nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒11‒05
fifteen papers chosen by
Russell Pittman
United States Department of Justice

  1. An Entry Game with Learning and Market Competition By Chia-Hui Chen; Junichiro Ishida; Arijit Mukherjee
  2. Differentiated durable goods monopoly: a robust Coase conjecture By Nava, Francesco; Schiraldi, Pasquale
  3. Strategic Inattention in Product Search By Hippel, Svenja; Hillenbrand, Adrian
  4. More Amazon Effects: Online Competition and Pricing Behaviors By Alberto Cavallo
  5. Gift cards or vouchers as a collusive device By Kim, Jeong-yoo; Park, Jihoon
  6. An Econometric Identification of Abnormally Low Bids in Procurement Market: Discriminant Analysis By Jinook Jeong; Hyunwoo Lee
  7. Advertising and Brand Attitudes: Evidence from 575 Brands over Five Years By Rex Yuxing Du; Mingyu Joo; Kenneth C. Wilbur
  8. Poverty, Competition, Democracy and Ownership: a General Equilibrium Model with Vertical Preferences * By Amani Kahloul; Rim Lahmandi-Ayed; Hejer Lasram
  9. Worst-Case Bounds on R&D and Pricing Distortions: Theory with an Application Assuming Consumer Values Follow the World Income Distribution By Michael Kremer; Christopher M. Snyder
  10. Competencia vs. Monopolio: un análisis insumo-producto de las tasas de ganancia y markups en la economía de los EE.UU.: 1958-1977 By Paul Cooney
  11. Market liberalization: Price dispersion, price discrimination and consumer search in the German electricity markets By Gugler, Klaus; Heim, Sven; Janssen, Maarten C. W.; Liebensteiner, Mario
  12. Firm Scope and Spillovers from New Product Innovation: Evidence from Medical Devices By Matthew Grennan; Charu Gupta; Mara Lederman
  13. Bank competition and firm credit availability: firm-bank evidence from Europe By Pietro Grandi; Caroline Bozou
  14. A Replication of “Bank Competition and Financial Stability: Much Ado About Nothing?” (Journal of Economic Surveys, 2016) By Samangi Bandaranayake; Kuntal K. Das; W. Robert Reed
  15. Heterogeneity in Hospital Consolidation By Christina DePasquale

  1. By: Chia-Hui Chen; Junichiro Ishida; Arijit Mukherjee
    Abstract: This paper provides a dynamic game of market entry to illustrate entry dynamics in an uncertain market environment. Our model features both private learning about the market condition and market competition, which give rise to the first-mover and second-mover advantages in a unified framework. We characterize symmetric Markov perfect equilibria and identify a necessary and sufficient condition for the first-mover advantage to dominate, which elucidates when and under what conditions a firm becomes a pioneer, an early follower or a late entrant. We also derive equilibrium payoff bounds to show that pioneering entry is generally payoff-enhancing, even though it is driven by preemption motives, and discuss efficiency properties of entry dynamics.
    Date: 2018–10
  2. By: Nava, Francesco; Schiraldi, Pasquale
    Abstract: The paper analyzes a durable goods monopoly problem in which multiple varieties can be sold. A robust Coase conjecture establishes that the market eventually clears, with profits exceeding static optimal market-clearing profits and converging to this lower bound in all stationary equilibria with instantaneous price revisions. Pricing need not be efficient, nor is it minimal (equal to the maximum of marginal cost and minimal value), and can lead to cross-subsidization. Conclusions nest both classical Coasian insights and modern Coasian failures. The option to scrap products does not affect results qualitatively, but delivers a novel motive for selling high cost products.
    Keywords: Coase conjecture; monopoly; product design; dynamic pricing
    JEL: J1
    Date: 2018–10–17
  3. By: Hippel, Svenja; Hillenbrand, Adrian
    Abstract: Online platforms provide search tools that help consumers to get better-fitting product offers. But this technology makes consumer search behavior also easily traceable and allows for real-time price discrimination. Consumers face a trade-off: Search intensely and receive a better fit at a potentially higher price or restrict search behavior – be strategically inattentive – and receive a worse fit, but maybe a better deal. We study the resulting strategic buyer-seller interaction theoretically as well as experimentally. Our experimental results show that it is the sellers and not the buyers who profit from these search tools.
