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on Industrial Competition |
| By: | José Azar; Xavier Vives |
| Abstract: | We develop a macroeconomic framework in which firms are large and have market power with respect to both products and labor. Each firm maximizes a share-weighted average of shareholder utilities, which makes the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing, then an increase in “effective” market concentration (which accounts for overlapping ownership) leads to declines in employment, real wages, and the labor share. Moreover, if the goal is to foster employment then (i) controlling common ownership and reducing concentration are complements and (ii) government jobs are a substitute for either policy. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership can stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We find that neither the monopolistically competitive limit of Dixit and Stiglitz nor the oligopolistic one of Neary (when firms become small relative to the economy) are attained unless there is incomplete portfolio diversification with no intra-industry common ownership. |
| Keywords: | ownership, portfolio diversification, labor share, market power, oligopsony, antitrust policy |
| JEL: | L13 L21 L41 G11 E60 D63 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7189&r=com |
| By: | Naylor, Robin; Soegaard, Christian |
| Abstract: | Firms which face the threat of import competition from foreign rivals are conventionally seen as favouring import protection. We show that this is not necessarily the case when domestic firms’ input prices are determined endogenously. In a framework where the input price is determined through bargaining with an (upstream) input supplier, the relationship between a domestic (downstream) firm’s profits and the number of foreign competitors depends on trade costs. If trade costs are sufficiently high, then an increase in the number of foreign entrants can raise the profits of a downstream firm in a home market characterised by Cournot competition. The intuition for this result is that increased product market competition through the entry of foreign firms is mirrored by profit-enhancing moderation of the bargained input price. We examine a number of tariff and non-tariff barriers to international trade and identify conditions under which import-competing firms will favour the removal of barriers to foreign competition. |
| Keywords: | Financial Economics |
| Date: | 2018–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:ags:uwarer:269084&r=com |
| By: | de Cornière, Alexandre; Taylor, Greg |
| Abstract: | Motivated by the recent Google-Android antitrust case, we present a novel rationale for bundling by a multiproduct upstream firm. Consider a market where downstream firms procure components from upstream suppliers. U1 is the only supplier of component A, but faces competition for component B. Suppose that component A increases demand for the downstream product and that contractual frictions induce positive wholesale markups. By bundling A and B, U1 reduces its B-rivals' willingness to offer slotting fees to the downstream firm, thereby allowing U1 to capture more of the industry profit. Bundling harms the downstream firm and the B rivals, and can be anticompetitive. |
| Keywords: | Bundling; Exclusion; Vertical Relations |
| JEL: | L1 L4 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13083&r=com |
| By: | Daniel Hauser (Department of Economics, Aalto University) |
| Abstract: | I consider a model in which a firm invests in both product quality and in a costly signaling technology, and the firm's reputation is the market's belief that its quality is high. The firm influences the rate at which consumers receive information about quality: the firm can either promote, which increases the arrival rate of signals when quality is high, or censor, which decreases the arrival rate of signals when quality is low. I study how the firm's incentives to build quality and signal depend on its reputation and current quality. The firm's ability to promote or censor plays a key role in the structure of equilibria. Promotion and investment in quality are complements: the firm has stronger incentives to build quality when the promotion level is high. Costly promotion can, however, reduce the firm's incentive to build quality; this effect persists even as the cost of building quality approaches zero. Censorship and investment in quality are substitutes. The ability to censor can destroy a firm's incentives to invest in quality, because it can reduce information about poor quality products. |
| Keywords: | Reputation, Advertising, Promotion, Censorship, Dynamic Games |
| JEL: | C73 D82 D83 D84 |
| Date: | 2016–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:16-014&r=com |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT) |
