nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒12‒03
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. The Effect of Horizontal Mergers, When Firms compete in Prices and Investments By Massimo Motta; Emanuele Tarantino
  2. Measuring the Welfare of Intermediation in Vertical Markets By Donna, Javier D.; Pereira, Pedro; Pires, Tiago; Trindade, Andre
  3. Duopolistic Competition and Optimal Switching Time from Export to FDI in Uncertainty By Mankan M. Koné; Lota D.Tamini; Carl Gaigné
  4. Patent Pools, Vertical Integration, and Downstream Competition By Markus Reisinger; Emanuele Tarantino
  5. Article 101 TFEU and market integration By Ibáñez Colomo, Pablo
  6. Competition policy reform in Europe and Germany - Institutional change in the light of digitization By Budzinski, Oliver; Stöhr, Annika
  7. Monopsony in the UK By Abel, Will; Tenreyro, Silvana; Thwaites, Gregory
  8. Monopsony and Two-part Tariffs By Roger D. Blair; Christina DePasquale
  9. Rent Sharing and Inclusive Growth By Brian Bell; Pawel Bukowski; Stephen Machin
  10. Platform Competition: Who Benefits from Multihoming? By Dana Kassem
  11. Platform Competition: Betfair and the U.K. Market for Sports Betting By Ramon Casadesus-Masanell; Neil Campbell
  12. The new media economics of video-on-demand markets: Lessons for competition policy By Budzinski, Oliver; Lindstädt-Dreusicke, Nadine
  13. Does market size matter for charities By Lapointe, Simon; Perroni, Carlo; Scharf, Kimberley; Tukiainen, Janne
  14. Insuring product markets By Jeroen (J.) Hinloopen; Lting Zhou
  15. Vertical and Spatial Price Transmissi n in the Mexican and International Milk Market By Jaramillo-Villanueva, J.L.; Sarker, R.; Cabas-Monje, J.; Portilla-Duran, L.
  16. Heterogeneous Impacts of Cost Shocks, Strategic Bidding and Pass-Through: Evidence from the New England Electricity Market By Harim Kim
  17. The Effects of Competition in Consumer Credit Markets By Gissler, Stefan; Ramcharan, Rodney; Yu, Edison
  18. Conservation auctions, collusion and the endowment effect By Justin Dijk; Erik Ansink

  1. By: Massimo Motta; Emanuele Tarantino
    Abstract: We study the effects of mergers when firms offer differentiated products and compete in prices and investments. Since it is in principle ambiguous, we use aggregative game theory to sign the net effect of the merger: We find that only if it entailed sufficient efficiency gains, could the merger raise total investments and consumer surplus. We also prove there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments. Finally, we show that, from the consumer welfare point of view, a R&D cooperative agreement is superior to any consumer-welfare reducing merger.
    Keywords: horizontal mergers, innovation, investments, research joint ventures, competition
    JEL: K22 D43 L13 L41
    Date: 2018–11
  2. By: Donna, Javier D.; Pereira, Pedro; Pires, Tiago; Trindade, Andre
    Abstract: We empirically investigate the welfare implications of intermediaries in oligopolistic markets, where intermediaries offer additional services to differentiate their products from the ones of the manufacturers. Our identification strategy exploits the unique circumstance that, in the outdoors advertising industry, there are two distribution channels: consumers can purchase the product either directly from manufacturers, or through intermediaries. We specify a differentiated products’ equilibrium model, and estimate it using product-level data for the whole industry. On the demand side, the model includes consumers who engage in costly search with preferences that are specific to the distribution channel. On the supply side, the model includes two competing distribution channels. One features two layers of activity, where manufacturers and intermediaries bargain over wholesale prices, and intermediaries compete on final prices to consumers. The other is vertically integrated. The estimated model is used to simulate counterfactual scenarios, where intermediaries do not offer additional services. We find that the presence of intermediaries increases welfare because the value of their services outweighs the additional margin charged.
    Keywords: Intermediaries, vertical markets, search frictions, bargaining, outdoor advertising
    JEL: D83 L42 L81 M37
    Date: 2018–07
  3. By: Mankan M. Koné; Lota D.Tamini; Carl Gaigné
    Abstract: This paper aimed to extend previous real option models to features of multinational firmsÕactivities such as market competition and trade barriers. Few researchers have studied multinationalsÕ optimal switching time from export to FDI using real options, and those who have done so have ignored trade policies and strategic interactions between firms. Yet,the presence of local competitors and trade costs influences the option value of waiting. We find that FDI in host countries with uncertain demand, strong competition and few barriers to trade will likely to be delayed with respect to immediate investment. In terms of policy implications, we find that the trade and competition policies of host countries have lower deterrent effects on FDI when uncertainty is reduced.