    Keywords: strategic inattention,price discrimination,information transmission,consumer choice,experiment
    JEL: D11 D42 D82 D83 L11
    Date: 2018
  4. By: Alberto Cavallo
    Abstract: I study how online competition, with its algorithmic pricing technologies and the transparency of the Internet, can change the pricing behavior of large retailers and affect aggregate inflation dynamics. In particular, I show that online competition has raised both the frequency of price changes and the degree of uniform pricing across locations in the U.S. over the past 10 years. These changes make retail prices more sensitive to aggregate ``nationwide" shocks, increasing the pass-through of both gas prices and nominal exchange rate fluctuations.
    JEL: E31 E5
    Date: 2018–10
  5. By: Kim, Jeong-yoo; Park, Jihoon
    Abstract: In this paper, the authors provide a rationale for why firms issue gift cards or vouchers. Mainly, issuing gift cards can be considered as a collusion-facilitating practice. A firm that issues gift cards can raise its price for several reasons. First, the discounted price by the face value of the gift card makes demands less elastic so that the resulting price will be higher. Second, it has the lock-in effect which makes price competition even less severe. Third, once a firm has sold its gift cards, selling a product to card holders does not increase its revenue, but only increases its cost. So the firm has an incentive to raise the price. Interestingly, the authors argue that the lock-in effect is not essential to the collusion-facilitating effect of gift cards in the sense that collusive prices can be sustained even when the two firms mutually honor their own gift cards, so that no lock-in effect exists. This is mainly because firms can still raise prices for the total proportions of consumers who face less elastic demands due to discounted prices. Despite the apparent additional cost of issuing gift cards, firms can benefit from issuing them if its collusive effect is higher than the increase in the cost.
    Keywords: Gift card,gift voucher,collusion-facilitating practice,lock-in effect,elasticity effect,cost-saving effect
    JEL: D43
    Date: 2018
  6. By: Jinook Jeong (Yonsei University); Hyunwoo Lee (Yonsei University)
    Abstract: In the public construction procurement market, 'abnormally low bids (ALB)' are prevalent and they cause many social and economic problems. Also, when the procurement bids are colluded, ALB make the competitive price systematically underestimated. As many countries regulate ALB, their criteria to identify ALB are not homogenous. Most of the criteria are based on construction cost, which is usually inaccurate, vulnerable to accounting manipulation, and limited to the supply side information of the market. We propose an econometric identification process of ALB using a discriminant analysis. It is based on a switching regression with incomplete separation information and easily estimable by MLE. Through a Monte Carlo simulation, we show that our new method works well. We apply our method to Korean public construction bidding data from 2007 to 2016. The estimation results identify the determinants of the bid prices, along with the determinants of ALB, and presents a more accurate assessment of the collusion damage.
    Keywords: abnormally low bids, discriminant analysis, public procurement market
    JEL: H57 L40 L70
    Date: 2018–10
  7. By: Rex Yuxing Du; Mingyu Joo; Kenneth C. Wilbur
    Abstract: Little is known about how different types of advertising affect brand attitudes. We investigate the relationships between three brand attitude variables (perceived quality, perceived value and recent satisfaction) and three types of advertising (national traditional, local traditional and digital). The data represent ten million brand attitude surveys and $264 billion spent on ads by 575 regular advertisers over a five-year period, approximately 37% of all ad spend measured between 2008 and 2012. Inclusion of brand/quarter fixed effects and industry/week fixed effects brings parameter estimates closer to expectations without major reductions in estimation precision. The findings indicate that (i) national traditional ads increase perceived quality, perceived value, and recent satisfaction; (ii) local traditional ads increase perceived quality and perceived value; (iii) digital ads increase perceived value; and (iv) competitor ad effects are generally negative.
