nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒08‒13
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Mixed bundling may hinder collusion By Edmond Baranes; Marion Podesta; Jean-Christophe Poudou
  2. Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior By Jorge Florez-Acosta; Daniel Herrera-Araujo
  3. Buyer-Optimal Robust Information Structures By Stefan Terstiege; Cédric Wasser
  4. On the benefits of set-asides By Philippe Jehiel; Laurent Lamy
  5. Roles of In-house Production in Firms' Supplier Management By ONO Yukako
  6. Trade Credit in Global Supply Chains By Jiangtao FU; Petr MATOUS; TODO Yasuyuki
  7. Towards Platform Defined Business – Complementarity at the Spotlight By Najda-Janoszka, Marta
  8. On bargaining sets of supplier-firm-buyer games By Ata Atay; Tamas Solymosi
  9. Theory and Evidence on Employer Collusion in the Franchise Sector By Alan B. Krueger; Orley Ashenfelter
  10. Move a Little Closer? Information Sharing and the Spatial Clustering of Bank Branches By Shusen Qi; Ralph De Haas; Steven Ongena; Stefan Straetmans
  11. Spatial competition and quality: evidence from the English family doctor market By Gravelle, H; Liu, D; Propper, C; Santos, R
  12. Common Values, Unobserved Heterogeneity, and Endogenous Entry in U.S. Offshore Oil Lease Auction By Giovanni Compiani; Philip Haile; Marcelo Sant'Anna
  13. Global Market Power and its Macroeconomic Implications By Federico Diez; Daniel Leigh; Suchanan Tambunlertchai
  14. How Costly Are Markups? By Chris Edmond; Virgiliu Midrigan; Daniel Yi Xu
  15. Investigating the configurations in cross-shareholding: a joint copula-entropy approach By Roy Cerqueti; Giulia Rotundo; Marcel Ausloos
  16. Competition and Firm Productivity: Evidence from Portugal By Pedro Carvalho

  1. By: Edmond Baranes (CREDEN - Centre de Recherche en Economie et Droit de l'ENergie - UM1 - Université Montpellier 1); Marion Podesta (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc); Jean-Christophe Poudou (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UM3 - Université Paul-Valéry - Montpellier 3 - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: We study the incentives to collude when firms use mixed bundling or independent pricing strategies for the sale of two components of a composite good. The main finding is that collusion is less sustainable under mixed bundling, because this increases the profitability of deviations from the collusive path. The result is robust to extensions with an endogenous choice of the mode of competition (with bundling or independent pricing) and to competition in quantities. These results offer a novel argument against a per se rule concerning bundling in antitrust policy.
    Keywords: Mixed bundling, Collusion, Price competition
    Date: 2016–12
  2. By: Jorge Florez-Acosta (Universidad del Rosario - Universidad Nacional de Rosario [Santa Fe]); Daniel Herrera-Araujo (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: This paper empirically examines the effects of product delisting on consumer shopping behavior in a context of grocery retailing by large multiproduct supermarket chains. A product is said to be delisted when a supermarket stops supplying it while it continuous being sold by competing stores. We develop a model of demand in which consumers can purchase multiple products in the same period. Consumers have heterogeneous shopping patterns: some find it optimal to concentrate purchases at a single store while others prefer sourcing several separate supermarkets. We account for this heterogeneity by introducing shopping costs, which are transaction costs of dealing with suppliers. Using scanner data on grocery purchases by French households in 2005, we estimate the parameters of the model and retrieve the distribution of shopping costs. We find a total shopping cost per store sourced of 1.79 € on average. When we simulate the delisting of a product by one supermarket, we find that customers'probability of sourcing that store decreases while the probability of sourcing competing stores increases. The reduction in demand is considerably larger when consumers have strong preferences for the delisted brand. This suggests that retailers may be hurting themselves, and not only manufacturers, when they delist a product. However, when customers have strong preferences for the store such effects are lower, suggesting that inducing store loyalty in customers appears to have an effect on vertical negotiations and, in particular, it enables powerful retailers to impose vertical restraints on manufacturers.
