nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒11‒19
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. The effect of horizontal mergers, when firms compete in prices and investments By Motta, Massimo; Tarantino, Emanuele
  2. Segmentation versus Agglomeration: Competition between Platforms with Competitive Sellers By Karle, Heiko; Peitz, Martin; Reisinger, Markus
  3. Sustainabnility of Product Market Collusion under Credit Market Imperfections By Sugata Marjit; Arijit Mukherjee; Lei Yang
  4. Market Power and Welfare in Asymmetric Divisible Good Auctions By Carolina Manzano; Xavier Vives
  5. Price competition and limited attention By Karpov, Aleksandr
  6. Investment under uncertainty : Timing and capacity optimization By Wen, Xingang
  7. Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market By Sara Ellison; Christopher M. Snyder; Hongkai Zhang
  8. Pricing Advices By Suehyun Kwon
  9. Information Exchange in Retail Markets with Uncertainty about Downstream Costs By Daniel Herold
  10. Shopping hours and entry - An empirical analysis of Aldi's opening hours By Samuel de Haas; Daniel Herold; Jan T. Schaefer
  11. Global consolidation of industries and business failures: insights from brick-and-mortar and online outlets By Amankwah-Amoah, Joseph
  12. The Competitive Effects of Linking Electricity Markets Across Space and Time By Tangerås, Thomas; Wolak, Frank A.
  13. Market Power Under Nodal and Zonal Congestion Management Techniques By Bjørndal, Endre; Bjørndal, Mette; Rud, Linda; Alangi, Somayeh Rahimi
  14. Gender wage discrimination and trade openness. Prejudiced employers in an open industry By Yahmed, Sarra Ben
  15. Local Competition and Physicians’ Pricing Decisions: New Evidence from France By Benjamin Montmartin; Mathieu Escot
  16. Compliance Programs, Signaling and Firms' Internal Coordination By Daniel Herold

  1. By: Motta, Massimo; Tarantino, Emanuele
    Abstract: It has been suggested that mergers, by increasing concentration, raise incentives to invest and hence are pro-competitive. To study the effects of mergers, we rewrite a game with simultaneous price and cost-reducing investment choices as one where firms only choose prices, and make use of aggregative game theory. We find no support for that claim: absent effciency gains, the merger lowers total investments and consumer surplus.Only if it entails suffcient effciency gains, will it be pro-competitive. We also show there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.
    JEL: K22 D43 L13 L41
    Date: 2017
  2. By: Karle, Heiko; Peitz, Martin; Reisinger, Markus
    Abstract: For many products, platforms enable sellers to transact with buyers. We show that the competitive conditions among sellers shape the market structure in platform industries. If product market competition is tough, sellers avoid competitors by joining different platforms. This allows platforms to sustain high fees and explains why, for example, in some online markets, several homogeneous platforms segment the market. Instead, if product market competition is soft, agglomeration on a single platform emerges, and platforms fi ght for the dominant position. These insights give rise to novel predictions. For instance, market concentration and fees are negatively correlated in platform industries, which inverts the standard logic of competition.
    Keywords: endogenous segmentation; intermediation; market structure; price competition; Two-sided markets
    JEL: D43 L13
    Date: 2017–11
  3. By: Sugata Marjit; Arijit Mukherjee; Lei Yang
    Abstract: We study the implications of credit constraints for the sustainability of product market collusion in a bank-financed oligopoly in which firms face an imperfect credit market. We consider two situations, without and with credit rationing, i.e., with a binding credit limit. When there is credit rationing, a moderately higher cost of external financing may affect the degree of collusion, but a substantial increase keeps it unaffected relative to the no-constraint case. A permanent adverse demand shock in this setup does not affect the possibility of collusion, but may aggravate financing constraints and eventually lead to collusion. We consider both Cournot and Bertrand models, and the results are qualitatively the same.
    Keywords: collusion, credit market, debt-equity
    JEL: D21 D43 G21
    Date: 2016
  4. By: Carolina Manzano; Xavier Vives
    Abstract: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we find that an increase in transaction costs and/or a decrease in the precision of a bidding group.s information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A “stronger†bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the deadweight loss may be negatively associated.
    Keywords: demand/supply schedule competition, private information, liquidity auctions, treasury auctions, electricity auctions
    JEL: D44 D82 G14 E58
    Date: 2016
  5. By: Karpov, Aleksandr
    Abstract: The paper develops a model of price competition in presence of consumers with limited attention. Education and obfuscation marketing strategies are studied. It is shown that firms in highly competitive industries have incentives to obfuscate, but firms in low competitive industries have not.
