nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒02‒05
seventeen papers chosen by
Russell Pittman
United States Department of Justice

  1. Buyer Group and Buyer Power When Sellers Compete By Jeon, Doh-Shin; Menicucci, Domenico
  2. Strategic inventories under limited commitment By Antoniou, Fabio; Fiocco, Raffaele
  3. Do Prices Determine Vertical Integration?” By Laura Alfaro; Paola Conconi; Harald Fadinger; Andrew A.F. Newman
  4. Privacy and Platform Competition By Dimakopoulos, Philipp; Sudaric, Slobodan
  5. The Amazon Monopoly: Is Amazon’s Private Label Business the Tipping Point? By Faherty, Emily; Huang, Kevin; Land, Robert
  6. Match Quality, Search, and the Internet Market for Used Books By Glenn Ellison; Sara Fisher Ellison
  7. Positive and negative effects analysis in abuse of dominance By Marginean, Mihai
  8. Quali driver nella selezione delle target in operazioni di M&A? Una verifica empirica nel mercato italiano By Barbara Fidanza
  9. Paralyzed by Fear: Rigid and Discrete Pricing under Demand Uncertainty By Cosmin Ilut; Rosen Valchev; Nicolas Vincent
  10. Trade Credit and Product Market Power during a Financial Crisis By Adalto Barbaceia Gonçalves; Rafael Schiozer; Hsia Hua Sheng
  11. Measuring Imperfect Competition in Product and Labor Markets. An Empirical Analysis using Firm-level Production Data By Tortarolo, Dario; Zarate, Roman D.
  12. Price Discrimination in the Italian Medical Device Industry: An Empirical Analysis By Alberto Cavaliere; Giovanni Crea; Angelo Cozzi
  13. Preventives Versus Treatments Redux: Tighter Bounds on Distortions in Innovation Incentives with an Application to the Global Demand for HIV Pharmaceuticals By Michael Kremer; Christopher M. Snyder
  14. Endogenous timing with a socially responsible firm By Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho
  15. An Analysis of the Impact of Larger Aircraft (A-380) on Flight Frequency By Aliya Ussinova; Isabelle Laplace; Chantal Latgé-Roucolle
  16. Bank competition and financial system stability in a developing economy: does bank capitalization and size matter? By Chileshe, Patrick Mumbi
  17. Banking structure and the bank lending channel of monetary policy transmission: evidence from panel data methods By Chileshe, Patrick Mumbi

  1. By: Jeon, Doh-Shin; Menicucci, Domenico
    Abstract: We study how buyer group affects buyer power when sellers compete with non-linear tariffs and buyers operate in separate markets. In the baseline model of two symmetric sellers and two symmetric buyers, we characterize the set of equilibria under buyer group, the set without buyer group and compare both. We find that the interval of each buyer's equilibrium payoffs without buyer group is a strict subset of the interval under buyer group if each seller's cost function is strictly convex, whereas the two intervals are identical if the cost function is concave. Our result implies that buyer group has no effect when the cost function is concave. When it is strictly convex, buyer group strictly reduces the buyers' payoff as long as, under buyer group, we select the Pareto-dominant equilibrium in terms of the sellers' payoffs. We extend this result to asymmetric settings with an arbitrary number of buyers.
    Keywords: Buyer Group; Buyer Power; Common Agency; Competition in Non-linear Tariffs; Discriminatory Offers
    JEL: D4 K21 L41 L82
    Date: 2017–12
  2. By: Antoniou, Fabio; Fiocco, Raffaele
    Abstract: In a dynamic storable good market where demand changes over time, we investigate the producer's strategic incentives to hold inventories in response to the possibility of buyer stockpiling. The literature on storable goods has demonstrated that buyer stockpiling in anticipation of higher future prices harms the producer's profitability, particularly when the producer cannot commit to future prices. We show that the producer's inventories act as a strategic device to mitigate the loss from the lack of commitment. Our results provide a rationale for the producer's inventory behavior that sheds new light on the well-documented empirical evidence about inventories.
