nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒05‒28
fifteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Deception and Competition in Search Markets By Tobias Gamp; Daniel Kraehmer
  2. Come Together: Firm Boundaries and Delegation By Alfaro, Laura; Bloom, Nicholas; Conconi, Paola; Fadinger, Harald; Legros, Patrick; Newman, Andrew; Sadun, Raffaella; Van Reenen, John
  3. Strict Fairness of Equilibria in Mixed and Asymmetric Information Economies By Chiara Donnini; Maria Laura Pesce
  4. The whole is greater than the sum of its parts: Pricing pressure indices for mergers of vertically integrated firms By Trost, Michael
  5. Labor's Share, the Firm's Market Power and TFP By R. Dixon; G.C. Lim
  6. How Do Firms Utilize the Deferred Patent Examination System? Evidence from Korea By Junbyoung Oh; Zhen Lei; Siwei Cao
  7. The Production of Information in an Online World: Is Copy Right? By Julia Cage; nicolas Hervé; Marie-Luce Viaud
  8. Zero-rating, network effects, and capacity investments By Steffen Hoernig; Francisco Monteiro
  9. Vertical integration in the e-commerce sector By Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie
  10. Simulation and Evaluation of Zonal Electricity Market Designs By Hesamzadeh, M.; Holmberg, P.; Sarfati, M.
  11. The impact of market deregulation on milk price: A dynamic panel data approach By Fotis, Panagiotis; Polemis, Michael
  12. The impact of increasing competition for non-contract parcels on postal prices and efficiency decisions By De Donder, Philippe; Soteri, Soterios
  13. Price regulations and price adjustment dynamics: Evidence from the Austrian retail fuel market By Fasoula, Evanthia; Schweikert, Karsten
  14. How Hard Is It to Maximise Profit? Evidence from a 19-th Century Italian State Monopoly By Ciccarelli, Carlo; De Fraja, Gianni; Tiezzi, Silvia
  15. Protection for Sale with Price Interactions and Incomplete Pass-Through By Barbara Annicchiarico; Enrico Marvasi

  1. By: Tobias Gamp; Daniel Kraehmer
    Abstract: We study the interplay between deception and consumer search in a search market where firms may deceive some naive consumers with inferior products that display hidden (bad) attributes. We derive an equilibrium in which both superior and inferior quality is offered and show that as search frictions vanish, superior goods are entirely driven out of the market. Deception harms sophisticated consumers, as it forces them to search longer to find a superior product. We argue that policy interventions that reduce search frictions such as the standardization of price and package formats may harm welfare. In contrast, reducing the number of naive consumers through transparency policies and education campaigns as well as a minimum quality standard can improve welfare.
    Keywords: Deceptive product, Inferior product, Naivete, Consumer Search
    JEL: D18 D21 D43 D83
    Date: 2018–05
  2. By: Alfaro, Laura; Bloom, Nicholas; Conconi, Paola; Fadinger, Harald; Legros, Patrick; Newman, Andrew; Sadun, Raffaella; Van Reenen, John
    Abstract: Little is known theoretically, and even less empirically, about the relationship between firm boundaries and the allocation of decision rights within firms. We develop a model in which firms choose which suppliers to integrate and whether to delegate decisions to integrated suppliers. We test the predictions of the model using a novel dataset that combines measures of vertical integration and delegation for a large set of firms from many countries and industries. In line with the model's predictions, we obtain three main results: (i) integration and delegation co-vary positively; (ii) producers are more likely to integrate suppliers in input sectors with greater productivity variation (as the option value of integration is greater); and (iii) producers are more likely to integrate suppliers of more important inputs and to delegate decisions to them.
