nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒10‒01
24 papers chosen by
Russell Pittman
United States Department of Justice

  1. Vertical Contracting with Endogenous Market Structure By Marco Pagnozzi; Salvatore Piccolo; Markus Reisinger
  2. Oligopoly Price Discrimination: The Role of Inventory Controls By James D. Dana Jr.; Kevin R. Williams
  3. Dealing with the Dimensionality Curse in Dynamic Pricing Competition: Using Frequent Repricing to Compensate Imperfect Market Anticipations By Rainer Schlosser; Martin Boissier
  4. Managing Competition on a Two-Sided Platform By Paul Belleflamme; Martin Peitz
  5. When Spillovers Enhance R&D Incentives By Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun
  6. R&D network formation with myopic and farsighted firms By MAULEON Ana,; SEMPERE-MONERRIS Jose J.,; VANNETELBOSCH Vincent,
  7. Retail Market Power in a Shopping Basket Model of Supermarket Competition By Richards, Timothy J.; Hamilton, Stephen F.
  8. Endogenous Market Structure and Trade By Larue, B.; Gonzalez, P.; Kempa Nangue, C.
  9. Dynamics and Efficiency in Decentralized Online Auction Markets By Kenneth Hendricks; Alan Sorensen
  10. Strategic Obfuscation and Retail Pricing By Richards, Timothy J.; Klein, Gordon; Bonnet, Celine; Bouamra-Mechemache, Zohra
  11. A Two-Period Unionized Mixed Oligopoly Model: Public-Private Wage Differentials and “Eurosclerosis†Reconsidered By Minas Vlassis; Polyxeni Gioti
  12. Prioritization vs zero rating: Discrimination on the internet By GAUTIER Axel,; SOMOGYI Robert,
  13. A Reassessment of Product Aggregation Bias in Demand Analysis: An Application to the U.S. Meat Market By Li, Wenying; Zhen, Chen
  14. Testing for oligopsony power in the Kazakh grain processing industry: A Hall approach By Perekhozhuk, O.; Chezhia, G.; Glauben, T.
  15. Stochastic Frontier Estimation of Buyer Power: An Application to the Brazilian Milk Market By Scalco, Paulo R.; Lopez, Rigoberto A.; He, Xi
  16. Demand, Challenges and Marketing Strategies in the Promotion of Local Foods: The Case of Fluid Milk By Liu, Yizao; Rabinowitz, Adam N.; Chen, Xuan; Campbell, Benjamin
  17. The Effect of Intermediary Market Power on Grain Quality in India By Skidmore, Marin; Baylis, Kathy; Arends-Kuenning, Mary P.; Michelson, Hope C.
  18. Related and unrelated diversification in crisis and in prosperity By Karoly Miklos Kiss; Laszlo Lorincz; Zsolt Csafordi; Balazs Lengyel
  19. An Examination of Price Transmission in the U.S. Peanut Butter Industry By Liu, Yizao; Rabinowitz, Adam N.
  20. Innovation and Brand Effects on the Consumers’ Demand for Fresh Milk in Spain By AOUINI, Syrine; Gil, Jose M.
  21. Competition among Securities Markets By Pierre-Cyrille Hautcoeur; Amir Rezaee; Angelo Riva
  22. Airline Alliances and Service Quality By Jan K. Brueckner; Ricardo Flores-Fillol
  23. Complementarity and Bargaining Power By Richards, Timothy J.; Bonnet, Celine; Bouamra-Mechemache, Zohra
  24. Limits to the «theorem of lemons»: demand for good cars under equilibrium price dispersion By Malakhov, Sergey

  1. By: Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Bergamo and CSEF); Markus Reisinger (Frankfurt School of Finance & Management)
    Abstract: A manufacturer chooses the optimal retail market structure and bilaterally and secretly contracts with each (homogeneous) retailer. In a classic framework without asymmetric information, the manufacturer sells through a single exclusive retailer in order to eliminate the opportunism problem. When retailers are privately informed about their (common) marginal cost, however, the number of competing retailers also affects their information rents and the manufacturer may prefer an oligopolistic market structure. We characterize how the manufacturer’s production technology, the elasticity of final demand, and the size of the market affect the optimal number of retailers. Our results arise both with price and quantity competition, and also when retailers’ costs are imperfectly correlated.
    Keywords: asymmetric information, distribution network, opportunism, retail market structure, vertical contracting.
    JEL: D43 L11 L42 L81
    Date: 2018–09–21
  2. By: James D. Dana Jr. (Northwestern University); Kevin R. Williams (Cowles Foundation, Yale University)
    Abstract: Inventory controls, used most notably by airlines, are sales limits assigned to individual prices. While typically viewed as a tool to manage demand uncertainty, we argue that inventory controls can also facilitate intertemporal price discrimination in oligopoly. In our model, competing firms first choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes less elastic over time, as is the case in airline markets, a monopolist can easily price discriminate; however, we show that oligopoly firms generally cannot. We also show that using inventory controls allows oligopoly firms to set increasing prices, regardless of whether or not demand is uncertain.