    Keywords: buyer stockpiling, commitment, storable goods, strategic inventories
    JEL: D21 D42 L12
    Date: 2018–01–14
  3. By: Laura Alfaro; Paola Conconi; Harald Fadinger; Andrew A.F. Newman
    Date: 2016–02–25
  4. By: Dimakopoulos, Philipp (Humboldt University Berlin); Sudaric, Slobodan (Humboldt University Berlin)
    Abstract: We analyze platform competition where user data is collected to improve adtargeting. Considering that users incur privacy costs, we show that the equilibrium level of data provision is distorted and can be inefficiently high or low: if overall competition is weak or if targeting benefits are low, too much private data is collected, and vice-versa. Further, we find that softer competition on either market side leads to more data collection, which implies substitutability between competition policy measures on both market sides. Moreover, if platforms engage in two-sided pricing, data provision is efficient.
    Keywords: ad targeting; platform competition; privacy; user data;
    JEL: D43 L13 L40 L86
    Date: 2018–01–22
  5. By: Faherty, Emily; Huang, Kevin; Land, Robert
    Abstract: The purpose of this paper is to consider if Amazon’s increase in private label brands is the tipping point for transforming the e-commerce giant into a monopoly. To lay the foundation, we initially explore the culture, leadership, and business practices which are unique to Amazon that enabled the company to become one of the U.S.’s largest and fastest growing e-commerce websites. Introduced in 2009, Amazon’s private label business has further propelled Amazon’s growth while creating a competitive advantage for the company by offering high quality products to their customers at low cost options. In considering whether private label brands affect Amazon’s status as a monopoly, we first examine exactly what a monopoly is and if Amazon can be classified as one in its current state. We then take a deep dive into Amazon’s private label strategy, analyzing past performance to make educated assumptions about the future. Our research provided evidence indicating that Amazon’s actions are threatening the cooperative nature of its Marketplace by creating substantial barriers to entry and increasing Amazon’s market share. With this knowledge we make predictions about Amazon’s future and whether it will ever be seen as a monopoly under the economic, legal, and/or social definitions. While Amazon’s case is unprecedented, this paper sources leading economists, journalists, and other academic research to support our theory.
    Keywords: amazon, monopoly, amazon marketplace, private label, store brand, jeff bezos, white label, consumer protection, sherman act, anti-trust, clayton act, hart-scott-rodino, federal trade commission
    JEL: D4 D40 D42 D43 D44 D5 K21 K23 Q55
    Date: 2017–12–03
  6. By: Glenn Ellison; Sara Fisher Ellison
    Abstract: This paper examines the effect of the Internet on markets in which match-quality is important, including an analysis of the market for used books. A model in which sellers of unusual objects wait for high-value buyers to arrive brings out match quality and competition effects through which improved search technologies may increase both price dispersion and social welfare. A reduced-form empirical analysis finds support for a number of more nuanced predictions of the model in the context of the used book market, exploiting both cross-sectional differences across books and time-series differences in the wake of Amazon's acquisition and incorporation of a large used book marketplace. The paper develops a framework for structural estimation of a model based on the theory. The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus.
    JEL: D22 L13 L81
    Date: 2018–01
  7. By: Marginean, Mihai
    Abstract: Abuse of a dominant position is a threat to the functioning of the free market. This is the reason why we have proposed to highlight the impact of this particular anti-competitive practice in the European Union area. The aim of this paper is to present, from a theoretical and practical approach, the implications and the effects of this type of behavior and also to highlight the main actors in this process. In order to achieve these goals, we will use the content analysis to compress the effects of the abuse of dominant position in two categories: positive and negative effects. The historical method to emphasize the historical origins of the concepts and institutions involved. The comparative method will be used to nominate specific features, concepts or institutions that we will analyze and also it will help us to analyze the evolution that have occurred over time in terms of their development and to highlight certain advantages or disadvantages in terms of choice of competition policy on the abuse of a dominant position. In this paper we will notice that both the companies and the market itself are facing with companies that use anti-competitive since 1900. These kind of practices are harmful both for competition and for consumers, so that should not be allowed to expand. In this context, the European Commission imposed a set of rules that all operators must comply in order to protect, maintain and stimulate competition in the Single Market and to promote fair competition.