    Keywords: Foreign Direct Investment; Imperfect Competition; Trade Liberalization; Real Options
    JEL: F23 D21
    Date: 2017
  4. By: Markus Reisinger; Emanuele Tarantino
    Abstract: Patent pools are commonly used to license technologies to manufacturers. Whereas previous studies focused on manufacturers active in independent markets, we analyze pools licensing to competing manufacturers, allowing for multiple licensors and non-linear tariffs. We find that the impact of pools on welfare depends on the industry structure: Whereas they are procompetitive when no manufacturer is integrated with a licensor, the presence of vertically integrated manufacturers triggers a novel trade-off between horizontal and vertical price coordination. Specifically, pools are anticompetitive if the share of integrated firms is large, procompetitive otherwise. We then formulate information-free policies to screen anticompetitive pools.
    Keywords: patent pools and horizontal pricing agreements, complementary patents, vertical integration and restraints, antitrust policy
    JEL: K11 L41 L42 O34
    Date: 2018–11
  5. By: Ibáñez Colomo, Pablo
    Abstract: Market integration is an objective of Article 101 TFEU. As a result, agreements aimed at partitioning national markets are in principle restrictive of competition by object. The case law on this point has been consistent since Consten-Grundig. Making sense of it, however, remains a challenge. The purpose of this piece is to show, first, how the methodological approach followed by the Court of Justice changes when market integration considerations are at stake. Secondly, it explains why and when restrictions on cross-border trade have been found not to restrict competition by object within the meaning of Article 101(1) TFEU. An agreement aimed at partitioning national markets is not as such contrary to Article 101(1) TFEU if the analysis of the counterfactual reveals that it does not restrict inter-brand and/or intra-brand competition that would have existed in its absence. It is possible to think of three scenarios in this regard: (i) an agreement may be objectively necessary to achieve the aims sought by the parties; (ii) a clause may be objectively necessary for an agreement and (iii) competition is precluded by the underlying regulatory context (as is the case, in particular, when the exercise of intellectual property rights is at stake).
    JEL: K21 L42 L82 L86 O34
    Date: 2016–12–13
  6. By: Budzinski, Oliver; Stöhr, Annika
    Abstract: The ubiquitous process of digitization changes economic competition on markets in several ways and leads to the emergence of new business models. The increasing roles of digital platforms as well as data-driven markets represent two relevant examples. These developments challenge competition policy, which must consider the special economic characteristics of digital goods and markets. In Germany, national competition law was amended in 2017 in order to accommodate for digitization-driven changes in the economy and plans for further changes are already discussed. We review this institutional change from an economics perspective and argue that most of the reform's elements point into the right direction. However, some upcoming challenges may have been overlooked so far. Furthermore, we discuss whether European competition policy should follow the paragon of the German reform and amend its institutional framework accordingly. We find scope for reform particularly regarding data-driven markets, whereas platform economics appear to be already well-established.
    Keywords: competition policy,antitrust,industrial economics,digitization,media economics,institutional economics,industrial organization,big data,algorithms,platform economics,two-sided markets,personalized data,privacy,internet economics,consumer protection
    JEL: L40 K21 L86 L82 L81 L10 L15 D80
    Date: 2018
  7. By: Abel, Will; Tenreyro, Silvana; Thwaites, Gregory
    Abstract: We study the evolution and effects of monopsony power in the UK private sector labour market from 1998 to 2017. Using linked employee-firm micro-data, we find that: (1) Measures of monopsony have been relatively stable across the time period examined - rising prior to the crisis, before subsequently falling again. (2) There is substantial cross-sectional variation in monopsony at the industry level. (3) Higher levels of labour market concentration are associated with lower pay amongst workers not covered by a collective bargaining agreement. (4) For workers covered by a collective bargaining agreement, the association between labour market concentration and pay is greatly reduced and in most cases disappears. (5) The link between productivity and wage levels is weaker when labour markets are more concentrated.
    JEL: J0
    Date: 2018–10–10
  8. By: Roger D. Blair; Christina DePasquale
    Abstract: In his classic article, Walter Oi (1971) analyzed two-part tariffs by a monopolist. We adapt his analysis to the case of monopsony. We show that the resulting offer is that the seller pays its producer surplus as an access fee in exchange for the buyers promise to buy everything that the seller wants to sell when price equals marginal cost. In addition, we show that this is equivalent to the surplus that the buyer captures with first-degree price discrimination as well as an all-or-nothing offer. We also extend this analysis to the case of uncertainty for a risk-averse monopsonist.