| Abstract: | We survey a recent and growing literature on markets for information. We o?er a comprehensive view of information markets through an integrated model of consumers, information intermediaries, and ?rms. The model embeds a large set of applications ranging from sponsored search advertising to credit scores to information sharing among competitors. We then review a mechanism design approach to selling information in greater detail. We distinguish between ex ante sales of information (the buyer acquires an information structure) and ex post sales (the buyer pays for speci?c realizations). We relate this distinction to the di?erent products that brokers, advertisers, and publishers use to trade consumer information online. We discuss the endogenous limits to the trade of information that derive from its potential adverse use for consumers. Finally, we revisit the role of recommender systems and arti?cial intelligence systems as markets for indirect information. |
| Keywords: | Information markets, Information design, Intermediaries, Mechanism design, Predictions, ratings |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2142&r=com |
| By: | Soheil Ghili (Cowles Foundation, Yale University); Matthew Schmitt (UCLA) |
| Abstract: | In vertical markets, eliminating double marginalization with a two-part tariff may not be possible due to downstream firms' risk aversion. When demand is uncertain, contracts with large fixed fees expose the downstream rm to more risk than contracts that are more reliant on variable fees. In equilibrium, contracts may thus rely on variable fees, giving rise to double marginalization. Counterintuitively, we show that increased demand risk or risk aversion can actually mitigate double marginalization. We also characterize several sufficient conditions under which increased risk or risk aversion does exacerbate double marginalization. We conclude with an application to merger analysis. |
| Keywords: | Risk Aversion, Double Marginalization, Vertical Markets |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2144&r=com |
| By: | Krueger, Alan B. (Princeton University); Ashenfelter, Orley (Princeton University) |
| 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. |
| Keywords: | collusion, no-poaching agreement, monopsony, oligopsony, franchise |
| JEL: | J42 J41 J63 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11672&r=com |
| By: | Ho, Katherine; Lee, Robin S. |
| Abstract: | We evaluate the consequences of narrow hospital networks in commercial health care markets. We develop a bargaining solution, Nash-in-Nash with Threat of Replacement, that captures insurers' incentives to exclude, and combine it with California data and estimates from Ho and Lee (2017) to simulate equilibrium outcomes under social, consumer, and insurer-optimal networks. Private incentives to exclude generally exceed social incentives, as the insurer bene fits from substantially lower negotiated hospital rates. Regulation prohibiting exclusion increases prices and premiums and lowers consumer welfare without significantly affecting social surplus. However, regulation may prevent harm to consumers living close to excluded hospitals. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13096&r=com |
| By: | Stuart Craig; Matthew Grennan; Ashley Swanson |
| Abstract: | We estimate the effects of horizontal mergers on marginal cost efficiencies – an ubiquitous merger justification – using data containing supply purchase orders from a large sample of US hospitals 2009-2015. The data provide a level of detail that has been difficult to observe previously, and a variety of product categories that allows us to examine economic mechanisms underlying “buyer power.” We find that merger target hospitals save on average $176 thousand (or 1.5 percent) annually, driven by geographically local efficiencies in price negotiations for high-tech “physician preference items.” We find only mixed evidence on savings by acquirers. |
| JEL: | I11 L40 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24926&r=com |
| By: | Aguirregabiria, Victor; Clark, Robert; Wang, Hui |
| Abstract: | This paper studies the integration of deposit and loan markets, which may be constrained by the geographic dispersion of depositors, borrowers, and banks. This dispersion results in problems of asymmetric information, monitoring and transaction costs, which in turn may prevent deposits from owing from areas of low demand for loans to areas of high demand. We provide systematic evidence on the extent to which deposits and loans are geographically imbalanced, and develop a methodology for investigating the contribution of (i) branch networks, (ii) local market power, and (iii) economies of scope to this imbalance using data at the bank-county- year level from the US banking industry for 1998-2010. Our results are based on the construction of an index which measures the geographic imbalance of deposits and loans, and the estimation of a structural model of bank oligopoly competition for deposits and loans in multiple geographic markets. The estimated model shows that a bank's total deposits have a significant effect on the bank's market shares in loan markets. We also find evidence of significant economies of scope between deposits and loans at the local level. Counterfactual experiments show that multi-state branch networks contribute significantly to the geographic ow of credit but benefit especially larger/richer counties. Local market power has a very substantial negative effect on the ow of credit to smaller/poorer counties. |