    Keywords: competition, anticompetitive policy, abuse of dominance
    JEL: G3 G39
    Date: 2017–11–08
  8. By: Barbara Fidanza (University of Macerata)
    Abstract: Utilizzando un campione di M&A realizzatesi tra il 2007 e il 2016 in Italia, si è testato l'esistenza di un qualche legame tra l'orientamento all'innovazione di imprese che operano nei settori del manifatturiero e la loro partecipazione alle operazioni in qualità di target. Si è dimostrato che le imprese ad alta intensità di spesa per brevetti e bassa di spese di R&S sono, con maggiore probabilità , target di M&A. Gli stessi risultati non sono però riscontrati se l'acquirer è un investitore istituzionale, un'impresa, quindi, che certamente non ha sovrapposizione tecnologica con la target, in questo caso è rilevante solo l'intensità in R&S e assumono maggiore importanza le determinanti performance e dimensione. È stato altresí oggetto di indagine l'effetto prodotto dai deal sulle target dalle operazioni del campione. Nel periodo post-deal rispetto al periodo pre-deal, in termini di variazione percentuale, gli effetti più significativi si sono rilevati sulla spesa in brevetti e in R&S, che, rispettivamente, si è ridotta ed è aumentata, a conferma che con le operazioni di M&A si ottengono sinergie che incidono sulle capacità di innovazione e possono rappresentare un importante impulso a farvi parte.
    Keywords: M&A,Synergies,R&D expenses,Technological overlap,Innovation
    JEL: G34 O30 O32
    Date: 2017–12
  9. By: Cosmin Ilut (Duke University); Rosen Valchev (Boston College); Nicolas Vincent (HEC Montreal)
    Abstract: Price rigidity is central to many predictions of modern macroeconomic models, yet, standard models are at odds with certain robust empirical facts from micro price datasets. We propose a new, parsimonious theory of price rigidity, built around the idea of demand uncertainty, that is consistent with a number of salient micro facts. In the model, the monopolistic firm faces Knightian uncertainty about its competitive environment, which has two key implications. First, the firm is uncertain about the shape of its demand function, and learns about it from past observations of quantities sold. This leads to kinks in the expected profit function at previously observed prices, which act as endogenous costs of changing prices and generate price stickiness and a discrete price distribution. Second, the firm is uncertain about how aggregate prices relate to the prices of its direct competitors, and the resulting robust pricing decision makes our rigidity nominal in nature.
    Keywords: price rigidity, demand uncertainty
    Date: 2016–03–01
  10. By: Adalto Barbaceia Gonçalves; Rafael Schiozer; Hsia Hua Sheng
    Abstract: This paper investigates whether product market power affects trade credit decisions. We exploit the 2007-08 credit crisis in the U.S. as a source of variation in the importance of product market power for trade credit. We find that a one standard deviation increase in market power is associated to a decrease in payables of approximately four days during the crisis, showing that high market power firms alleviate financial constraints from their suppliers to avoid the loss of monopoly rents. Our inferences are robust to structural and non-structural measures of market power, both at the firm and at the industry levels, and the inclusion of controls to address potential confounding effects deriving from other firm features, including financial constraints, industry specific shocks and macroeconomic effects.
    Keywords: trade credit; financial crisis; market power; monopoly rents; liquidity provision