    Keywords: Decentralization; real options; supply assurance; vertical integration
    JEL: D2 L2
    Date: 2018–05
  3. By: Chiara Donnini (Università di Napoli Parthenope); Maria Laura Pesce (Università di Napoli Federico II)
    Abstract: We investigate the fairness property of equal-division competitive market equilibria (CME) in asymmetric information economies with a space of agents that may contain non-negligible (large) traders. We first propose an extension to our framework of the notion of strict fairness due to Zhou (1992). We prove that once agents are asymmetrically informed, any equal-division CME allocation is strictly fair, but a strictly fair allocation might not be supported by an equilibrium price. Then, we investigate the role of large traders and we provide two sufficient conditions under which, in the case of complete information economies, a redistribution of resources is strictly fair if and only if it results from a competitive mechanism.
    Keywords: Asymmetric information, mixed markets, strict fairness, competitive equilibrium.
    JEL: D43 D60 D82
    Date: 2018–05–23
  4. By: Trost, Michael
    Abstract: The paper analyzes gross upward pricing pressure indices called iGUPPI to assess the effects of a merger between vertically integrated firms where in the downstream market also independent rivals are active. Such indices could be used e.g. to screen mergers between mobile network operators which compete with mobile virtual network operators in the downstream retail market. It is shown that the iGUPPI for the downstream market corresponds to the sum of two well-known upward pricing pressure indices, the GUPPI concept of Salop/Moresi (2009) and the vGUPPI concept of Moresi/Salop (2013). Such a simple decomposition however does not hold for the upstream market a priori. Here, additional effects arise which are not included by the two concepts. Further assumptions on the price reactions of the downstream divisions to increases in the input prices are imposed so that the iGUPPI for the upstream market allows for a decomposition into an upstream market version of the GUPPI and the vGUPPI.
    Keywords: pricing pressure indices,vertically integrated firms,mergers,UPP,GUPPI,vGUPPI
    JEL: L41 L42
    Date: 2018
  5. By: R. Dixon (Department of Economics, the University of Melbourne); G.C. Lim (Melbourne Institute: Applied Economic & Social Research and Department of Economics, The University of Melbourne)
    Abstract: In this paper we investigate the relationship between labor’s share, the market power of firms and the elasticity of output with respect to labor input using an approach based on an unobserved components model. The approach yields time-varying estimates of the market power and the elasticity. Evidence on the evolution of the market power of firms contributes to a deeper understanding of movements in labor’s share and of the firm’s contribution to the labor wedge. The generated values of the elasticity also yield revised estimates of US TFP growth which is informative about the (non-trivial) bias inherent in traditional estimates of TFP growth which use the wage share as a proxy for the elasticity.
    Keywords: Labor’s share, market power, TFP growth, labor wedge, state-space modelling
    JEL: O47 C32 E25
    Date: 2017–09
  6. By: Junbyoung Oh (Inha University); Zhen Lei (Pennsylvania State University); Siwei Cao (Beijing Normal University)
    Abstract: This paper investigates firm behaviors on examination request under the deferred patent examination system in Korea. We examine firm decisions on whether and when to request patent examinations when they face both uncertainty about inven- tion¡¯s value and market competition. We find that the examination request in Korea has an interesting bi-polar distribution, and both uncertainty about an invention¡¯s value and market competition have significant impacts on firm¡¯s decision for exam- ination request. Applicants tend to utilize option value of waiting when uncertainty is high, but market competition attenuates the option value: the higher the com- petition, the less likely applicants are to delay or forego examination. Our study extends the empirical literature on deferred examination system but also provides a more comprehensive understanding on the irreversible investment decision under both uncertainty and competition.
    Keywords: deferred patent examination system, uncertainty, competition, real options, irreversible investment
    JEL: D22 L19 O30 O34
    Date: 2018–05
  7. By: Julia Cage (Département d'économie); nicolas Hervé (Institut national de l'audiovisuel (INA)); Marie-Luce Viaud (Institut national de l'audiovisuel (INA))
    Abstract: This paper documents the extent of copying and estimates the returns to originality in online news production. We build a unique dataset combining all the online content produced by the universe of news media (newspaper, television, radio, pure online media, and a news agency) in France during the year 2013 with new micro audience data. We develop a topic detection algorithm that identifies each news event, trace the timeline of each story and study news propagation. We show that one quarter of the news stories are reproduced online in less than 4 minutes. High reactivity comes with verbatim copying. We find that only 32.6% of the online content is original. The negative impact of copying on newsgathering incentives might however be counterbalanced by reputation effects. By using media-level daily audience and article-level Facebook shares, we show that original content represents 57.8% of online news consumption. Reputation mechanisms actually appear to solve about 40% of the copyright violation problem.