    Date: 2018–10
  9. By: Brian Bell; Pawel Bukowski; Stephen Machin
    Abstract: The long-run evolution of rent sharing is empirically studied. Based upon a comprehensive and harmonized panel of the top 300 publicly quoted British companies over thirty five years, the paper reports evidence of a significant fall over time in the extent to which firms share rents with workers. It confirms that companies do share their profits with employees, but at much smaller scale today than they did during the 1980s and 1990s. This is a robust finding, corroborated with industry-level analysis for the US and EU. The decline in rent sharing is coincident with the rise of product market power that has occurred as worker bargaining power has dropped. Although firms with more market power previously shared more of their profits, they experienced a stronger fall in rent sharing after 2000.
    Keywords: rent sharing, inclusive growth
    JEL: J30
    Date: 2018–11
  10. By: Dana Kassem
    Abstract: I ask whether electrification causes industrial development. I combine newly digitized data from the Indonesian state electricity company with rich manufacturing census data. To understand when and how electrification can cause industrial development, I shed light on an important economic mechanism - firm turnover. In particular, I study the effect of the extensive margin of electrification (grid expansion) on the extensive margin of industrial development (firm entry and exit). To deal with endogenous grid placement, I build a hypothetical electric transmission grid based on colonial incumbent infrastructure and geographic cost factors. I find that electrification causes industrial development, represented by an increase in the number of manufacturing firms, manufacturing workers, and manufacturing output. Electrification increases firm entry rates, but also exit rates. Empirical tests show that electrification creates new industrial activity, as opposed to only reorganizing industrial activity across space. Higher turnover rates lead to higher average productivity and induce reallocation towards more productive firms in electrified areas. This is consistent with electrification lowering entry costs, increasing competition and forcing unproductive firms to exit more often. Without the possibility of entry or competitive effects of entry, the effects of electrification are likely to be smaller.
    JEL: D24 L60 O13 O14 Q41
    Date: 2018–11
  11. By: Ramon Casadesus-Masanell (Harvard Business School, Strategy Unit); Neil Campbell (Majestic Wine PLC)
    Abstract: We examine two episodes of strategic interaction in the U.K. betting industry: (i) Betfair (an entrant multi-sided platform, or MSP) vs. Flutter (also an MSP), and (ii) Betfair vs. traditional bookmakers. We find that although Betfair was an underfunded second mover in the betting exchange space, it was able to attract punters at a much faster rate than the better-funded first mover, Flutter. Moreover, while Betfair and traditional bookmakers competed aggressively for market share, they also developed a highly complementary relationship that favored all parties. We discuss implications for research in the economics and management of MSPs. Specifically, we argue that the literature would benefit from work that endogenizes platform design and that considers the possible competitive and cooperative interactions between the business models of traditional incumbents and those of potential innovative MSP entrants.
    Keywords: platform design, network effects, betting, complements, competing business models, co-opetition, entry
    JEL: D21 D43 L13 L83 L86
    Date: 2018–11
  12. By: Budzinski, Oliver; Lindstädt-Dreusicke, Nadine
    Abstract: The markets for audiovisual content are subject to dynamic change. Where once "traditional" (free-to-air, cable, satellite) television was dominating, i.e. linear audiovisual media services, markets display nowadays strong growth of different types of video-on-demand (VoD), i.e. nonlinear audiovisual media services, including both Paid-for VoD like Amazon Prime and Netflix and Advertised-financed VoD like YouTube. Competition policy decisions in such dynamic markets are always particularly challenging. The German competition authority was presented such a challenge when, at the beginning of the 2010s, German television providers sought to enter online VoD markets with the help of cooperative platforms. We review the antitrust concerns that were raised back then in an ex post analysis. In doing so, we first discuss the dynamic development of the German VoD markets during the last decade. In the second part of this paper, we derive four aspects, in which the previous antitrust analysis cannot be upheld from today's perspective. First, relevant implications of modern platform economics were neglected. Second, some inconsistencies in the assessment of the two projects appear to be inappropriate. Third, the emerging competitive pressure of international VoD providers was strongly underestimated. Fourth, the question of market power in online advertising markets looks very different at the end of the decade.
