade” models that became a major focus of trade economists in the early 1980s. Subsequent literature for the most part kept imperfect competition but jettisoned oligopoly. Instead, as the heterogeneous firms literature burgeoned in the 2000s, monopolistic competition quickly became established as the workhorse model. The use of oligopoly in trade models has been criticized for reasons that we argue are unpersuasive. Renewed incorporation of oligopolistic firms in international trade is warranted. Quantitative investigations of welfare effects of trade policy should again address the impact of such policies on the allocation of profits across countries.
    JEL: F12 F13 F14 L13
    Date: 2017–08
  5. By: Healy, Gerald T., III; Tan, Jing Ru; Orazem, Peter
    Abstract: Forbes Magazine estimates of annual revenues, costs and team values for professional sports teams are used to derive market power measures for teams in four major professional sports leagues: the MLB, NBA, NHL, and the NFL. Two variants of the Lerner Index, one that reflects short-term operations for the past year and another reflecting the long-run net present value of the franchise are derived over the 2006-2016 period. Only the long-run measure provides estimates that are always consistent with theoretical requirements. Analysis of variance of long-run market power shows that local market factors and past team performance have less impact on market power than common league-wide effects. Team market power depends least on local team effects in leagues that have stronger revenue sharing policies. Price-cost margins are higher for professional teams in North American than for the most valuable European soccer teams, consistent with the stronger exemption from anti-trust law in the U.S.
    Date: 2017–08–10
  6. By: William Morrison, Jaap de Wit (Wilfrid Laurier University)
    Abstract: We examine the relationship between ‘Open Skies’ agreements (OSAs) signed between the USA and various countries or regions on these markets and the absence of a so called ‘level playing field’; i.e. the existence of subsidies and other forms of protection that advantage one nation’s airlines over those of co-signatories to an OSA. We argue that under an oligopoly market structure, strategic competition brought about by OSAs creates incentives to subsidize and/or protect domestic airlines. Such incentives are maintained or amplified by political lobbying efforts that bias civil aviation policies towards producer interests over wider measures of economic welfare. We report on financial aid and policies which have co-evolved along with OSAs and which have advantaged US airlines during the OSA period and which suggest that unlevel playing fields have been perpetuated and possibly made more unlevel during the era of OSAs.
    Keywords: ‘Open Skies’ agreements; Strategic competition; Subsidies; Protection; Level playing field
    JEL: L93 L98
    Date: 2017–08–01
  7. By: Toulemon, L.;
    Abstract: This paper estimates the impact of group purchasing on medicine prices in French hospitals, taking advantage of the entry of hospitals into regional purchasing groups between 2009 and 2014. I use a new database providing the average annual prices paid for all innovative and costly medicines in public hospitals. Using a fixed effects model that controls for hospitals’ medicine-specific bargaining abilities and medicine-specific price trends, I find that group purchasing reduces prices of medicines in oligopoly markets, but has no impact on the prices of medicines with no competitors.
    Keywords: hospital medicine prices; purchasing groups; bargaining ability;
    JEL: C23 I11 J52 J58 L13 L14
    Date: 2017–08
  8. By: Bisceglia, Michele; Cellini, Roberto; Grilli, Luca
    Abstract: In several countries, healthcare services are provided by public and/or private subjects, and they are reimbursed by the Government, on the basis of regulated prices. Thus, providers take prices as given and compete on quality to attract patients. In some countries, regulated prices differ across regions. This paper focuses on the interdependence between regional regulators within a country: it proposes a model of spatial competition to study how price-setters of different regions interact, in a simple but realistic framework. We show that the decentralisation of price regulation implies higher expenditure, but higher patients' welfare.
    Keywords: Healthcare Services; Diagnosis Related Group; 2-Stage Non Cooperative Game; Quality Competition.
    JEL: H42 I11 L13 R12 R38
    Date: 2017–07–10

This nep-com issue is ©2017 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.