    Keywords: Grocery retailing, supermarket chains, buyer power, vertical,restraints, product delisting, shopping costs, one-and multistop shopping,Simulated Maximum likelihood
    Date: 2017–05
  3. By: Stefan Terstiege; Cédric Wasser
    Abstract: We study buyer-optimal information structures under monopoly pricing. The information structure determines how well the buyer learns his valuation and affects, via the induced distribution of posterior valuations, the price charged by the seller. Motivated by the regulation of product information, we assume that the seller can disclose more if the learning is imperfect. Robust information structures prevent such disclosure, which is a constraint in the design problem. Our main result identifies a two-parameter class of information structures that implements every implementable buyer payoff. An upper bound on the buyer payoff where the social surplus is maximized and the seller obtains just her perfect-information payoff is attainable with some, but not all priors. When this bound is not attainable, optimal information structures can result in an inefficient allocation.
    Keywords: information design, monopoly, regulation
    JEL: D42 D82 D83 L51
    Date: 2018–07
  4. By: Philippe Jehiel (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Laurent Lamy (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - AgroParisTech - EHESS - École des hautes études en sciences sociales - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement)
    Abstract: Set-asides programs consist in forbidding access to specific participants, and they are commonly used in procurement auctions. We show that when the set of potential participants is composed of an incumbent (who bids for sure if allowed to) and of entrants who show up endogenously (in such a way that their expected rents are fixed by outside options), then it is always beneficial for revenues to exclude the incumbent in the second-price auction. This exclusion principle is generalized to auction formats that favor the incumbent in the sense that he would always gets the good when he values it most. By contrast, set-asides need not be desirable if the incumbent's payoff is included into the seller's objective or in environments with multiple incumbents. Various applications are discussed.
    Keywords: set-asides, entry restrictions, auctions with endogenous entry,entry deterrence, asymmetric buyers, incumbents, government procurement,procurement competition policy
    Date: 2017–07
  5. By: ONO Yukako
    Abstract: Input procurement plays important roles in firms' production. In this paper, I shed light on the roles of firms' in-house production in managing relationships with their suppliers. In the existing literature on firms' procurement choices, in-house production is treated as an alternative to outsourcing from suppliers, as "outsource" versus "in-house" decisions are considered mutually exclusive. However, in reality, when firms outsource an input from suppliers, some firms also seem to produce the same/similar input in-house (IRC, 2016). Keeping the production of an input in-house, firms would be able to accumulate know-how or soft information on the production, while outsourcing from suppliers would provide the benefit from scale economies at suppliers selling their products to multiple firms and from market competition among suppliers. In this paper, using the 2016 data book of automobile parts procurement published by the Industry Research Center Co., Ltd. (2016 IRC data book), I examine how auto parts supplier characteristics differ between the case in which Japanese carmakers partly produce the input themselves and the case in which they exclusively rely on suppliers. In particular, combining the IRC data with much broader data on buyer-supplier relationships compiled by Tokyo Shoko Research Ltd., I focus on the role of distance and incorporate supplier characteristics regarding firms' supplier networks.
    Date: 2018–07
  6. By: Jiangtao FU; Petr MATOUS; TODO Yasuyuki
    Abstract: This study examines how trade credit is utilized in global supply chains, using a unique dataset that includes information on firm-level supplier-customer relationships for major firms in the global economy. We focused on two potential factors of trade credit: firms' upstreamness in global supply chains and competition among suppliers, or similarly, the bargaining power of customers. Although recent literature found a positive correlation between upstreamness and trade credit, we find the correlation is insignificant when we control for competition among suppliers and the bargaining power of customers. The correlation between firms' upstreamness and trade credit is positive and significant only in Japan. In contrast, we find that the competition among suppliers and bargaining power of customers are positively and significantly correlated with trade credit in a robust manner. Because upstreamness and competition among suppliers are often positively correlated, our finding suggests the need to incorporate competition in the literature on trade credit and upstreamness.
    Date: 2018–07
  7. By: Najda-Janoszka, Marta
    Abstract: As markets become increasingly more competitive firms systematically move away from hierarchical integrated supply chains toward fragmented networks of strategic partnerships with external partners. Business practice indicate a growing number of busi-nesses relying on the platform organizational structures. For such constructs superior pro-duct quality and customer appeal maintain necessary but it is the breadth of the ecosystem of related product and services that has become a prerequisite for success. It implies the focus on third parties, complementors, who develop and deliver diverse content to plat-forms as well as enhance platform’s generativity. Although complementary relations should be the main reference while considering the network dynamics from different angles, the attention in the extant research gravitates toward inter-platform competition with platform owners as the central object. Thus, with the objective to contribute to the emerging lite-rature on industry platforms, this conceptual article discusses main challenges concerned with orchestrating arm’s length relationships with complementors, by departing from plat-form-owner-centered approach and focusing on behavior of interdepended contributors.