    JEL: G00 G30 G32 D43
    Date: 2018–01–11
  11. By: Tortarolo, Dario; Zarate, Roman D.
    Abstract: In this paper, we develop a simple theoretical model that allows us to disentangle empirically the extent of imperfect competition in product and labor markets using plant-level production data. The model assumes profit-maximizing producers that face upward-sloping labor supply and downward-sloping product demand curves. We derive a reduced-form formula for the ratio between markdowns and markups based on DeLoecker and Warzynski (2012). We use production function estimation techniques to estimate output elasticities and construct a measure of combined market power. We separate product and labor market power by estimating firm-level labor supply elasticities instrumenting wages with intermediate inputs. Our results suggest that both markets exhibit imperfect competition, but variation across industries is driven by the ease of firms to set prices above marginal costs. On average, manufacturing plants charge prices 78% higher than marginal costs, and pay wages 11% less than marginal revenue productivity of labor. We find a negative correlation between product and labor market power and more elastic labor supply curves for unskilled workers. Moreover, we obtain a positive correlation between firms’ product market power and productivity, size and exporter status, and a negative correlation of these measures with labor market power. In the last part, we estimate the relative gains of eliminating market power dispersion on allocative efficiency using the model by Hsieh and Klenow (2009). We find that market power dispersion in product markets is more important on TFP than labor markets, and that the negative correlation between the two measures of market power corrects in 7% the economic distortion derived from market power dispersion.
    Keywords: Desarrollo, Economía, Industria, Sector financiero,
    Date: 2018
  12. By: Alberto Cavaliere (Department of Economics and Management, University of Pavia); Giovanni Crea (Department of Economics and Management, University of Pavia); Angelo Cozzi (Department of Economics and Management, University of Pavia)
    Abstract: In this paper we carry out an empirical analysis to show that the significant price dispersion in the Italian market for medical devices may also be due to price discrimination strategies. We find that ASL (Aziende Sanitarie Locali) incur higher costs than AO (Aziende Ospedaliere) that purchase larger quantities. Centralized purchasing agencies pay lower prices than single purchasers. Therefore second-degree price discrimination seems to be one cause of price differences. Product age has a negative effect on prices due to the impact of innovation on suppliers’ costs. Concerning geographical price discrimination, public procurers located in the south pay significantly higher prices than those located in Northern or Central Italy. However we show that this result may be due to the higher probability that southern public procurers purchase from independent retailers rather than from producers of medical devices, implying a potential double marginalization effect due to the market power of retailers at a local level.
    Keywords: Price Dispersion, Bayesian Networks, Double Marginalization.
    JEL: I11 H51 L11
    Date: 2018–01
  13. By: Michael Kremer; Christopher M. Snyder
    Abstract: Kremer and Snyder (2015) show that demand curves for a preventive and treatment may have different shapes though they target the same disease, biasing the pharmaceutical manufacturer toward developing the lucrative rather than the socially desirable product. This paper tightens the theoretical bounds on the potential deadweight loss from such biases. Using a calibration of the global demand for HIV pharmaceuticals, we demonstrate the dramatically sharper analysis achievable with the new bounds, allowing us to pinpoint potential deadweight loss at 62% of the global gain from curing HIV. We use the calibration to perform policy counterfactuals, assessing welfare effects of government policies such as a subsidy, reference pricing, and price-discrimination ban. The fit of our calibration is good: we find that a hypothetical drug monopolist would price an HIV drug so high that only 4% of the infected population worldwide would purchase, matching actual drug prices and quantities in the early 2000s before subsidies in low-income countries ramped up.
    JEL: F23 I14 L65 O31
    Date: 2018–01
  14. By: Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho
    Abstract: This study considers a mixed duopoly in which a socially responsible firm competes with a private firm by incorporating environmental externality and clean technology. We analyze the endogenous market structure in which both firms strategically decides quantities sequentially or simultaneously, which also affects abatement activities. We show that depending on the relative concerns on environment and consumers surplus, the socially responsible firm can be less or more aggressive in the production and abatement. Thus, not only the signifiicance of externality but also the instrumental conflict of social concerns are crucial factors in determining the equilibrium of endogenous timing game, in which the socially responsible firm might earn higher profits.