    Keywords: bounded rationality,hotelling linear city model,consideration set,limited attention,unawareness
    JEL: D03 D11 D43
    Date: 2017
  6. By: Wen, Xingang (Tilburg University, School of Economics and Management)
    Abstract: This thesis consists of three chapters on analyzing the optimal investment timing and investment capacity for the firm(s) undertaking irreversible investment in an uncertain environment. Chapter 2 studies the investment decision of a monopoly firm when it can adjust output quantity in a market with uncertain demand. Chapter 3 investigates the strategic interactions of investment decisions between a first investor that always produces up to capacity and a second investor that can adjust the output quantity. Chapter 4 considers the regulator’s optimal subsidy policy to align the firm’s optimal investment decision to the social optimal decision.
    Date: 2017
  7. By: Sara Ellison; Christopher M. Snyder; Hongkai Zhang
    Abstract: We study price dynamics for computer components sold on a price-comparison website. Our fine-grained data—a year of hourly price data for scores of rival retailers—allow us to estimate a dynamic model of competition, backing out structural estimates of managerial frictions. The estimated frictions are substantial, concentrated in the act of monitoring market conditions rather than entering a new price. We use our model to simulate the counterfactual gains from automated price setting and other managerial changes. Coupled with supporting reduced-form statistical evidence, our analysis provides a window into the process of managerial price setting and the microfoundation of pricing inertia, issues of growing interest in industrial organization and macroeconomics.
    JEL: L11 C73 D21 L81
    Date: 2016
  8. By: Suehyun Kwon
    Abstract: This paper studies a selling mechanism where the seller first charges a fee for advice (information structure) then sells a product. When the buyer has no private information, the seller can extract full surplus, both when the seller has private information and when he doesn’t. If only the buyer has private information, the seller cannot extract full surplus. When both the seller and the buyer have private information, selling advice can strictly increase the probability of trade, and it is welfare-improving for both parties. In the private-value setting, Myerson-Satterthwaite no-trade theorem can be overcome by this mechanism. If the seller’s valuation doesn’t depend on the buyer type, then commitment power doesn’t change results, but with interdependent values, the limited-commitment solution cannot replicate the full-commitment solution.
    Keywords: information design, dynamic informed-principal problem, interdependent values, limited commitment, Myerson-Satterthwaite
    Date: 2017
  9. By: Daniel Herold (Justus-Liebig-University Giessen)
    Abstract: An information exchange between two producers selling independent products to the same retailer can have ambiguous effects on market efficiency and surplus. When a retailer's costs are unobservable the producers may have an incentive to communicate about their negotiations with that retailer. If each producer is allowed to place one offer the producers will have no incentive to exchange information. However, the retailer may communicate that he refused the first offer to the other firm which subsequently might place a lower offer. When one firm is allowed to place a second offer, two equilibria involve communication between the producers. In a separating equilibrium an information exchange ensures that agreement will always be found. In a hybrid equilibrium, the likelihood that agreement is found is less likely.
    JEL: L41 L42 L13
    Date: 2017
  10. By: Samuel de Haas (Justus-Liebig-University Giessen); Daniel Herold (Justus-Liebig-University Giessen); Jan T. Schaefer (Justus-Liebig-University Giessen)
    Abstract: Aldi, the biggest discounter in Germany, started to systematically extend shopping hours of its stores in 2016. We interpret the decision to extend opening hours of a specific Aldi store as entry into a new market. By using a novel data set containing the opening hours of nearly all German grocery retailers, we find that consumer and firm learning infl uence that decision. The presence of a nearby Aldi already opened longer increases the probability that a given Aldi extends its opening hours. However, if a nearby competitors store is short opened, the probability that Aldi extends opening hours decreases.
    Keywords: Shopping hours, Retailing, Coordination, Market Entry
    JEL: L22 L41 L81
    Date: 2017
  11. By: Amankwah-Amoah, Joseph
    Abstract: Although online platforms are increasingly seen as a linchpin for firms competing in the 21st century, our understanding of competition between the traditional brick-and-mortar and online outlets, and how this can lead to different types of business failures, remains limited. In the light of the disjointed nature of the current streams of research, we propose an integrated framework that classifies the differential effects of online and brick-and-mortar competition. Based on a review of the literature, the study identified four competitive dynamics, i.e. bricks vs. bricks; clicks vs. bricks; clicks vs. clicks and brick-and-click, and explores how they can lead to different kinds of business. It is contended that the failure rate is likely to rise for small firms that adopt a sole brick-and-mortar strategy largely due to the risk of becoming “research shops”. The study contributes to comparative strategic management literature by shedding light on the evolution of online and offline management strategies and practices across the globe. In this direction, the study provides insights on some aspects both universal and country-specific features in the evolution of online and offline. The analysis highlights the importance of championing successful blending of both online and offline platforms.
    Keywords: online shopping; bricks-and-mortar shops; technology; internet; business failure.