    Keywords: digital platform, value capture, value creation, complements, boundary resources
    JEL: M15 O32
    Date: 2018
  8. By: Ata Atay (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Tamas Solymosi (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Department of Operations Research and Actuarial Sciences, Corvinus University of Budapest)
    Abstract: We study a special three-sided matching game, the so-called supplier-firm-buyer game, in which buyers (customers) and sellers (suppliers) trade indirectly through middlemen (firms). Stuart (Stuart, 1997) showed that all supplier-firm-buyer games have non-empty core. We show that for these games the core coincides with the classical bargaining set (Davis and Maschler, 1967), and also with the Mas-Colell bargaining set (Mas-Colell, 1989).
    Keywords: Bargaining set, core, matching market, assignment game, cooperative game
    JEL: C71
    Date: 2018–02
  9. By: Alan B. Krueger; Orley Ashenfelter
    Abstract: In this paper we study the role of covenants in franchise contracts that restrict the recruitment and hiring of employees from other units within the same franchise chain in suppressing competition for workers. Based on an analysis of 2016 Franchise Disclosure Documents, we find that "no-poaching of workers agreements" are included in a surprising 58 percent of major franchisors' contracts, including McDonald's, Burger King, Jiffy Lube and H&R Block. The implications of these no-poaching agreements for models of oligopsony are also discussed. No-poaching agreements are more common for franchises in low-wage and high-turnover industries.
    JEL: J08 J23 J41 J42 J47 J53 J62 J63
    Date: 2018–07
  10. By: Shusen Qi (Xiamen University); Ralph De Haas (European Bank for Reconstruction and Development and Tilburg University); Steven Ongena (University of Zurich, Swiss Finance Institute, KU Leuven, and Centre for Economic Policy Research (CEPR)); Stefan Straetmans (Maastricht University and University of Antwerp)
    Abstract: We study how information sharing between banks influences the geographical clustering of branches. We construct a spatial oligopoly model with price competition that explains why bank branches cluster and how the introduction of information sharing impacts clustering. Dynamic data on 59,333 branches operated by 676 banks in 22 countries between 1995 and 2012 allow us to test the hypotheses derived from this model. Consistent with our model, we find that information sharing spurs banks to open branches in localities that are new to them but that are already relatively well served by other banks. Information sharing also allows firms to borrow from more distant banks.
    Keywords: Information Sharing, Branch Clustering
    JEL: D43 G21 G28 L13 R51
    Date: 2018–01
  11. By: Gravelle, H; Liu, D; Propper, C; Santos, R
    Abstract: We examine whether family doctor firms in England respond to local competition by increasing their quality. We measure quality in terms of clinical performance and patient-reported satisfaction to capture its multi-dimensional nature. We use a panel covering 8 years for over 8000 English general practices, allowing us to control for unobserved local area effects. We measure competition by the number of rival doctors within a small distance. We find that increases in local competition are associated with increases in clinical quality and patient satisfaction, particularly for firms with lower quality. However, the magnitude of the effect is small.