    Keywords: Capacity-pricing games, Intertemporal price discrimination, Oligopoly models, Inventory controls
    JEL: D21 D43 L13
    Date: 2018–06
  3. By: Rainer Schlosser; Martin Boissier
    Abstract: Most sales applications are characterized by competition and limited demand information. For successful pricing strategies, frequent price adjustments as well as anticipation of market dynamics are crucial. Both effects are challenging as competitive markets are complex and computations of optimized pricing adjustments can be time-consuming. We analyze stochastic dynamic pricing models under oligopoly competition for the sale of perishable goods. To circumvent the curse of dimensionality, we propose a heuristic approach to efficiently compute price adjustments. To demonstrate our strategy's applicability even if the number of competitors is large and their strategies are unknown, we consider different competitive settings in which competitors frequently and strategically adjust their prices. For all settings, we verify that our heuristic strategy yields promising results. We compare the performance of our heuristic against upper bounds, which are obtained by optimal strategies that take advantage of perfect price anticipations. We find that price adjustment frequencies can have a larger impact on expected profits than price anticipations. Finally, our approach has been applied on Amazon for the sale of used books. We have used a seller's historical market data to calibrate our model. Sales results show that our data-driven strategy outperforms the rule-based strategy of an experienced seller by a profit increase of more than 20%.
    Date: 2018–09
  4. By: Paul Belleflamme (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Martin Peitz (Department of Economics and MaCCI, University of Mannheim)
    Abstract: On many two-sided platforms, users on one side not only care about user participation and usage levels on the other side, but they also care about participation and usage of fellow users on the same side. Most prominent is the degree of seller competition on a platform catering to buyers and sellers. In this paper, we address how seller competition affects platform pricing, product variety, and the number of platforms that carry trade.
    Keywords: network effects, two-sided markets, platform competition, intermediation, pricing, Imperfect Competition
    JEL: D43 L13 L86
    Date: 2018–06
  5. By: Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun
    Abstract: It is commonly believed that spillover reduces R&D incentives of a firm. This happens because of the non-appropriability problem. However, some empirical literature shows the possibility of enhanced R&D incentives under spillovers. While this is explained in the literature under incomplete information, we show that this may hold even under complete information. We show in particular that in a duopoly there are situations when with no spillovers only one firm invests in R&D, but under spillovers both the firms invest. This occurs when there is complementarity in research and the spillover is below a critical level.
    Keywords: R&D spillovers, non-appropriability problem, complete information, R&D incentives.
    JEL: D43 L13 O31
    Date: 2018–08–30
  6. By: MAULEON Ana, (Université Saint-Louis Bruxelles and CORE); SEMPERE-MONERRIS Jose J., (University of Valencia); VANNETELBOSCH Vincent, (CORE, Université catholique de Louvain)
    Abstract: We study the formation of R&D networks when each firrm benefits from the research done by other firms it is connected to. Firms can be either myopic or farsighted when deciding about the links they want to form. We propose the notion of myopic-farsighted stable set to determine the R&D networks that emerge in the long run. When the majority of firms is myopic, stability leads to R&D networks consisting of either two asymmetric components with the largest component comprises three-quarters of firms or two symmetric components of nearly equal size with the largest component having only myopic firms. But, once the majority of firms becomes farsighted, only R&D networks with two asymmetric components remain stable. Firms in the largest component obtain greater profits, with farsighted firms having in average more collaborations than myopic firms that are either loose-ends or central for spreading the innovation within the component. Besides myopic and farsighted -firms, we introduce yes-firms that always accept the formation of any link and never delete a link subject to the constraint of non-negative profits. We show that yes-firms can stabilize R&D networks consisting of a single component that maximize the social welfare. Finally, we look at the evolution of R&D networks and we find that R&D networks with two symmetric components will be rapidly dismantled, single component R&D networks will persist many periods, while R&D networks consisting of two asymmetric components will persist forever.
    Keywords: networks, R&D collaborations, oligopoly, myopia, farsightedness
    JEL: C70 L13 L20
    Date: 2018–09–05
  7. By: Richards, Timothy J.; Hamilton, Stephen F.
    Keywords: Industrial Organization, Demand and Price Analysis, Research Methods/Statistical Methods
    Date: 2017–06–15
  8. By: Larue, B.; Gonzalez, P.; Kempa Nangue, C.
    Abstract: Many agricultural products are exported from a small number countries and few export traders are typically involved. This is the case for maple syrup whose production takes place in eastern Canada and in the northeastern part of the United States. Corner solutions in oligopoly models usually arise because of asymmetries in trade and procurement costs. Such asymmetries can be ruled out in the case of Canadian and US maple syrup exports, yet many importing countries purchase only either from Canada or from the US. A theory of endogenous market structures based on duopoly competition with fixed costs is developed. It explains many stylized facts including that large markets have a higher probability of accommodating duopoly competition while smaller markets are more likely to “naturally” attract a single entrant or no entrant at all. A random parameter multinomial logit model is used to explain market structure and probability estimates are used to correct for potential selection biases in market-structure-specific gravity equations.