| Keywords: | Demand and Price Analysis, Financial Economics |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:ags:quedwp:274728&r=com |
| By: | Clark, Robert; Coviello, Decio; Gauthier, Jean-Francois; Shneyerov, Art |
| Abstract: | We study the impact of an investigation into collusion and corruption to learn about the organization of cartels in public procurement auctions. Our focus is on Montreal’s asphalt industry, where there have been allegations of bid rigging, market segmentation, complementary bidding and bribes to bureaucrats, and where, in 2009, a police investigation was launched. We collect procurement data and use a difference-in-difference approach to compare outcomes before and after the investigation in Montreal and in Quebec City, where there have been no allegations of collusion or corruption. We find that entry and participation increased, and that the price of procurement decreased. We then decompose the price decrease to quantify the importance of two aspects of cartel organization, coordination and entry deterrence, for collusive pricing. We find that the latter explains only a small part of the decrease. |
| Keywords: | Financial Economics, Political Economy |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:quedwp:274727&r=com |
| By: | Fabra, Natalia |
| Abstract: | I build a simple model to capture the key drivers of investment and pricing incentives in electricity markets. The focus is put on the interaction between market power and investment incentives, and the trade-off it introduces when designing the optimal regulatory instruments. In contrast to the energy-only market paradigm that assumes perfect competition, my model demonstrates that in the presence of market power scarcity prices do not promote efficient investments, even among risk-neutral investors. Combining price caps and capacity payments allows to disentangle the two-fold objective of inducing the right investment incentives while mitigating market power. Bundling capacity payments with financial obligations further mitigate market power as long as strike prices are set sufficiently close to marginal costs. |
| Keywords: | capacity markets; market power; reliability options; scarcity pricing |
| JEL: | L13 L51 L94 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13088&r=com |
| By: | Karagiannis, Giannis; Kellermann, Magnus; Pröll, Simon; Salhofer, Klaus |
| Abstract: | In this paper we provide a method to separate the markup from product differentiation from other sources of market power, i.e. collusive behavior or market intransparency, based on the estimation of a single reduced form equation. We apply this method to a sample of 118 German breweries, since beer is a differentiated product and at the same time the sector has repeatedly been subject to collusive behavior. Our empirical results show that the “general” markup goes beyond the markup from product differentiation, but the latter accounts for most of the deviation of prices from marginal costs. Moreover, typically for a market with monopolistic competition, we observe average costs above marginal costs and, hence, a high markup does not necessarily translate into a high a profit margin. |
| Keywords: | Agribusiness, Industrial Organization, Production Economics |
| Date: | 2017–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:ags:gewi17:262148&r=com |
| By: | Axel Gautier; Robert Somogyi |
| Abstract: | This paper analyzes two business practices on the mobile internet market, paid prioritization and zero-rating. Both violate the principle of net neutrality by allowing the internet service provider to discriminate different content types. In recent years these practices have attracted considerable media attention and regulatory interest. The EU, and until recently the US have banned paid prioritization but tolerated zero-rating under conditions. With prioritization, the ISP delivers content at different speeds and it is equivalent to a discrimination in terms of quality. With zero-rating, the ISP charges different prices for content and it is equivalent to a discrimination in terms of prices. We first show that neither of these practices lead to the exclusion of a content provider, a serious concern of net neutrality advocates. The ISP chooses prioritization when traffic is highly valuable for content providers and congestion is severe, and zero-rating in all other cases. Furthermore, investment in network capacity is suboptimal in the case of prioritization and socially optimal under zero-rating. |