    Date: 2018–09
  8. By: Amani Kahloul; Rim Lahmandi-Ayed (UR MASE - Modélisation et Analyse Statistique et Economique - ESSAIT - Ecole Supérieure de la Statistique et de l'Analyse de l'Information - Université de Carthage); Hejer Lasram (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)
    Abstract: We consider a general equilibrium model where individuals are at the same time workers, consumers and shareholders, with two possible ownership structures: egalitarian where all individuals share equally the firm's (firms') capital and concentrated where the owners of the firm(s) are negligible w.r.t the total population; and two possible market structures: Monopoly and Duopoly. The questions are, whether more competition generates more or less poverty for a given ownership structure; and whether a democratic choice between Monopoly and Duopoly leads to the alternative with less poverty. We consider four poverty indicators based respectively on Per Capita Income (PCI), Income Floor, Poorest and Income-Poor Population Size. When the ownership is concentrated, we show that Duopoly generates less poverty than Monopoly and that democratic choice between the two alternatives alleviates poverty according to all indicators apart from PCI. When the ownership is egalitarian, Duopoly may generate more or less poverty than Monopoly and democratic choice alleviates poverty regarding at least one poverty indicator and worsens poverty regarding at least another one, the four poverty indicators never converging. An empirical study on the effect of competition on poverty supports to some extent our theoretical findings. JEL Classification: I32, J4, L13. * We are grateful to Didier Laussel for his careful reading of a previous draft and his very helpful suggestions, and to Hafedh Bouakez for his interesting comments. Remaining imperfections are only ours.
    Keywords: Vertical differentiation,general equilibrium,poverty,democracy,competition,ownership structure
    Date: 2018–10–10
  9. By: Michael Kremer; Christopher M. Snyder
    Abstract: We prove that, for general demand and cost conditions and market structures, the fraction of first-best surplus that a monopolist is unable to extract in a market provides a tight upper bound on the relative distortions arising from firms' equilibrium decisions at all margins (entry and pricing). Continuing with this worst-case perspective, we show that a symmetrically truncated Zipf (STRZ) distribution of consumer values generates the lowest producer surplus among those with a given mean and maximum value. This allows us to relate potential deadweight loss from all margins in a market to the Zipf-similarity of its demand curve. The STRZ distribution also bounds deadweight loss at just the pricing margin. We leverage existing results from industrial organization (e.g., on demand curvature) and statistics (e.g., on the relation between means and medians) to bound producer surplus in an array of important special cases. Calibrations based on the world distribution of income generate extremely Zipf-similar demand curves, suggesting a large potential for deadweight loss in global markets. We gauge the extent to which various policies—such as progressive taxation or price discrimination—might ameliorate this potential deadweight loss.
    JEL: D21 D42 L11 O31
    Date: 2018–10
  10. By: Paul Cooney
    Keywords: Competencia; monopolio; tasas de ganancia. Competition; monopoly; rates of profit.
    JEL: B50 B51 C67 D22 D42 D46
    Date: 2017–01–01
  11. By: Gugler, Klaus; Heim, Sven; Janssen, Maarten C. W.; Liebensteiner, Mario
    Abstract: We study how consumer search affects pricing in markets with incumbents and entrants using panel data on German electricity retail markets. Consumers observe the baseline price of the incumbent and decide whether or not to search. Incumbent providers can price discriminate between searching and loyal consumers. Empirically we show that local incumbents increase their baseline rate while entrants decrease their tariffs if consumer search increases. Moreover, the incumbent price discriminates more strongly in markets with more consumer search. Using a theoretical model, we show that these pricing patterns are consistent with the strategic interaction of profit-maximizing firms.
