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on Industrial Competition |
| By: | Walter Beckert (Birkbeck, University of London); Paolo Siciliani (Bank of England) |
| Abstract: | This paper studies regulatory policy interventions aimed at protecting vulnerable consumers who are disengaged and thus exposed to exploitation. We model heterogeneous consumer switching costs alongside asymmetric market shares. This setting encompasses many markets in which established firms are challenged by new entrants. We identify circumstances under which such interventions can be counterproductive, both with regard to the stated consumer protection objective and the complementary aim to promote competition. |
| Keywords: | switching costs, price discrimination, uniform pricing, most-favoured customer clauses, price regulation, competition. |
| JEL: | L11 L13 D4 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1808&r=com |
| By: | Armstrong, Mark; Vickers, John |
| Abstract: | We analyze a market where some consumers only consider buying from a specific seller while other consumers choose the best deal from several sellers. When sellers are able to discriminate against their captive customers, we show that discrimination harms consumers in aggregate relative to the situation with uniform pricing when sellers are approximately symmetric, while the practice tends to benefit consumers in sufficiently asymmetric markets. |
| Keywords: | Price discrimination; captive customers; consideration sets |
| JEL: | D43 D8 L13 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89284&r=com |
| By: | Lee, Chloe (Federal Reserve Bank of Boston); Luengo-Prado, Maria Jose (Federal Reserve Bank of Boston); Sorensen, Bent E. (University of Houston) |
| Abstract: | A simple model of time allocation between work and price-search predicts that consumers spend relatively more time searching for better prices for goods of which they consume relatively more. Using scanner data, we confirm empirically that consumers pay lower (higher) prices for goods that they buy more (less) of than other consumers. Our results are conservative, because we compare goods that are defined as narrowly as possible by UPC codes, and provide a lower bound for the savings obtained from bargain hunting. |
| Keywords: | consumption; consumer search; time use |
| JEL: | D12 E21 |
| Date: | 2018–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:18-4&r=com |
| By: | Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes |
| Abstract: | This article studies competition in markets with transport costs and capacity constraints. We compare the outcomes of price competition and coordination in a theoretical model and find that when firms compete, they more often serve more distant customers who are closer to the competitor's plant. If firms compete, the transport distance also varies in the degree of overcapacity, but not if they coordinate their sales. Using a rich micro-level data set of the cement industry in Germany, we study a cartel breakdown to identify the effect of competition on transport distances. Our econometric analyses support the theoretical predictions. |
| Keywords: | capacity constraints,cartel,cement,spatial competition,transport costs |
| JEL: | K21 L11 L41 L61 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:302&r=com |
| By: | Kerem Yavuz Arslani; Christopher Hannum; Wendy Usrey; Laurie Dufloth |
| Abstract: | This project will build a theoretical model of real estate brokerage using assumptions based upon findings from the extensive brokerage literature. In this model differentiation in services and quality between brokerage firms combined with differentiation in preferences between sellers lead to measurable ranges of operation for brokerage firms. These ranges overlap, leading to the competitive nature of the industry. This theoretical model can be simulated in order to predict when ranges will grow or shrink and when competition within them will increase or decrease.Using MLS data for Northern Colorado we will measure the range of operation in ArcGIS for each brokerage firm and each agent in the sample by using actual geocoded data for listings and transactions. These ranges of operation will be used to calculate a market share of listings or transactions for the agent or brokerage firm within their own range of operation. For example, while a county might have 1200 listings a certain brokerage firm within that county may compete only within a smaller area of that county in which there are 120 listings. If the brokerage firm has 40 total listings our methodology would give them a market share of 33% within their operating range rather than 3% within the county.Using panel data techniques we will test whether higher values for our market concentration measure are correlated with higher or lower sales prices. We will examine whether market shares and the size of operating ranges for individual agents and brokerage firms vary predictably with local market conditions. These tests will help to determine what value better measures of brokerage firm market share and market concentration will have to policy makers and real estate practitioners, potentially in identifying desirable locations for new entrants and in predicting future trends. |
| Keywords: | Brokerage; Competition; Housing Markets |
| JEL: | R3 |
| Date: | 2018–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:eres2018_164&r=com |
| By: | Rossi-Hansberg, Esteban (Princeton University); Sarte, Pierre-Daniel G. (Federal Reserve Bank of Richmond); Trachter, Nicholas (Federal Reserve Bank of Richmond) |
| Abstract: | Using U.S. NETS data, we present evidence that the positive trend observed in national product-market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least seven years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration and a likely more competitive local environment. |
| Keywords: | national product-market concentration; local concentration |
| JEL: | E23 L11 R12 |