    Keywords: Copyright; Facebook; Information spreading; Internet; Investigative journalism; Reputation
    JEL: L11 L15 L82 L86
    Date: 2017–05
  8. By: Steffen Hoernig; Francisco Monteiro
    Abstract: We consider internet service providers? incentives to zero-rate, i.e. do not count towards data allowances, the consumption of certain services, in the absence of payments from content providers. In a general model with various types of network effects, service substitutes or complements, monopoly and duopoly, we show that ISPs adopt zero-rating and that it increases consumer surplus and total welfare if network effects are strong enough. Capacity investment increases (decreases) with network effects if services are complements (substitutes). Under competition, the decision to zero-rate depends the residual network effect, which includes the impacts of spillovers and brand differentiation.JEL codes: D21, L51, L96
    Keywords: zero-rating; network effects; net neutrality; capacity Investment
    Date: 2018
  9. By: Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie
    Abstract: This paper studies vertical integration of a retailer and an operator in the e-commerce sector. It shows first that the comparison between independent oligopoly and integrated monopoly involves a tradeoff between competition and double marginalization which will have the opposite effect. With linear demand we need at least 3 firms (upstream and downstream) for the independent oligopoly to yield larger surplus. With constant elasticity demand, on the other hand, this is always true. Second it considers a setting where the number of firms is endogenous and determined such that gross profits cover fixed costs. While the integration of a single retailer-delivery operator pair may initially be welfare improving, the resulting market structure may not be sustainable. Furthermore, there exist a range of fixed costs for which the integrated monopoly emerges (following a single integration) and is welfare inferior to the initial independent equilibrium even when the reduction in the number of fixed costs is taken into account. Within this setting it also shows that multiple integration is typically welfare superior (for a given total number of firms) to the integration of a single retailer-delivery operator. Third and last, it considers an extension wherein customers differ according to their location, urban or rural, involving di¤erent delivery costs. It shows that urban integration is more likely to have an adverse effect on welfare than full integration.
    Keywords: vertical integration; parcel delivery; e-commerce
    JEL: L42 L81 L87
    Date: 2018–05
  10. By: Hesamzadeh, M.; Holmberg, P.; Sarfati, M.
    Abstract: Zonal pricing with countertrading (a market-based redispatch) gives arbitrage opportunities to the power producers located in the export-constrained nodes. They can increase their profit by increasing the output in the day-ahead market and decrease it in the real-time market (the inc-dec game). We show that this leads to large inefficiencies in a standard zonal market. We also show how the inefficiencies can be significantly mitigated by changing the design of the real-time market. We consider a two-stage game with oligopoly producers, wind-power shocks and real-time shocks. The game is formulated as a two-stage stochastic equilibrium problem with equilibrium constraints (EPEC), which we recast into a two-stage stochastic Mixed-Integer Bilinear Program (MIBLP). We present numerical results for a six-node and the IEEE 24-node system.