    Keywords: Search,Price Dispersion,Price Discrimination,Electricity
    JEL: D43 D83 L11 L13 Q40
    Date: 2018
  12. By: Matthew Grennan; Charu Gupta; Mara Lederman
    Abstract: When firms span related product categories, spillovers across categories become central to firm strategy and industrial policy, due to their potential to foreclose competition and affect innovation incentives. We exploit major new product innovations in one medical device category, and detailed sales data across related categories, to develop a causal research design for spillovers at the customer level. We find evidence of spillovers, primarily associated with complementarities in usage. These spillovers imply large benefits to multi- vs. single-category firms, accounting for nearly one quarter of sales in the complimentary category (equivalent to four percent of revenue in the focal category).
    JEL: D22 D4 D43 D62 I11 K21 L1 L13 L25 L38 L4 L5 M2 M21 O25 O31 O32 O33
    Date: 2018–10
  13. By: Pietro Grandi (Université Panthéon Assas (Paris 2), LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - Sorbonne Universités); Caroline Bozou (Université Panthéon Assas (Paris 2), LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - Sorbonne Universités)
    Abstract: This paper examines the impact of bank competition on firms' access to credit using a large panel of 900 banks matched to almost 60.000 firms across the euro area over the period 2010-2016. Results provide empirical support for the market power hypothesis whereby low interbank competition worsens firms' credit conditions. We find that higher bank market power is associated with lower short-term bank credit and higher trade credit for customer firms. Furthermore, high bank market power is especially detrimental for small, low quality and opaque firms, suggesting that lower inter-bank competition exacerbates the financial constraint of borrowers that are more exposed to information problems. By contrast, we find limited evidence consistent with the information hypothesis: among firms related to banks with high market power, only those served by small and local cooperatives obtain more bank credit. This finding highlights the relative importance of specialisation, ownership structure and local outreach in favouring credit relationships between borrowers and lenders.
    Keywords: Banks,inter-bank competition,access to nance
    Date: 2018–10–17
  14. By: Samangi Bandaranayake; Kuntal K. Das (University of Canterbury); W. Robert Reed (University of Canterbury)
    Abstract: This study replicates Zigraiova and Havranek’s (2016) meta-analysis of banking competition and financial stability. It performs three types of replications: a “Reproduction” replication where Z&H’s data and code are verified to reproduce the results of their study; a “Repetition” replication where the studies used by Z&H are independently recoded and then re-analyzed; and an “Extension” replication, where 35 additional studies on banking competition and stability are examined to see if they confirm Z&H’s findings. Our replication analyses confirm Z&H’s main finding that competition in the banking sector is unrelated to financial stability. However, we do not confirm their finding of publication selection in the “Extension” replication, and both “Repetition” and “Extension” replications fail to confirm most of Z&H’s findings about the effects of data, estimation, and study characteristics on estimated competition effects. While our “Repetition” replication produced a high match rate with Z&H’s data, we found that the meta-regression analysis was substantively impacted by discrepancies between the original and recoded data. We conclude that meta-regression analyses should be viewed with caution. We also demonstrate that “best practice” estimates can be precarious and highly dependent on variable specification and how “best practice” is defined. They likewise should be viewed with caution. Our study highlights the value-added that replication brings to meta-analyses. While some of Z&H’s results were found to not be robust, the fact that all three types of replications confirmed Z&H’s main finding about competition and stability provides strong evidence that this finding can be regarded with confidence.
    Keywords: Bank competition, financial stability, Bayesian model averaging, meta-analysis, publication selection, replication
    JEL: C41 G21 G28 L11
    Date: 2018–10–01
  15. By: Christina DePasquale
    Abstract: This paper examines the heterogeneity between two types of hospital consolidations — mergers and system-joinings. I examine changes in admissions, employment outcomes, beds in different medical units, surgeries, costs, case mix, and discharges. I find that hospital mergers and system-joiners are fundamentally different among almost all outcomes examined. Additionally, I extend my analysis by examining those hospitals that, at the time of consolidation, are closer to either their fellow merging hospital or a fellow system-member hospital. I find no meaningful correlation between distance and outcomes.
    Date: 2018–10

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