nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒03‒19
twelve papers chosen by
Russell Pittman
United States Department of Justice

  1. Multiproduct Firms, Consumer Search, and Demand Heterogeneity By Yuta KITTAKA
  2. Consumer choice under limited attention when alternatives have different information costs By Frank Huettner,; Tamer Boyaci,; Yalcin Akcay
  3. Gains from multinational competition for crossborder firm acquisition By Koska, Onur A.
  4. Leapfrogging: Time of Entry and Firm Productivity By Josh Ederington; Georg Goetz
  5. Proxyeconomics, An agent based model of Campbell's law in competitive societal systems By Oliver Braganza
  6. Toward a coherent policy on cartel damages By Jens-Uwe Franck; Martin peitz
  7. Collusion and bargaining in asymmetric cournot duopoly: An experiment By Fischer, Christian; Normann, Hans-Theo
  8. Algorithmic Collusion in Cournot Duopoly Market: Evidence from Experimental Economics By Nan Zhou; Li Zhang; Shijian Li; Zhijian Wang
  9. Deterring kickbacks and encouraging entry in public procurement markets : evidence from firm surveys in 88 developing countries By Knack,Stephen; Biletska,Nataliya; Kacker,Kanishka
  10. The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb By Chiara Farronato; Andrey Fradkin
  11. Bank credit supply and firm innovation By Giebel, Marek; Kraft, Kornelius
  12. More information, lower costs: a new electricity market mechanism By Devine, Mel; Lynch, Muireann Á

  1. By: Yuta KITTAKA
    Abstract: This study constructs a sequential consumer search model with differentiated products in which some consumers search for a single product while the others search for multiple products. When the mass of consumers who demand one of the products decreases, the price for one product decreases while another price increases due to the joint-search effect, even if the products are neither complements nor substitutes. In addition, under some conditions, this decrease in demand causes an increase in each firm's profit.
    Date: 2018–03
  2. By: Frank Huettner, (ESMT European School of Management and Technology); Tamer Boyaci, (ESMT European School of Management and Technology); Yalcin Akcay (Melbourne Business School)
    Abstract: Consumers often do not have complete information about the choices they face and therefore have to spend time and effort in acquiring information. Since information acquisition is costly, consumers trade-off the value of better information against its cost, and make their final product choices based on imperfect information. We model this decision using the rational inattention approach and describe the rationally inattentive consumer’s choice behavior when she faces alternatives with different information costs. To this end, we introduce an information cost function that distinguishes between direct and implied information. We then analytically characterize the optimal choice probabilities. We find that non-uniform information costs can have a strong impact on product choice, which gets particularly conspicuous when the product alternatives are otherwise very similar. There are significant implications on how a seller should provide information about its products and how changes to the product set impacts consumer choice. For example, non-uniform information costs can lead to situations where it is disadvantageous for the seller to provide easier access to information for a particular product, and to situations where the addition of an inferior (never chosen) product increases the market share of another existing product (i.e., failure of regularity). We also provide an algorithm to compute the optimal choice probabilities and discuss how our framework can be empirically estimated from suitable choice data.
    Keywords: discrete choice, rational inattention, information acquisition, non-uniform information costs, strong failure of regularity
    JEL: D40 D80
    Date: 2016–08–18
  3. By: Koska, Onur A.
    Abstract: This study shows that when there is multinational competition for foreign acquisition, the strategic use of a consumer welfare argument in regulating foreign market entry leads to a preemptive foreign acquisition. Even under fierce competition, foreign acquisition will emerge as part of a non-cooperative equilibrium (although multinationals would have gained more had they been able to credibly commit to a cooperative equilibrium of independent foreign sales, either via greenfield investment or trade under complete liberalization) which increases local welfare by more than both the case without foreign market entry and the case with foreign market entry via independent foreign sales.