    Keywords: Two-stage game, Zonal pricing, Wholesale electricity market, Bilinear programming
    JEL: C61 C63 C72 D43 L13 L94
    Date: 2018–05–03
  11. By: Fotis, Panagiotis; Polemis, Michael
    Abstract: The scope of this paper is to investigate the impact of market deregulation on the competitiveness of raw milk producers in Greece along the suggested lines of OECD (OECD, 2014). The study uses a dynamic panel data approach, to assess changes in the relative competitiveness of milk producers as a result of certain deregulation policies imposed by the Greek government in two phases (May 2014 and September 2015). In order to account for the presence of cross-sectional dependence and non-stationarity, the empirical analysis implements novel panel econometric methodology namely Common Correlated Effects (CCE) and Augmented Mean Group estimators (AMG). Our sample uses micro level data drawn from the 45 Greek regions spanning the period from January 2010 to October 2017. By comparing the wholesale prices of milk affected by regulation before and after the policy changes, we infer that abolishing regulation led to an increase in the prices of the wholesalers and thus in their profitability levels. Moreover, we argue that the openness of the relevant milk market segment had significant implications to the level of competition in the sector. Lastly, our empirical findings which confirm the OECD competition guidelines in the milk sector remain rather robust under different empirical methodologies and sample splitting, providing a focal point to policy makers and government officials for the ex-post evaluation of the deregulation strategies.
    Keywords: Deregulation, Competition; Milk price, Dynamic panel models, OECD
    JEL: C23 L1 L51 L52
    Date: 2018–05–06
  12. By: De Donder, Philippe; Soteri, Soterios
    Date: 2018–05
  13. By: Fasoula, Evanthia; Schweikert, Karsten
    Abstract: After controversial public debates, fuel price regulations were implemented in Austria prohibiting fuel retailers from raising their prices more than once per day. This paper investigates whether these policy measures affected the price transmission dynamics from crude oil prices to retail fuel prices. We estimate different specifications of nonlinear error correction models to quantify a potentially asymmetric adjustment behaviour and compare the results over three subsamples. Particularly, we estimate our models for a pre-regulation period, a between-regulations and a post-regulation period. At first glance, we obtain conflicting results on the efficacy of this policy measure. While the adjustment to the long-run equilibrium seems to be faster if crude oil prices are relatively low, transitory crude oil price decreases are passed through faster than price increases. Only if we consider the combined effect of a crude oil price shock, we can reveal that crude oil price changes are generally passed through faster in the postregulation period. Further, we find that crude oil price decreases are now passed through slightly faster than crude oil price increases. Hence, we conclude that the Austrian fuel price regulation seems to have fostered competition between fuel retailers.
    Keywords: asymmetric price transmission,price regulation,nonlinear error correction model,retail fuel prices,crude oil prices
    JEL: C22 D40 Q41
    Date: 2018
  14. By: Ciccarelli, Carlo; De Fraja, Gianni; Tiezzi, Silvia
    Abstract: In this paper we study the ability of the 19-th century Italian government to choose profit maximising prices for a multiproduct monopolist. We use very detailed historical data on the tobacco consumption in 62 Italian provinces from 1871 to 1888 to estimate a differentiated product demand system. The demand conditions and the legal environment of the period made this market as close to a textbook monopoly as is practically possible. The government's stated aim for this industry was profit maximisation: since at the time tobacco revenues constituted between 10 and 15 percent of the revenues for the cash-strapped government, the stated aim was very likely the true one. Cost data for the nine products suggest that the government was not wide off the mark: the tobacco prices were ``not far'' from those dictated by the standard monopoly formulae for profit maximisation with interdependent demand functions.
    Keywords: 19-th century Italy; Demand for Tobacco; Habit formation.; Multiproduct monopoly profit maximisation; QAI demand system
    JEL: I18 L12 L66 N33
    Date: 2018–05
  15. By: Barbara Annicchiarico (Universita degli Studi di Roma2 "Tor Vergata"); Enrico Marvasi (Politecnico di Milano)
    Abstract: We extend the protection for sale model of Grossman and Helpman (1994) by introducing a general model of monopolistic competition with variable markups and incomplete pass-through. We show that the structure of protection emerging in the political equilibrium not only depends on the weight attached by governments to consumer welfare when making their policy decision, but also on the degree of market power of firms and on the terms-of-trade variations due to the degree of pass-through. Overall, our results highlight the importance of demand characteristics in shaping the structure of protection and are consistent with the occurring of protectionism also in unorganized industries.
    Keywords: Protection for Sale, Monopolistic Competition, Incomplete Pass-Through, Endogenous Markups
    JEL: F1 F13
    Date: 2018

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