    Keywords: video-on-demand,media economics,two-sided markets,competition,platform economics,commercial television,public service broadcasters,antitrust policy,YouTube,Amazon,Netflix
    JEL: L40 L82 K21 L13 D40
    Date: 2018
  13. By: Lapointe, Simon; Perroni, Carlo; Scharf, Kimberley; Tukiainen, Janne
    Abstract: We analyze implications of market size for market structure in the charity sector. While a standard model of oligopolistic for-profit competition predicts a positive relationship between market size and firm size, our analogous model of competition between prosocially motivated charities predicts no such correlation. If charities are biased towards their own provision, a positive association between market size and provider size can arise. We examine these predictions empirically for six different local charity markets. Our empirical findings suggest that charities do not solely pursue prosocial objectives, and that increased competition in the charity sector can lead to rationalization in provision
    Keywords: Competition in charity sectors; Market structure
    JEL: H41 L11 L13 L31 L33
    Date: 2018–12–01
  14. By: Jeroen (J.) Hinloopen (University of Amsterdam); Lting Zhou (Tinbergen Institute)
    Abstract: We formally link insurance markets with product markets and identify a demand effect of insurance: if risk-averse consumers can buy insurance against possible product failure, there will be some additional consumers that buy the product because they can also purchase protection. The concomitant upward pressure on price is further fueled by those consumers that have a higher willingness to pay if they can also buy insurance. But a higher price causes those consumers to leave the market that would have bought the product absent insurance. Introducing insurance thus has an ambiguous effect on price, consumers' surplus, and total surplus.
    Keywords: product failure; insured loss; insurance; product markets; demand effect of insurance
    JEL: D21 D43 L13
    Date: 2018–11–20
  15. By: Jaramillo-Villanueva, J.L.; Sarker, R.; Cabas-Monje, J.; Portilla-Duran, L.
    Abstract: During the last two decades, the Mexican dairy sector experienced important structural changes, especially after the implementation of the NAFTA agreement. In 2016, the Bank of Mexico observed that in milk market, the final prices tend to rise when input prices increase, however, they do not decrease when imput prices decrease. In this context, this study examines the degree of spatial and vertical price transmission between farm milk prices and international milk prices as well as between farm milk prices and retail milk prices, in order to assess the ef?ciency level of the Mexican and International dairy market. The ?ndings of this research provide contributions to decision makers and industry stake-holders: a unidirectional transmission of international milk prices to domestic milk prices and from farm price to retail price along with the existence of asymmetric price transmission which depends on whether milk prices are increasing or decreasing. Acknowledgement : Colegio de Posgraduados-Campus Puebla and LGAC in Economics of Rural Development
    Keywords: Demand and Price Analysis
    Date: 2018–07
  16. By: Harim Kim
    Abstract: Industry-wide shocks can have heterogeneous impacts on firms’ costs due to different firm characteristics. The heterogeneity in these impacts is crucial for understanding the passthrough of the shock, because of its implications on strategic competition. In the context of the gas price shock in the electricity market, I develop a method to identify heterogeneous impacts of the shock and show with a structural analysis that the heterogeneous feature of the shock induces markup adjustments of firms. Pass-through that is estimated without incorporating heterogeneous impacts fails to reflect the change in competition arising from the shock, and is, on average, underestimated.
    Date: 2018–11
  17. By: Gissler, Stefan (federal reserve board of governors); Ramcharan, Rodney (University of Southern California); Yu, Edison (Federal Reserve Bank of Philadelphia)
    Abstract: Using changes in financial regulation that create exogenous entry in some consumer credit markets, we find that increased competition induces banks to become more specialized and efficient, while deposit rates increase and borrowing costs for riskier collateral decline. However, shadow banks change their credit policy when faced with more competition and aggressively expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the form of intermediation can shape economic fluctuations. They also suggest that increased competition can lead to large changes in credit policy at institutions outside the traditional supervisory umbrella, possibly creating a less stable financial system.
    Keywords: credit policies; consumer credit
    Date: 2018–10–23
  18. By: Justin Dijk (Vrije Universiteit Amsterdam, PBL); Erik Ansink (Vrije Universiteit Amsterdam)
    Abstract: We contribute to the literature on the optimal design of auction mechanisms for the procurement of nature conservation activities. We use an economic experiment to examine whether the market efficiency of conservation auctions increases or decreases with repetition. Theory predicts that repetition facilitates collusion among sellers in procurement auctions, while behavioral economics suggests that repetition may increase market efficiency because it attenuates the endowment effect - the phenomenon that ownership of a good tends to increase one's valuation of the good. We find that of these two countervailing effects, the latter has the upper hand; average bids decrease monotonically over the consecutive auctions. Since repetition increases market efficiency, conservation contracts can be of shorter duration and procured at a higher frequency than has been suggested before.
    Keywords: Auctions; procurement; endowment effect; collusion; nature conservation
    JEL: C91 D44 H57 Q57
    Date: 2018–11–20

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