    Keywords: cross-border firm acquisitions,foreign market entry regulations,greenfield investment,trade,consumer welfare
    JEL: F23
    Date: 2018
  4. By: Josh Ederington (University of Kentucky); Georg Goetz (University of Giessen)
    Abstract: We develop a model in which ex ante identical firms make endogenous entry and technology adoption decisions. We show that this model is capable of matching the stylized facts in which entry and adoption are dispersed over time and that, in many industries, it is the newest firms which are the most likely to exhibit high productivity growth and adopt new innovations (i.e., leapfrogging). We then derive the characteristics of those industries where such leapfrogging is likely to occur and show that leapfrogging can induce reverse preemption (i.e., forward-looking incumbent firms delaying entry and adoption due to leapfrogging behavior). As an application, we demonstrate how, in an industry conducive to leapfrogging, research subsidies can actually reduce short-run consumer welfare by discouraging firms from entering the market with a basic technology.
    Keywords: entry, technology adoption
    JEL: L11
    Date: 2018
  5. By: Oliver Braganza
    Abstract: In many areas of society we rely on competition to better achieve societal goals. Ideally, competition motivates effort and efficiently allocates resources. However, due to imperfect information, competition generally depends on quantitative proxy measures in order to assess performance. This leads to an increasing use of such quantitative proxies in modern societies. Examples include: in science, the publication count of an author, in healthcare, the number of patients treated or in business, the profit achieved. Importantly, some practices may optimize proxy performance but not the actual societal goal. In such cases, individual decisions and cultural practices may shift away from the societal goal and toward the proxy. Such processes have been described by a law attributed to Charles Goodhart or Donald T. Campbell, most pithily phrased as: 'When a measure becomes a target it ceases to be a good measure.' While the original mentions of this law address policy determination or education respectively, we propose it applies to any competitive societal system: Any proxy measure in a competitive societal system becomes a target for the competing individuals (or groups). Here, we construct an agent based model to explore the basic components and dynamics of such a process. The model combines an effort incentivization mechanism from economic multitasking theory and contest theory with a slower process of cultural evolution.
    Date: 2018–03
  6. By: Jens-Uwe Franck; Martin peitz
    Abstract: The focus of cartel damages law is on the recovery of the cartel overcharge. Parties other than purchasers are often neglected, not only as a matter of judicial practice, but also due to legal restrictions. We argue that a narrow concept of standing—which excludes parties that supply either the cartel or the firms that purchase from the cartel with complementary product components—falls short of achieving effective antitrust enforcement and corrective justice in the best possible way. We provide a framework with two complementary products and show that under neither competition nor cartelization do the allocation and the distribution of surpluses depend on whether producers of complements purchase from the cartel or supply the cartel or the cartel’s customers. Thus, we argue that prima facie producers of complements should be treated alike, regardless of their position in the supply chain. Moreover, based on various factors that determine the enforcement effect of antitrust damages claims and their role as an instrument to achieve corrective justice, we show that a broad concept of standing is, indeed, the preferable legal solution. While its implementation would require a change in position by the U.S. federal courts, we submit that it would amount to a consistent completion of the legal framework within the E.U.
    Keywords: Cartel damages, antitrust standing, pass-on, suppliers, complementary goods
    JEL: K21
    Date: 2018–03
  7. By: Fischer, Christian; Normann, Hans-Theo
    Abstract: In asymmetric dilemma games without side payments, players face involved cooperation and bargaining problems. The maximization of joint profits is implausible, players disagree on the collusive action, and the outcome is often inefficient. For the example of a Cournot duopoly with asymmetric cost, we investigate experimentally how players cooperate (collude implicitly and explicitly), if at all, in such games. We find that, without communication, players fail to cooperate and essentially play the static Nash equilibrium, confirming previous results. With communication, inefficient firms gain at the expense of efficient ones. When the role of the efficient firm is earned in a contest, the efficient firm earns higher profits than when this role is randomly allocated. Bargaining solutions do not satisfactorily predict collusive outcomes. Finally, when given the choice to talk, the efficient firms often decline that option.
