|
on Industrial Competition |
| By: | Swapnil Sharma (Indira Gandhi Institute of Development Research) |
| Abstract: | Two sided markets involve two groups of agents who interact via "platforms". This paper analyses competition in a two sided market with congestion. The existing literature's on pricing mechanisms of two-sided markets has concluded that pricing mechanism depends on the following three factors: relative size of cross group externalities, fixed price or per transaction charge by platform, and single homing or multiple homing of agents. This paper extends the analysis by including the effect of congestion on pricing mechanisms in a two sided market. It concludes that in the case of single homing of agents, profits of the platform increase due to congestion if the agents have a low tolerance level, whereas in the case of multi homing, profits of the platform increase due to congestion if the agents have a high tolerance level. |
| Keywords: | Network externalities, Congestion |
| JEL: | L10 L11 L14 D43 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2018-024&r=com |
| By: | Abbring, Jaap H. (Tilburg University); Campbell, Jeffrey R. (Federal Reserve Bank of Chicago); Tilly, Jan (QuantCo, Inc.); Yang, Nan (National Univerrsity of Singapore) |
| Abstract: | This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters, and we implement a nested fixed point procedure for its estimation. Estimates from County Business Patterns data on U.S. local cinema markets point to tough local competition. Sunk costs make the industry's transition following a permanent demand shock last 10 to 15 years. |
| Keywords: | demand uncertainty; dynamic oligopoly; firm entry and exit; nested fixed point; estimator; sunk costs; toughness of competition; counterfactual policy analysis; Markov process |
| JEL: | C25 C73 L13 |
| Date: | 2018–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-17&r=com |
| By: | Joshua Gans; Andrew Leigh; Martin Schmalz; Adam Triggs |
| Abstract: | Economic theory suggests that monopoly prices hurt consumers but benefit shareholders. But in a world where individuals or households can be both consumers and shareholders, the impact of market power on inequality depends in part on the relative distribution of consumption and corporate equity ownership across individuals or households. The paper calculates this distribution for the United States, using data from the Survey of Consumer Finances and the Consumer Expenditure Survey, spanning nearly three decades from 1989 to 2016. In 2016, the top 20 percent consumed approximately as much as the bottom 60 percent, but had 13 times as much corporate equity. Because ownership is more skewed than consumption, increased mark-ups increase inequality. Moreover, over time, corporate equity has become even more skewed relative to consumption. |
| Keywords: | Monopoly, market power, inequality |
| JEL: | D42 D43 D61 D63 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2018-62&r=com |
| By: | Gayle, Philip; Xie, Xin |
| Abstract: | Airlines wanting to cooperatively set prices for their international air travel service must apply to the relevant authorities for antitrust immunity (ATI). Whether consumers, on net, benefit from a grant of ATI to partner airlines has caused much public debate. This paper investigates the impact of granting ATI to oneworld alliance members on their price, markup, and various measures of cost. The evidence suggests that implementation of the oneworld alliance without ATI did not have a statistically significant impact on the markup of products offered by the members, and there is no evidence that the subsequent grant of ATI to various members resulted in higher markups on their products. We find evidence suggesting that the grant of ATI facilitated a decrease in partner carriers’ marginal and fixed costs. Furthermore, member carriers’ price did not increase (decreased) in markets where their services do (do not) overlap, implying that consumers, on net, benefit from the grant of ATI in terms of price changes. |
| Keywords: | Airline Competition; Strategic Alliances; Antitrust Immunity |
| JEL: | L13 L40 L93 |
| Date: | 2018–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89914&r=com |
| By: | Uday Bhanu Sinha (Department of Economics, Delhi School of Economics) |
| Abstract: | We develop a supergame model of collusion between price-setting oligopolists when the trade between countries involves per-unit trade cost and FDI requires a fixed cost of setting up a subsidiary in a foreign country. We demonstrate that cross hauling of FDI may facilitate collusion based on territorial allocation of markets. Whenever FDI is not helpful for sustaining collusion, the collusive arrangement involves no FDI at all. With asymmetric number of home firms or with different sizes of the markets, FDI may facilitate international collusion at lower levels of trade costs and thus our analysis also throws some light on the empirical puzzle regarding the trade liberalisation and FDI flows observed since the 1990s. |
| Keywords: | Foreign direct investment, collusion, multimarket contact, cross hauling of FDI, price competition, homogenous good. |
| JEL: | D43 F12 F15 F21 F23 L13 L41 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:295&r=com |
| By: | Rashid, Muhammad Mustafa |
| Abstract: | The purpose of this paper is to provide an introduction of market power in different market structures and how this market power diminishes because of international trade and the effects on welfare. A review of relevant literature from Pugel (2012), McConnel Bruce and Flynn (2012) and Bernheim and Winston (2014) provides the effects of international trade on the market power conditions in different market structures and the effects on welfare. Asprilla, Berman, Cadot and Jaud (2016), Devereux and Lee (2001) and Krugman (1994) serve to provide further evidence through PTM literature, bilateral exchange rate shocks and protectionism. |