    Keywords: International Relations/Trade, Marketing
    Date: 2018–07
  9. By: Kenneth Hendricks; Alan Sorensen
    Abstract: Economic theory suggests that decentralized markets can achieve efficient outcomes if buyers and sellers have many opportunities to trade. We examine this idea empirically by developing a tractable dynamic model of bidding in an overlapping, sequential auction environment and estimating the model with detailed data from eBay. Bidders in the model discount their bids to reflect the option value of losing – if they lose, they can come back to try again – and the structure of the model makes it so they effectively bid against a stationary distribution of rivals. We find that dynamic participation makes the market meaningfully more efficient than a benchmark in which buyers have only one opportunity to bid, but the observed outcomes still fall well short of the fully efficient competitive equilibrium.
    JEL: D10 D4 D44 L0
    Date: 2018–09
  10. By: Richards, Timothy J.; Klein, Gordon; Bonnet, Celine; Bouamra-Mechemache, Zohra
    Keywords: Industrial Organization, Demand and Price Analysis, Research Methods/Statistical Methods
    Date: 2017–06–26
  11. By: Minas Vlassis (Department of Economics, University of Crete, Greece); Polyxeni Gioti
    Abstract: In the present paper we develop a two-period unionized mixed duopoly model, furnished with second period- demand shocks, where decentralized firm-specific wage bargains are struck in each period before product market competition is in place.
    Keywords: Unions, Oligopoly, firing restrictions, Eurosclerosis
    JEL: C70 C71 C60
    Date: 2018–09–24
  12. By: GAUTIER Axel, (Université de Liège and CORE); SOMOGYI Robert, (CORE, Université catholique de Louvain)
    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: 2018–09–03
  13. By: Li, Wenying; Zhen, Chen
    Keywords: Demand and Price Analysis, Agricultural and Food Policy, Research Methods/Statistical Methods
    Date: 2017–06–30
  14. By: Perekhozhuk, O.; Chezhia, G.; Glauben, T.
    Abstract: The present study uses Hall’s approach to test for market power in the Kazakh grain processing industry using regional level panel data covered over the period 2000-2011. This study also tests and compares the degree of competition in three sub-periods, 2000-2004, 2004-2007 and 2008-2011. The results suggest that there is no evidence for the existence of oligopsony power in the time period from 2000 to 2011. However, the statistically significant parameters indicating market power was found for the period 2008-2011, which can be explained as a consequence of the government intervention on grain market.
    Keywords: Agricultural and Food Policy, International Relations/Trade
    Date: 2018–07
  15. By: Scalco, Paulo R.; Lopez, Rigoberto A.; He, Xi
    Keywords: Livestock Production/Industries, Marketing, Agribusiness
    Date: 2017–06–15
  16. By: Liu, Yizao; Rabinowitz, Adam N.; Chen, Xuan; Campbell, Benjamin
    Abstract: This paper addresses the demand and challenges for local foods and focuses on the marketing strategies for retail promotion. While federal and state government make efforts to promote local food purchases and consumption at the farm level, local foods face significant distribution challenges in grocers, especially in larger chains. Limited shelf space and high pricing by retailers impede consumers’ purchase and result in weak competitiveness for local brands. Therefore, it is essential for local producers and “buy local” programs to understand what types of promotion and marketing strategies might be more effective in stimulating demand in retail outlets. Using 2006-2011 Nielsen Retail Scanner data in the United States, we estimate a random coefficient discrete choice model to determine the effects of nutritional characteristics, price, packaging, and the distribution strategies on the consumers’ choice to purchase locally branded milk. We restrict our analysis to the top 7 national brands, top 9 local brands, and private labels. Results show even though, on average, consumers prefer less local milk brands than private label brands, income, and other unobservable factors significantly influence consumer-specific tastes. Simulations show that a price cut, one-gallon package offering, and expanding distribution channels can significantly stimulate the demand for locally branded milk.