    Keywords: asymmetries,bargaining,cartels,communication,Cournot,earned role,experiments
    JEL: C7 C9 L4 L41
    Date: 2018
  8. By: Nan Zhou; Li Zhang; Shijian Li; Zhijian Wang
    Abstract: Algorithmic collusion is an emerging concept in current artificial intelligence age. Whether algorithmic collusion is a creditable threat remains as an argument. In this paper, we propose an algorithm which can extort its human rival to collude in a Cournot duopoly competing market. In experiments, we show that, the algorithm can successfully extorted its human rival and gets higher profit in long run, meanwhile the human rival will fully collude with the algorithm. As a result, the social welfare declines rapidly and stably. Both in theory and in experiment, our work confirms that, algorithmic collusion can be a creditable threat. In application, we hope, the frameworks, the algorithm design as well as the experiment environment illustrated in this work, can be an incubator or a test bed for researchers and policymakers to handle the emerging algorithmic collusion.
    Date: 2018–02
  9. By: Knack,Stephen; Biletska,Nataliya; Kacker,Kanishka
    Abstract: There is relatively little systematic evidence on the links between procurement systems and outcomes such as competition and corruption levels. This paper adds to the evidence base, using data on almost 34,000 firms from the World Bank?s Enterprise Surveys, in 88 countries that also have procurement systems data from Public Expenditure and Financial Accountability (PEFA) assessments. The analysis finds that in countries with more transparent procurement systems, where exceptions to open competition in tendering must be explicitly justified, firms are more likely to participate in public procurement markets. Moreover, firms report paying fewer and smaller kickbacks to officials in countries with more transparent procurement systems, effective and independent complaint mechanisms, and more effective external auditing systems. These findings?particularly on kickbacks?are robust to the inclusion of many controls and to a range of sensitivity tests. The study finds evidence that better procurement systems matter more for smaller firms? participation in procurement markets and payment of kickbacks to obtain contracts, consistent with the view that information and transactions costs that are incurred in learning about bidding opportunities and fulfilling bidding requirements are more onerous for smaller firms. Falsification tests show that other, non-procurement indicators from the PEFA assessments are not associated with procurement outcomes, and that the PEFA procurement indicators are not strongly associated with other ?governance?-related outcomes in firm surveys that are unrelated to procurement.
    Keywords: Marketing,Non Governmental Organizations,Private Sector Economics,Economics and Institutions,Public Sector Management and Reform,Private Sector Development Law
    Date: 2017–05–30
  10. By: Chiara Farronato; Andrey Fradkin
    Abstract: We study the effects of enabling peer supply through Airbnb in the accommodation industry. We present a model of competition between flexible and dedicated sellers - peer hosts and hotels - who provide differentiated products. We estimate this model using data from major US cities and quantify the welfare effects of Airbnb on travelers, hosts, and hotels. The welfare gains from Airbnb are concentrated in locations (New York) and times (New Year’s Eve) when hotels are capacity constrained. This occurs because peer hosts are responsive to market conditions, expand supply as hotels fill up, and keep hotel prices down as a result.
    JEL: D4 D6 L1 L22 L23 L85 L86
    Date: 2018–02
  11. By: Giebel, Marek; Kraft, Kornelius
    Abstract: We analyze the causal effect of the credit supply shock to banks induced by interbank market disruptions in the recent financial crisis 2008/2009 on their business customers' innovation activity. Using a matched bank-firm data set for Germany, we find that having relations with a more severely affected bank seriously hampers firms' current innovation activities due to funding shortages. Furthermore, we find that firms with a relationship to a less severely affected bank are more likely to initiate new product and process innovations and to reallocate human resources to innovation during the financial crisis.
    Keywords: financing of innovations,credit supply,financial crisis,innovative activities
    JEL: G01 G21 G30 O16 O30 O31
    Date: 2018
  12. By: Devine, Mel; Lynch, Muireann Á
    Date: 2017

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