    Keywords: endogenous timing; socially responsible firm; mixed duopoly; clean technology; environmental externality
    JEL: L13 L31 Q5
    Date: 2018–01–18
  15. By: Aliya Ussinova (TSE - Toulouse School of Economics - Toulouse School of Economics); Isabelle Laplace (ENAC - Ecole Nationale de l'Aviation Civile); Chantal Latgé-Roucolle (ENAC - Ecole Nationale de l'Aviation Civile)
    Abstract: Innovations in the airline industry can have a significant impact on the behavior of air transport stakeholders: airline companies, airports and passengers. In this paper, we consider the introduction of a double-deck plane, the A-380, which is currently the largest aircraft available. Due to its size, it is able to carry at once approximately twice as many passengers as any other medium-sized aircraft. When associated with a reduction in flight frequencies, the operation of such aircraft is expected to lower the environmental impact. However, flight frequency depends on factors others than the aircraft size, such as airport fees, demand and strategic decisions of companies to maximize their profits under competition. Using a monthly panel data set on airlines’ supply over 10 years, on 118 routes, we test if the use of the A-380 impacts airlines’ flight frequency at a route-level. Results suggest that heavy use of the A-380 leads airlines to reduce their own flight frequency. We also find that when facing the introduction of the A-380 on a route, airlines will tend to react by increasing their own flight frequency.
    Keywords: A-380,flight frequency,airline innovation,airline competition
    Date: 2017
  16. By: Chileshe, Patrick Mumbi
    Abstract: This study investigates the effect of bank competition, bank size, diversification and capitalization on risk taking behavior of commercial banks using panel data from Zambia. In addition, the study investigates the effect of capitalization and bank size on the bank competition-stability nexus. The empirical analysis is performed in two stages. In the first stage, time varying bank-specific Lerner Index is estimated. Then this measure of market power as well as other control variables are regressed on measures of bank soundness such as credit risk and overall stability (Z-Score and ZROE). Using a quarterly panel data of Zambian Banks covering the period Q1 2005 to Q4 2016, in general results from the study show that there is a positive relationship between market power and bank stability. In particular, results show that an increase in market power reduces a banks credit risk while it increases overall bank stability. These results are consistent with the ‘concentration-stability’ hypothesis common in some empirical literature. Furthermore, bank size and capitalization are associated with improvement in bank stability while lack of income diversification reduces bank stability. Finally, results of this study also indicate that larger and well-capitalized banks with market power are more stable than smaller and less capitalized ones. Policy implications for supervisory authorities in Zambia and other developing countries can be drawn from this study. First, there is need for supervisory authorities in Zambia to tread carefully with regard to enhancing competition in the banking sector as the results clearly indicate that it can have negative effects on financial stability. Secondly, results in this study render support to the use of stringent capital requirements under the Basel II and Basel III. Finally, it would be prudent for supervisory policies to include income diversification regulations thresholds among the commercial banks.
    Keywords: Panel Data, Lerner Index, Stability, Non-Performing Loans, Z-SCORE, ZROE
    JEL: E43 G21 L2
    Date: 2017–06
  17. By: Chileshe, Patrick Mumbi
    Abstract: This study examines comprehensively the bank-lending channel of monetary policy for Zambia using a bank-level panel data covering the period Q1 2005 to Q4 2016. Specifically, the study investigates the effects of monetary policy changes on loan supply by commercial as well as the effect of bank-specific factors on response of loan supply to monetary policy shocks. In addition, the study investigates whether the level of bank competition does affect the bank-lending channel. Using a dynamic panel data approaches developed by Arellano-Bond (1991), the results indicate that a bank-lending channel exists in Zambia. In particular, the results show that is loan supply is negatively correlated with policy rate implying that following monetary policy tightening loan supply shrinks. Further, the results indicate that size, liquidity and bank-competiveness have effects on credit supply while capitalization has no effect. Specifically, the results show that bank size has negative effect on credit supply while liquidity and market power are found to enhance credit supply. Most importantly, the results showed that bank-specific factors and bank-competiveness is responsible for the asymmetrical response of banks to monetary policy. Specifically, the results showed that larger banks, banks with more market power, well-capitalized banks and liquid banks respond less to monetary policy tightening and vice-versa.
    Keywords: Monetary Policy Transmission, Bank Lending Channel, Panel Data, Generalized Method of Moments, Zambia
    JEL: E44 E52 G3
    Date: 2017–09

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