    Date: 2018–02–28
  12. By: Giovanni Compiani; Philip Haile; Marcelo Sant'Anna
    Abstract: An oil lease auction is the classic example motivating a common values model. However, formal testing for common values has been hindered by unobserved auction-level heterogeneity, which is likely to affect both participation in an auction and bidders’ willingness to pay. We develop and apply an empirical approach for first-price sealed bid auctions with affiliated values, unobserved heterogeneity, and endogenous bidder entry. The approach also accommodates spatial dependence and sample selection. Following Haile, Hong and Shum (2003), we specify a reduced form for bidder entry outcomes and rely on an instrument for entry. However, we relax their control function requirements and demonstrate that our specification is generated by a fully specified game motivated by our application. We show that important features of the model are nonparametrically identified and propose a semiparametric estimation approach designed to scale well to the moderate sample sizes typically encountered in practice. Our empirical results show that common values, affiliated private information, and unobserved heterogeneity—three distinct phenomena with different implications for policy and empirical work—are all present and important in U.S. offshore oil and gas lease auctions. We find that ignoring unobserved heterogeneity in the empirical model obscures the presence of common values. We also examine the interaction between affiliation, the winner’s curse, and the number of bidders in determining the aggressiveness of bidding and seller revenue
    JEL: L0
    Date: 2018–07
  13. By: Federico Diez; Daniel Leigh; Suchanan Tambunlertchai
    Abstract: We estimate the evolution of markups of publicly traded firms in 74 economies from 1980-2016. In advanced economies, markups have increased by an average of 39 percent since 1980. The increase is broad-based across industries and countries, and driven by the highest markup firms in each economic sector. For emerging markets and developing economies, there is less evidence of a rise in markups. We find a positive relation between firm markups and other indicators of market power, such as profits or industry concentration. Focusing on advanced economies, we investigate the relation between markups and investment, innovation, and the labor share at the firm level. We find evidence of a non-monotonic relation, with higher markups being correlated initially with increasing and then with decreasing investment and innovation rates. This non-monotonicity is more pronounced for firms that are closer to the technological frontier. More concentrated industries also feature a more negative relation between markups and investment and innovation. The association between markups and the labor share is generally negative.
    Date: 2018–06–15
  14. By: Chris Edmond; Virgiliu Midrigan; Daniel Yi Xu
    Abstract: We study the welfare costs of markups in a dynamic model with heterogeneous firms and endogenously variable markups. We find that the welfare costs of markups are large. We decompose the costs of markups into three channels: (i) an aggregate markup that acts like a uniform output tax, (ii) misallocation of factors of production, and (iii) an inefficiently low rate of entry. We find that the aggregate markup accounts for about two-thirds of the costs, misallocation accounts for about one-third, and the costs due to inefficient entry are negligible. We evaluate simple policies aimed at reducing the costs of markups. Subsidizing entry is not an effective tool in our model: while more competition reduces individual firms' markups it also reallocates market shares towards larger firms and the net effect is that the aggregate markup hardly changes. Size-dependent policies aimed at reducing concentration can reduce the aggregate markup but have the side effect of greatly increasing misallocation and reducing aggregate productivity.
    JEL: D04 E02 L1 O4
    Date: 2018–07
  15. By: Roy Cerqueti (Macerata); Giulia Rotundo (Roma); Marcel Ausloos (Leicester)
    Abstract: --- the companies populating a Stock market, along with their connections, can be effectively modeled through a directed network, where the nodes represent the companies, and the links indicate the ownership. This paper deals with this theme and discusses the concentration of a market. A cross-shareholding matrix is considered, along with two key factors: the node out-degree distribution which represents the diversification of investments in terms of the number of involved companies, and the node in-degree distribution which reports the integration of a company due to the sales of its own shares to other companies. While diversification is widely explored in the literature, integration is most present in literature on contagions. This paper captures such quantities of interest in the two frameworks and studies the stochastic dependence of diversification and integration through a copula approach. We adopt entropies as measures for assessing the concentration in the market. The main question is to assess the dependence structure leading to a better description of the data or to market polarization (minimal entropy) or market fairness (maximal entropy). In so doing, we derive information on the way in which the in- and out-degrees should be connected in order to shape the market. The question is of interest to regulators bodies, as witnessed by specific alert threshold published on the US mergers guidelines for limiting the possibility of acquisitions and the prevalence of a single company on the market. Indeed, all countries and the EU have also rules or guidelines in order to limit concentrations, in a country or across borders, respectively. The calibration of copulas and model parameters on the basis of real data serves as an illustrative application of the theoretical proposal.
    Date: 2018–06
  16. By: Pedro Carvalho
    Abstract: This paper presents empirical evidence on the impact of competition on firm productivity for the Portuguese economy. To that effect, firm-level panel data comprising information between 2010 and 2015 gathered from the Integrated Business Accounts System (Portuguese acronym: SCIE) is used. The database enables the construction of economic and financial indicators, which allow for isolating the impact of competition on firm-level productivity. We find a positive relationship between competition and both total factor productivity and labor productivity. This relationship is found to be robust to different specifications and in accordance with the results in the literature obtained for other countries.
    Keywords: Competition, Productivity, Portugal
    JEL: D40 D24 O47
    Date: 2018–07

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