| Keywords: | net neutrality, paid prioritization, zero-rating, sponsored data, data cap, congestion |
| JEL: | D21 L12 L51 L96 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7185&r=com |
| By: | Allen, Jason; Clark, Robert; Houde, Jean-Francois |
| Abstract: | We provide a framework for empirical analysis of negotiated-price markets. Using mortgage market data and a search and negotiation model, we characterize the welfare impact of search frictions and quantify the role of search costs and brand loyalty for market power. Search frictions reduce consumer surplus by $12/month/consumer, 28% of which can be associated with discrimination, 22% with inefficient matching, and 50% with search costs. Large consumer-base banks have margins 70% higher than those with small consumer bases. The main source of this incumbency advantage is brand loyalty; however, price discrimination based on search frictions accounts for almost a third. |
| Keywords: | Consumer/Household Economics, Financial Economics |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:ags:quedwp:274729&r=com |
| By: | Grau, Aaron |
| Abstract: | The German dairy supply chain is one of the most important agrifood supply chains in Germany. In 2015, raw milk production accounted for 19.2% of the total domestic agricultural production value and dairy products summed up 8.0% of total German agrifood exports. Nevertheless, the economic success of the supply chain is overshadowed by reports on market power abused by dairies and retailers. Fueled by complaints of dairy farmers and dairies on non-competitive behavior of downstream supply chain agents, the German anti-trust agency conducted a sector analysis between 2008 and 2012. In its final report the anti-trust agency acknowledged the threat of oligopsony power at both markets, raw milk and dairy output market, but could not find any evidence. Thus, the main premise of the presented work is to empirically investigate the German dairy supply chain for the existence of oligopsony power at the raw milk and dairy product market. Three approaches, structure-conduct-performance paradigm (SCPP), new empirical industrial organization (NEIO), and asymmetric price transmission (APT), are revised and their suitability for the empirical application discussed. The theory review shows that none of the discussed approaches provide a model that fits the structure of the German dairy supply chain of oligopsonistic threat on two vertically integrated markets. Additional characteristics of the theoretical frameworks limit their suitability for the study further. Either the data requirements are high and the models highly complex, like in the case of NEIO, but an index of market power can be measured, or the data requirements are rather low and the theoretic models rather simple, like in the case of APT, but market power or its extent are not clearly identified. Consequently, a modification of one of the approaches is not sufficient and a new theoretical model merging aspects of NEIO and APT had to be developed. [...] |
| Keywords: | Demand and Price Analysis, Industrial Organization, Livestock Production/Industries |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iamost:276233&r=com |
| By: | Ronayne, David |
| Abstract: | The large and growing industry of price comparison websites (PCWs) or ‘web aggregators’ is poised to benefit consumers by increasing competitive pricing pressure on firms by acquainting shoppers with more prices. However, these sites also charge firms for sales, which feeds back to raise prices. I investigate the impact of introducing PCWs to a market for a homogeneous good. I find that introducing a single PCW increases prices for all consumers, both those who use the sites, and those who do not. Under competing PCWs, prices tend to rise with the number of PCWs. I also conduct various extensions and use the analysis to discuss relevant industry practices and policies. |
| Keywords: | Financial Economics |
| Date: | 2018–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:ags:uwarer:270227&r=com |
| By: | Besancenot, Damien (ESSEC Research Center, ESSEC Business School); Vranceanu, Radu (ESSEC Research Center, ESSEC Business School) |
| Abstract: | The French market for specialist physician care has a dual structure, including a sector 1 with regulated fees, and a sector 2 where physicians can freely choose fees. Patients who undergo a sequential search process for the best medical o¤er develop a reservation fee decision rule. We analyzed physicians decisions to work in sector 1 or in sector 2, and their choice of fee in sector 2. The model features several pure strategy equilibria that can be ordered with respect to patient welfare. Policy implications follow. |
| Keywords: | Equilibrium search; Medical fee dispersion; Dual market; Regulation |
| JEL: | D83 I11 I18 |
| Date: | 2017–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-17009&r=com |
| By: | Asongu, Simplice; Odhiambo, Nicholas |