| Date: | 2018–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:18-15&r=com |
| By: | Daniel Ershov (Toulouse School of Economics, 21 Allee de Brienne, 31000 Toulouse, France) |
| Abstract: | Firms considering to enter into online markets face significant demand uncertainty and consumer search costs, with consumers most likely finding previously successful products in the market. This leads to a trade-off for potential entrants. Consider the appearance of a new very popular product (“superstar") in a particular niche. The popular product resolves demand uncertainty but also increases search costs for new entrants relative to the superstar. The interaction between these two forces could result in too much entry by low quality products, or not enough entry. I empirically examine these effects using 2012- 2013 data on mobile games in the Android mobile app store. I show that there are large increases in entry in niches where the superstar appears, unless they were already popular niches (“discovered"). I also show that the superstar reduces the quality of the new entrants and intensifies price competition. |
| Keywords: | mobile apps; entry; superstars; demand discovery; search |
| JEL: | L86 D22 L11 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1802&r=com |
| By: | Berdud, M.; Garau, M.; Neri, M.; O'Neill, P.; Sampson, C.; Towse, A. |
| Abstract: | In the pharmaceutical industry, intellectual property (IP) rights protection including patents, data exclusivity (DE), and supplementary protection certificates (SPCs), are important due to the high costs of research and development (R&D) for new medicines and the issue of appropriability, a concept that reflects innovator's capacity to capture or appropriate the added value created by successful innovation. Problems can arise if the amount of appropriation is too low or too high. A low degree of appropriability could result in dynamic inefficiency or a suboptimal (too low) investment in innovation. However, too much IP protection might grant the originator market power for an excessive period. Such market power enables prices above manufacturing and distribution cost to give a return on R&D, but results in static inefficiency, whereby innovative medicines are not used by some patients/countries/systems. This research paper by OHE contributes to this debate by analysing the functioning of a specific market for innovative treatments, Direct Acting Antivirals (DAAs) for hepatitis C virus (HCV) in six European countries. The authors explore potential for in-class competition for DAAs to offset innovators' market power and to maximise the social welfare generated by the adoption of pharmaceutical innovation via lower prices. Using a multidisciplinary methodological approach combining a theoretical economic framework with uptake/market share analyses by country and interviews, this OHE research concludes that - (i) IP incentives for R&D may have encouraged a high degree of in-class competition of DAAs close to the first entrant launch; (ii) in-class competition had a positive impact on uptake and adoption of DAAs in the top-5 European countries and; (iii) although in-class competition is a necessary condition for early adoption and fast uptake of innovative medicines, it is not sufficient as there are other factors related to the performance of the new technology, characteristics of the healthcare system and political factors which can have an effect. |
| Keywords: | Economics of innovation; Economics of Industry |
| JEL: | I1 |
| Date: | 2018–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ohe:respap:002040&r=com |
| By: | Cheng, Guo; Dharmasena, Senarath |
| Abstract: | Nuts such as almonds, pecans, walnuts, and pistachios are available in the U.S. market in different forms and brands. There are well-known national brands as well as not-so well-known private label and store brands. Nut producing firms compete for market share and strategically price, brand, advertise and position products in the market. Conventional brand-level analysis of such markets is achieved through calculation of market power and price cost margins assuming the presence of pure strategy Bertrand-Nash Equilibrium in prices. This is supported by a set of prior assumptions with regards to the structure of the market and oftentimes these are too restrictive, because pricing decisions are made in a complex multivariate situation with numerous interactions between variables that determine the prices and prices themselves. In this study, using 2015 Nielsen scanner data for nut products, complex causal relationships among brand level prices are estimated using cutting-edge machine learning algorithms. Also within this method, the concept of Markov Blankets is used to identify specific brands that are immediately important for a given brand. Several national brands were identified as a direct cause of the price of store brands. Even though store brands were associated with the highest market share, they had no influence on any other brands’ pricing decision and strategy. |
| Keywords: | Agribusiness, Industrial Organization, Marketing |
| Date: | 2018–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea18:266567&r=com |
| By: | Claudia M. Landeo (University of Alberta); Kathryn E. Spier (Harvard Law School and NBER) |
| Abstract: | This paper studies the design of enforcement policies to detect and deter harmful short-term activities committed by groups of injurers. With an ordered-leniency policy, the degree of leniency granted to an injurer who self-reports depends on his or her position in the self-reporting queue. By creating a “race to the courthouse,” ordered-leniency policies lead to faster detection and stronger deterrence of illegal activities. The socially-optimal level of deterrence can be obtained at zero cost when the externalities associated with the harmful activities are not too high. Without leniency for self-reporting, the enforcement cost is strictly positive and there is underdeterrence of harmful activities relative to the first-best level. Hence, ordered-leniency policies are welfare improving. Our findings for environments with groups of injurers complement Kaplow and Shavell's (1994) results for single-injurer environments. |
