nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒10‒22
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Modern industrial organization theory of media markets and competition policy implications By Budzinski, Oliver; Kuchinke, Björn
  2. Agency Pricing and Bargaining: Evidence from the E-Book Market By Babur De los Santos; Daniel P. O'Brien; Matthijs R. Wildenbeest
  3. Quality Regulation and Competition: Evidence from Pharmaceutical Markets By Atal, Juan Pablo; Cuesta, José Ignacio; Sæthre, Morten
  4. Move a Little Closer? Information Sharing and the Spatial Clustering of Bank Branches By Qi, Shusen; de Haas, Ralph; Ongena, S.R.G.; Straetmans, Stefan
  5. Competition and Specificity in Market Design: Evidence from Geotargeted Advertising By Bo Cowgill; Cosmina Dorobantu
  6. Catalog Competition: Equilibrium Characterization and experimental evidence By Dimitrios Xefteris; Iván Barreda-Tarrazona; Aurora García-Gallego; Nikolaos Georgantzis
  7. Labor’s Share, the firm’s market power and TFP By Robert Dixon; Guay C. Lim;
  8. Labour market power and the distorting effects of international trade By Mertens, Matthias
  9. Market Power with Capacity and Commitment: An Experimental Exploration By Slade, Peter; Nolan, James F.
  10. Employment Adjustment Over the Business Cycle: The Impact of Competition in the Labor Market By Douglas A. Webber
  11. R&D Concentration in Soybean and Cotton Markets By Anderson, Benjamin C.; Sheldon, Ian M.
  12. Switching Cost and Store Choice By Richards, Timothy J.; Liaukonyte, Jura
  13. Pass-through as a test for market power: An application of Solar Subsidies By Jacquelyn Pless; Arthur A. van Benthem

  1. By: Budzinski, Oliver; Kuchinke, Björn
    Abstract: This paper outlines the modern industrial organization theory of media markets including competition policy implications. After recapturing fundamentals of industrial organization theory in a non-technical way, the state of the art of (i) modern platform economics, (ii) the economics of the so-called sharing economy, and (iii) the economics of data-based business models and data-driven markets is summarized in a detailed way and illustrated by modern media examples.
    Keywords: industrial organization,media economics,industrial economics,platform economics,sharing economy,digital economy,digitization,big data,economics of privacy,competition policy,antitrust economics
    JEL: L0 L82 L10 A2 K21
    Date: 2018
  2. By: Babur De los Santos (John E. Walker Department of Economics, Clemson University); Daniel P. O'Brien (Compass Lexecon); Matthijs R. Wildenbeest (Kelley School of Business, Indiana University)
    Abstract: This paper examines the relationship between two types of vertical contracts and retail prices under bilateral bargaining. In contrast to traditional wholesale contracts, in agency contracts upstream suppliers set retail prices directly while downstream retailers act as agents who receive a sales royalty. Our model shows that whether agency contracts lead to higher or lower retail prices (vs. wholesale contracts) depends on the distribution of bargaining power between upstream and downstream firms. We propose a methodology to structurally estimate a demand and supply model that allows for both vertical contracting models and uses the Nash-in-Nash bargaining solution to capture competition between upstream and downstream firms. We apply our model to the e-book industry, which has experienced several transitions between agency and wholesale contracts. Our analysis studies the latest transition from wholesale to agency contracts after the expiration of a two-year ban on agency pricing following the settlement of a lawsuit brought by the U.S. Department of Justice against major publishers in the industry. This ban allowed us to observe new agency contracts after a rarely seen restart of bilateral bargaining between publishers and retailers. Using a unique dataset of e-book prices both before and after the change in selling method, we show that prices increased substantially at Amazon following the shift to agency but remained relatively flat at Barnes & Noble. Structural estimates show that our bargaining model gives a better fit to the data than a model with take-it-or-leave-it input contracts. Counterfactual simulations indicate that reinstitution of most favored nation clauses, which were banned in 2012 for a period of five years, would lead to price increases of close to nine percent for non-fiction books.
    Keywords: e-books, agency agreements, vertical restraints, bargaining, most favored nation
    JEL: C14 D83 L13
    Date: 2018–10
  3. By: Atal, Juan Pablo (University of Pennsylvania); Cuesta, José Ignacio (University of Chicago); Sæthre, Morten (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We study the effects of quality regulation on market outcomes by exploiting the staggered phase-in of bioequivalence requirements for generic drugs in Chile. We estimate that the number of drugs in the market decreased by 25%, average paid prices increased by 10%, and total sales decreased by 20%. These adverse effects were concentrated among small markets. Our results suggest that the intended effects of quality regulation on price competition through increased (perceived) quality of generics—and therefore reduced vertical differentiation—were overturned by adverse competitive effects arising from the costs of complying with the regulation.
    Keywords: Quality regulation; competition; bioequivalence; generic pharmaceuticals
    JEL: I11 L11 L15 L65
    Date: 2018–09–26
  4. By: Qi, Shusen; de Haas, Ralph (Tilburg University, Center For Economic Research); Ongena, S.R.G. (Tilburg University, Center For Economic Research); Straetmans, Stefan
    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 our model. We find that information sharing spurs banks to open branches in localities that are new to them, but that are already well served by other banks. Information sharing also allows firms to borrow from more distant banks.