| Abstract: | The Quiet Life Hypothesis (QLH) is the pursuit of less efficiency by firms. In this study, we assess if powerful banks in the African banking industry are increasing financial access. The QLH is therefore consistent with the pursuit of financial intermediation inefficiency by large banks. To investigate the hypothesis, we first estimate the Lerner index. Then, using Two Stage Least Squares, we assess the effect of the Lerner index on financial access proxied by loan price and loan quantity. The empirical evidence is based on a panel of 162 banks from 42 African countries for the period 2001-2011. The findings support the QLH, although quiet life is driven by the below-median Lerner index sub-sample. Policy implications are discussed. |
| Keywords: | Financial access; Bank performance; Africa |
| JEL: | D40 G20 G29 L10 O55 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88525&r=com |
| By: | Guillaume R. Fréchette; Alessandro Lizzeri; Tobias Salz |
| Abstract: | This paper presents a dynamic general equilibrium model of a taxi market. The model is estimated using data from New York City yellow cabs. Two salient features by which most taxi markets deviate from the efficient market ideal are, first, matching frictions created by the need for both market sides to physically search for trading partners, and second, regulatory limitations to entry. To assess the importance of these features, we use the model to simulate the effect of changes in entry, alternative matching technologies, and different market density. We use the geographical features of the matching process to back out unobserved demand through a matching simulation. This function exhibits increasing returns to scale, which is important to understand the impact of changes in this market and has welfare implications. For instance, although alternative dispatch platforms can be more efficient than street-hailing, platform competition is harmful because it reduces effective density. |
| JEL: | J22 L0 L5 L91 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24921&r=com |
| By: | Oleg Malafeyev; Shulga Andrey |
| Abstract: | Over the past few years, the futures market has been successfully developing in the North-West region. Futures markets are one of the most effective and liquid-visible trading mechanisms. A large number of buyers are forced to compete with each other and raise their prices. A large number of sellers make them reduce prices. Thus, the gap between the prices of offers of buyers and sellers is reduced due to high competition, and this is a good criterion for the liquidity of the market. This high degree of liquidity contributed to the fact that futures trading took such an important role in commerce and finance. A multi-step, non-cooperative n persons game is formalized and studied |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1808.05037&r=com |
| By: | Ester Faia; Sebastien Laffitte; Gianmarco Ottaviano |
| Abstract: | Using a novel dataset on the 15 European banks classified as G-SIBs from 2005 to 2014, we find that the impact of foreign expansion on risk is always negative and significant for most individual and systemic risk metrics. In the case of individual metrics, we also find that foreign expansion affects risk through a competition channel as the estimated impact of openings differs between host countries that are more or less competitive than the source country. The systemic risk metrics also decline with respect to expansion, though results for the competition channel are more mixed, suggesting that systemic risk is more likely to be affected by country or business models characteristics that go beyond and above the differential intensity of competition between source and host markets. Empirical results can be rationalized through a simple model with oligopolistic/oligopsonistic banks and endogenous assets/liabilities risk. |
| Keywords: | banks risk-taking, systemic risk, geographical expansion, gravity, diversification, competition, regulatory arbitrage |
| JEL: | G21 G32 L13 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1567&r=com |
| By: | Heyman, Fredrik; Norbäck, Pehr-Johan; Persson, Lars |
| Abstract: | Research show that women are disadvantaged in inflexible occupations. We show that this will imply that female managers are on average more skilled than male managers. Due to the higher hurdles faced by women, only the most skilled among them will pursue a management career. This implies that female managers will, on average, be more beneficial for the firm when product market competition is intense. Using detailed matched employee-employer data, we find that (i) more intense product market competition leads to relatively higher wages for female managers and (ii) the share of female managers is higher in firms in more competitive industries. |
| Keywords: | Career; Competition; Gender wage-gap; Job Inflexibility; Management |
| JEL: | J7 L2 M5 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13075&r=com |