| Keywords: | Law Enforcement, Ordered Leniency, Self-Reporting, Leniency, Harmful Externalities, Non-Cooperative Games, Prisoners' Dilemma Game, Coordination Game; Risk Dominance; Pareto Dominance; Corporate Misconduct; White-Collar Crime; Securities Fraud; Insider Trading; Market Manipulation; Whistleblowers; Plea Bargaining; Tax Evasion; Environmental Policy Enforcement |
| JEL: | C72 D86 K10 L23 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:126&r=com |
| By: | Pavel Chakraborty; Michael Henry |
| Abstract: | Using detailed firm-product-year data across manufacturing industries in India, and exploiting the exogenous nature of China's entry into the WTO in 2001, we investigate the link between the impact of import penetration from China on the product variety of Indian manufacturing firms. We find: (i) robust and significant effect of product drop, with the effect coming only from competitive pressure in the domestic market; (ii) evidence of product drop or 'creative destruction' is robust only for the lower-half of the size distribution; (iii) firms drop their peripheral/marginal products and concentrate on the core ones; and (iv) our result is most strong for firms producing intermediate goods. For an average Indian manufacturing firm, 10 percentage point increase in India's Chinese share of imports in the domestic market reduces the product scope of firms by 1.7-4.4%. In contrast, we find positive effects on product scope as when firms are importing intermediate goods. We also find evidence of significant productivity effects and within-firm factor reallocation. Our results are consistent to a battery of robustness checks and IV estimation. |
| Keywords: | Chinese Competition, Product Drop, Domestic Market, Small Firms |
| JEL: | F1 F14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:245425397&r=com |
| By: | Lanter, David; Hirsch, Stefan; Finger, Robert |
| Keywords: | Industrial Org./Supply Chain Management, Agribusiness Economics and Management, Research Methods/Econometrics/Stats |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274202&r=com |
| By: | Nikolai Roussanov; Hongxun Ruan; Yanhao Wei |
| Abstract: | Marketing and distribution expenses are responsible for about a third of the cost of active management in the mutual fund industry. We develop and estimate a structural model of mutual fund marketing with learning about unobserved skill and costly investor search. Our estimates suggest that marketing is nearly as important as performance and fees for determining fund size. Eliminating marketing substantially improves welfare, as capital shifts towards cheaper funds and competition decreases fees. Average alpha increases as active funds shrink, and capital allocation becomes more closely aligned with manager skill net of fees. Declining investor search costs over time imply a reduction in marketing expenses and management fees as well as a shift towards passive investing, as observed empirically. |
| JEL: | D14 D83 G11 G23 G28 M3 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25056&r=com |
| By: | Matsushima, Hiroshi; Khanna, Madhu |
| Keywords: | Resource and Environmental Policy Analysis, Industrial Org./Supply Chain Management, Natural Resource Economics |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274421&r=com |
| By: | Roland Herrmann; Katharina Bissinger; Lisa Krandick |
| Abstract: | There is a growing demand for foods with sustainability characteristics on Northern markets. Despite this trend, foods with sustainability characteristics, like organic farming, regional production and fairtrade certification, do still cover small market segments compared to the conventional market. The incentive for producers to switch from the mass to the niche market is the potential price premium associated with sustainability characteristics. In order to measure these premia, very different approaches are applied. We argue that supply-and-demand models incorporating the influence of sustainability characteristics on preferences and marginal costs are superior to willingness-to-pay studies focusing on hypothetical decisions by consumers alone. We apply hedonic price analysis to the German online market for honey. The differentiated market for honey allows to compare price premia across different sustainability characteristics. Price premia compared to the benchmark of a standard honey, are positive for regionality and negative for fairtrade. |
| Keywords: | Agribusiness, Agricultural and Food Policy |
| Date: | 2018–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iefi18:276855&r=com |
| By: | Li, Wenying; Dorfman, Jeffrey H. |
| Keywords: | Food and Agricultural Policy Analysis, Demand and Price Analysis, Research Methods/Econometrics/Stats |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:273852&r=com |
| By: | Polemis, Michael; Stengos, Thanasis; Tzeremes, Nickolaos |
| Abstract: | The study applies the probabilistic framework of nonparametric frontier estimation in order to model the effect of competitive conditions on sectors’ production efficiency levels. We utilize conditional Order-m robust frontiers modeling the dynamic effects of competitive conditions on a sample of 462 U.S. 6-digit manufacturing sectors over the period 1958-2009. The results derived from the time-dependent robust conditional estimators unveil a non-linear relationship between market competition and productive efficiency. Our findings suggest that for higher competitive conditions the effect is positive up to a certain threshold point after which the effect becomes negative. |
| Keywords: | Probabilistic frontier analysis; Conditional efficiency; Order-m estimators; U.S. manufacturing; Competition. |
| JEL: | C14 L60 O14 |
| Date: | 2018–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89240&r=com |