    JEL: M2 M20 M29
    Date: 2017–10–30
  12. By: Tangerås, Thomas (Research Institute of Industrial Economics (IFN)); Wolak, Frank A. (Program on Energy and Sustainable Development and Department of Economics)
    Abstract: We show that a common regulatory mandate in electricity markets that use location-based pricing that requires all customers to purchase their wholesale electricity at the same quantity-weighted average of the locational prices can increase the performance of imperfectly competitive wholesale electricity markets. Linking locational markets strengthens the incentive for vertically integrated firms to participate in the retail market, which increases competition in the short-term wholesale market. In contrast, linking locational markets through a long-term contract that clears against the quantity-weighted average of short-term wholesale prices does not impact average wholesale market performance. These results imply that a policy designed to address equity considerations can also enhance efficiency in wholesale electricity markets.
    Keywords: Electricity markets; Equity; Market design; Market performance; Market power; Vertical integration
    JEL: C72 D43 G10 G13 L13
    Date: 2017–10–17
  13. By: Bjørndal, Endre (Dept. of Business and Management Science, Norwegian School of Economics); Bjørndal, Mette (Dept. of Business and Management Science, Norwegian School of Economics); Rud, Linda (Dept. of Business and Management Science, Norwegian School of Economics); Alangi, Somayeh Rahimi (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: Contrary to the common thought that nodal pricing provides more opportunities for a strategic player to exert market power than the zonal model, we show that in the latter one because of the need for re-dispatch or counter-trading, another extra place is created letting more gaming possibilities. Therefore, if proper market power mitigation approaches are not utilized in both day-ahead and re-dispatch markets, then zonal pricing may be more susceptible to market power, especially in zonal model which is based on available transfer capacity (ATC), strategic player's profit and social welfare can be very volatile. In general, the more network constraints are incorporated in day-ahead market (100% in nodal and almost zero in ATC), the more social welfare is attainable. Hence, nodal model is acquitted from the more market power denunciation.
    Keywords: Market design; congestion management; available transfer capacity (ATC); market power; exibility cost of re-dispatch or counter-trading
    JEL: C60 L10 L94
    Date: 2017–11–07
  14. By: Yahmed, Sarra Ben
    Abstract: I introduce taste-based discrimination in a trade model with imperfect competition and provide an explanation for the heterogeneous effects of international trade on the gender wage gap within sectors. Firms operate in an oligopoly where prejudiced employers can use their rents to pay men a premium in line with Becker's theory. On one hand, import competition reduces local rents and with them the average gender wage gap in sectors that were sheltered from competition prior to trade liberalization. On the other hand, easier access to foreign markets can increase domestic firms' profits and enable discriminatory firms to maintain wage gaps. Evidence from the Uruguayan trade liberalisation supports the empirical relevance of the taste-based discrimination mechanism at the sectoral level.
    Keywords: gender wage gap,employer taste-based discrimination,international trade,imperfect competition
    JEL: F16 J31 J7 L13
    Date: 2017
  15. By: Benjamin Montmartin (Université Côte d'Azur, France; GREDEG CNRS); Mathieu Escot (UFC Que Choisir)
    Abstract: More than 40% of French specialist practitioners are able to balance bill their patients. We examine the determinants of their choice to switch or not to an optional system of self-limitation of fees in exchange for subsidies, and the role in particular of local competition. We use a logit model with data on 5568 gynecologists, ophthalmologists and pediatricians, in years 2012 and 2016. We find that their decision is guided primarily by their characteristics such as their initial price or type of practice, and the share of patients that they can balance bill. The local competitive environment does not have a significant impact on the pricing decisions of private physicians. Therefore, governments that want to limit balance billing need to apply a mandatory ceiling rather than introducing an optional system.
    Keywords: Balance billing, Health care access, fee regimes, Fee-for-services, Local and Price competition
    JEL: H51 I11 I18
    Date: 2017–11
  16. By: Daniel Herold (Justus-Liebig-University Giessen)
    Abstract: Fines imposed on firms for corporate infringements such as cartels reduce these infringement's profitability. When a manager knows when a violation is unprofitable he can prevent violations committed by an uninformed employee by investing in compliance programs (CPs). Investments can be interpreted as signals. The paper shows that there exists a separating equilibrium where high investments in CPs induce the employee to obey the law. However, if CPs are too expensive the signal is not credible. The manager can also show personal commitment to compliance ('tone-at-the-top'). Coordination on an efficient outcome will then be achievable if commitment is costly. Imposing high, individual sanctions on the manager disturbs a firm's internal coordination because he is unable to credibly signal that an infringement does not pay off for the firm. However, imposing sanctions on the employee unambiguously deters violation.
    Keywords: Bitcoin, Compliance, Crime, Tone-at-the-top
    JEL: D82 D86 L14 L22 K20 K21
    Date: 2017

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