    Keywords: Agricultural and Food Policy, Marketing
    Date: 2018–01–17
  17. By: Skidmore, Marin; Baylis, Kathy; Arends-Kuenning, Mary P.; Michelson, Hope C.
    Keywords: Agricultural and Food Policy, Industrial Organization, International Development
    Date: 2017–06–15
  18. By: Karoly Miklos Kiss (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and University of Pannonia, Veszprem); Laszlo Lorincz (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Corvinus University of Budapest); Zsolt Csafordi (Erasmus University Rotterdam); Balazs Lengyel (Agglomeration and Social Networks Lendület Research Group Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and International Business School Budapest)
    Abstract: How does technological relatedness influence the portfolio of multi-product firms hit by external shocks? To answer this question, we look at the effect of product-specific demand shocks on product portfolios of Hungarian firms in the 2005-2012 period. We find that production have become more cohesive in terms of technological relatedness if firms were exposed to demand shocks. Evidence suggests that firms in crisis drop or downsize additional products not related to their core product and concentrate resources on related products.
    Keywords: product diversification, technological relatedness, industry space network, dynamics of product portfolio, crisis
    JEL: C23 D22 D24 L25
    Date: 2018–09
  19. By: Liu, Yizao; Rabinowitz, Adam N.
    Keywords: Agribusiness, Demand and Price Analysis
    Date: 2018–02–04
  20. By: AOUINI, Syrine; Gil, Jose M.
    Keywords: Demand and Price Analysis, Marketing, Livestock Production/Industries
    Date: 2017–06–15
  21. By: Pierre-Cyrille Hautcoeur (PSE - Paris School of Economics); Amir Rezaee (ISG - International Business School [Paris]); Angelo Riva (European Business School Paris)
    Abstract: We study the causes and the consequences of two regulatory changes affecting the competition between the transparent Parquet and the OTC-like Coulisse markets in Paris at the turn of the 20th century. First, we provide evidence supporting the interest group theory to explain regulatory changes. By using these changes as natural experiments, we show then that competition widens bid-ask spreads while monopoly makes them narrower. These results are in line with recent literature questioning the effects of "dark" competition: a transparent monopoly could be more effective than competition if the latter involves opaque markets.
    Keywords: Paris Stock Exchange,Market microstructure,Reforms,Regulation,Monopoly,Spreads
    Date: 2018–08
  22. By: Jan K. Brueckner; Ricardo Flores-Fillol
    Abstract: Convenient scheduling, characterized by adequate flight frequency, is the main quality attribute for airline services. However, the effect of airline alliances on this important dimension of service quality has received almost no attention in the literature. This paper fills this gap by providing such an analysis in a model where flight frequency affects schedule delay and connecting layover time. While an alliance raises service quality when layover time has zero cost, the reverse occurs when layover time is costly. The source of this surprising result is that costly layovers eliminate the additive structure of the full trip price, which consists of the sum of the subfares plus the weighted sum of the reciprocal flight frequencies when layover cost is zero. The paper also shows that nonaligned carriers adjust frequencies to suit passenger preferences in business and leisure markets, while an alliance is less responsive to such preference differences. With hub-airport congestion, greater internalization by allied carriers tends to reduce frequency, but this force is not enough to overturn the positive alliance effect in the low-cost layover case.
    Keywords: service quality, alliance, double marginalization, congestion
    JEL: D43 L13 L40 L93 R40
    Date: 2018
  23. By: Richards, Timothy J.; Bonnet, Celine; Bouamra-Mechemache, Zohra
    Keywords: Industrial Organization, Demand and Price Analysis, Research Methods/Statistical Methods
    Date: 2017–06–26
  24. By: Malakhov, Sergey
    Abstract: The model of equilibrium price dispersion examines the demand for cars through the optics of the demand for mileage where the asymmetry of information is produced by the odometer fraud. Theoretically, fraudsters can destroy the market as it is described by the “theorem of lemons”. But the market self-deactivation does not take place. The purchase of a car with regard to the demand for mileage represents a form of home production where driving like gardening and pets’ care provide a direct utility but is also something one can purchase on the market. At the margin nobody buys but everybody gets taxi. The increase in taxi price per mile raises the demand for good cars of taxi drivers and it makes rational for potential buyers to pay for taxi drivers expertize fee in order to choose a good car. The demand for good cars is restored at the new price level. The pessimistic scenario, however, doesn’t take place because good cars stay attractive. The equilibrium price of a mile establishes the direct relationship between marginal savings on purchase and the time horizon of the consumption-leisure choice. Great discounts provide potential buyers the additional information about short life cycle of vehicles like unexpected low price for beefsteak tells about its short shelf life. The equilibrium price of a mile describes also the trade-off between the purchase price and the costs of ownership. The marginal approach does not rely on the endowment effect. The choice between a good car and a bad car discovers the willingness to take care of good cars where the after-the-purchase costs of ownership per mile become greater than for a bad car. The willingness to take care of the big-ticket quality items reinforces the willingness to pay of potential buyers, and sellers of good cars do not quit the market.
    Keywords: : theorem of lemons, equilibrium price dispersion, optimal consumption-leisure choce, willingness to take care of big-ticket items
    JEL: D11 D83
    Date: 2018–08–22

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