    Keywords: branch clustering; informatio sharing; spatial oligolopy model
    JEL: D43 G21 G28 L13 R51
    Date: 2018
  5. By: Bo Cowgill (Columbia University); Cosmina Dorobantu (Columbia University, Oxford University and The Alan Turing Institute)
    Abstract: How should market designers tradeoff liquidity and specificity? We study a natural experiment in the release of a new ad targeting feature by an ad exchange. The platform introduced new targeting into select geographic markets using a regression discontinuity. The experiment affects the specificity advertising assets in the markets (ie, the availability of targeting a city or a zip code). We find evidence that additional specificity reduces the total number of ad impressions delivered by the platform, as advertisers concentrate bidding into fewer, targeted markets. Despite this, we find an overall positive effects on revenue growth in the treated areas. This appears to be driven mainly by increases in clickthrough rates and not through increases in average prices (which actually decreased), and by entry of new advertisers.
    Keywords: fixed-to-mobile substitution; incumbency advantage; broadband access
    JEL: L13 L43 L96
    Date: 2018–09
  6. By: Dimitrios Xefteris (Dept. of Economics, University of Cyprus, Cyprus); Iván Barreda-Tarrazona (LEE & Economics Department, Universitat Jaume I, Castellón-Spain); Aurora García-Gallego (LEE & Economics Department, Universitat Jaume I, Castellón-Spain); Nikolaos Georgantzis (Burgundy School of Wines and Spirits Business, Dijon-France and LEE-Universitat Jaume I, Castellón-Spain)
    Abstract: This paper studies a catalog competition game: two competing rms decide at the same time product characteristics and prices in order to maximize pro ts. In the unique symmetric equilibrium of this one-stage Hotelling (1929) game, rms employ mixed strategies which make them produce more often a mainstream product variety than any of the specialized ones and always charge higher prices than their marginal costs (also, prices for mainstream products are found to be lower than prices for specialized products). We experimentally test and con rm the main predictions of the model, and we also compare it to the rst-location-then-pricing original setup.
    Keywords: catalog competition; Hotelling; mixed equilibrium; experiment
    JEL: C72 C92 D43 D90
    Date: 2018
  7. By: Robert Dixon (Department of Economics, University of Melbourne); Guay C. Lim (Melbourne Institute of Applied Economic and Social Research, University of Melbourne);
    Abstract: We investigate the relationship between labor’s share, firm’s market power 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 market power and the elasticity. Evidence on the market power of firms (which we find to be rising since 2000) gives a deeper understanding of movements in labor’s share and the labor wedge. The generated values of the elasticity yield revised estimates of TFP growth which is informative about the extent of the downwards bias inherent in traditional estimates which use labor’s 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: 2018–02
  8. By: Mertens, Matthias
    Abstract: This article examines how trade shocks shape labour market imperfections that create market power in labour markets and prevent an efficient allocation of labour. I develop a framework for measuring such labour market distortions in monetary terms and document large degrees of those distortions in Germany's manufacturing sector. Import competition can only exert labour market disciplining effects when firms rather than workers have labour market power. Otherwise, export demand and import competition shocks tend to fortify existing distortions by amplifying labour market power structures. This diminishes the gains from trade compared to a model with perfectly competitive labour markets.
    Keywords: international trade,market power,labour markets,allocative efficiency
    JEL: D24 F14 F16 J50 L13 L60
    Date: 2018
  9. By: Slade, Peter; Nolan, James F.
    Keywords: Industrial Org./Supply Chain Management, Experimental Economics, Agribusiness Economics and Management
    Date: 2018–06–20
  10. By: Douglas A. Webber (Department of Economics, Temple University)
    Abstract: Using linked employer-employee data which covers the majority of U.S. employment, I examine how frictions in the labor market have evolved over time. I estimate that the labor supply elasticity to the firm declined by approximately 0.19 log points (1.20 to 1.01) since the late 1990's, with the steepest declines occurring during the financial crisis. I find that this decline in labor market competition cost workers about 4 percent in lost earnings. I also find evidence that relatively monopsonistic firms smooth their employment behavior, growing at a rate lower than relatively competitive firms in good economic climates and slightly higher during poor economic climates. This conforms with the predictions of recent macroeconomic search models which suggest that frictions in the economy may actually reduce employment fluctuations.
    Keywords: Monopsony, Great Recession, Business Cycle
    JEL: J21 J42 J64
    Date: 2018–08
  11. By: Anderson, Benjamin C.; Sheldon, Ian M.
    Keywords: Industrial Org./Supply Chain Management, Agribusiness Economics and Management, Production Economics
    Date: 2018–06–20
  12. By: Richards, Timothy J.; Liaukonyte, Jura
    Keywords: Industrial Org./Supply Chain Management, Food and Agricultural Marketing, Agribusiness Economics and Management
    Date: 2018–06–20
  13. By: Jacquelyn Pless; Arthur A. van Benthem
    Abstract: We formalize pass-through over-shifting as a simple yet under-utilized test for market power. We apply this test in the market for solar energy. Speci cally, we estimate the pass-through of solar subsidies to solar system prices using rich micro-level transaction and subsidy data from California. Buyers of solar systems capture nearly the full subsidy, while there is more-than-complete pass-through to lessees. We conclude that solar markets are imperfectly competitive by ruling out alternative explanations for over-shifting, and reinforce this conclusion with a test of solar demand curvature. This procedure can serve to detect market power beyond the solar market.
    Keywords: solar subsidy, pass-through, over-shifting, demand curvature, market power, third-party ownership, buy vs. lease
    JEL: H22 Q42 Q48 Q58
    Date: 2018

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