| Keywords: | Market Power, Market Structures, International Trade and Policy. |
| JEL: | E6 F01 F1 F23 F4 F41 F42 F5 M16 M2 |
| Date: | 2018–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89889&r=com |
| By: | Grey, F.; Ritz, R. |
| Abstract: | Government regulation, such as the pricing of externalities, often raises the unit costs of regulated firms, and its impact on their profits is important to its political economy. We introduce a reduced-form model (“GLM”) that nests existing models of imperfect competition under weaker assumptions. We show how a firm's cost passthrough is a sufficient statistic for the profit impact of regulation. We apply the GLM to carbon pricing for US airlines. We find large inter-firm heterogeneity in pass-through, even for a uniform cost shock. The GLM allows us to sidestep estimation of a consumer demand system, firm markups and conduct parameters. We derive the second-best emissions tax including lobbying a government “for sale”. |
| Keywords: | Cost pass-through, regulation, carbon pricing, airlines, political economy |
| JEL: | D43 H23 L51 L92 Q54 |
| Date: | 2018–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1859&r=com |
| By: | Rex Deighton-Smith |
| Abstract: | This paper reviews the economic case for regulating ride-hailing and dockless bikeshare. Ride-hailing has disrupted heavily regulated taxi markets and is calling much of the rationale for taxi regulation into question. It argues for light-handed regulation to enable fair, nondistorting competition across the sector. A similar approach to bikeshare is needed, though the context differs greatly. These services are creating new mobility options, while their business models are evolving rapidly. Regulators should adopt a cautious approach which minimises the risk of undermining their potential. |
| Date: | 2018–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:oec:itfaab:2018/24-en&r=com |
| By: | Heim, Sven; Krieger, Bastian; Liebensteiner, Mario |
| Abstract: | Unbundling of vertically integrated utilities has become an integral element in the regulation of network industries and has been implemented in many jurisdictions. The idea of separating the network, as the natural monopoly, from downstream retailing, which may be exposed to competition, is still subject to contentious debate. This is because there is much empirical evidence that unbundling eliminates economies of vertical integration while empirical evidence on price reducing effects is still lacking. In this paper we study the effect of legal unbundling on grid charges in the German electricity distribution industry. Using panel data on German distribution system operators (DSOs) we exploit the variation in the timing of the implementation of legal unbundling and the fact that not all DSOs had to implement unbundling measures. We are also able to identify heterogeneous effects of legal unbundling for different types of price regulation, because we observe a switch in the price regulation regime from rate-of-return regulation to incentive regulation during our observation period. Our findings suggest that legal unbundling of the network stage significantly decreases grid charges in the range of 5% to 9%, depending on the type of price regulation in place. |
| Keywords: | Vertical Integration,Electricity Distribution,Unbundling,Regulation |
| JEL: | D22 L11 L22 L51 L94 Q48 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18050&r=com |
| By: | Teirilä, J.; Ritz, R. |
| Abstract: | The transition to a low-carbon power system requires growing the share of generation from (intermittent) renewables while ensuring security of supply. Policymakers and economists increasingly see a capacity mechanism as a way to deal with this challenge. Yet this raises new concerns about the exercise of market power by large players via the capacity auction. We present a new modelling approach that captures such strategic behaviour together with a set of ex ante empirical estimates for the new Irish electricity market design (I-SEM) – in which a single firm controls 44% of generation capacity (excluding wind). We find significant costs of strategic behaviour, even with new entry: In our baseline scenarios, procurement costs in the capacity auction are around 150-400 million EUR (or 40-100%) above the competitive least-cost solution. From a policy perspective, we also examine how market power can be measured and mitigated through auction design. |
| Keywords: | capacity market, strategic behaviour, competitive benchmark analysis, restructured electricity market, auction design |
| JEL: | D44 H57 L13 L94 |
| Date: | 2018–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1863&r=com |
| By: | Sarfatia, M.; M., Hesamzadeha.; Holmberg, P. |
| Abstract: | This paper is part I of a two-part paper. It proposes a two-stage game to analyze imperfect competition of producers in zonal power markets with a day-ahead and a real-time market. We consider strategic producers in both markets. They need to take both markets into account when deciding what to bid in each market. The demand shocks between these markets are modeled by several scenarios. The two-stage game is formulated as a Twostage Stochastic Equilibrium Problem with Equilibrium Constraints (TS-EPEC). Then it is further reformulated as a two-stage stochastic Mixed-Integer Linear Program (MILP). The solution of this MILP gives the Subgame Perfect Nash Equilibrium (SPNE). To tackle multiple SPNE, we design a procedure which _nds all SPNE with di_erent total dispatch costs. The proposed MILP model is solved using Benders decomposition embedded in the CPLEX solver. The proposed MILP model is demonstrated on the 6-node and the IEEE 30-node example systems. |
| Keywords: | Two-stage game, Zonal pricing, Two-stage equilibrium problem with equilibrium constraints, Wholesale electricity market |
| JEL: | C61 C63 C72 D43 L13 L94 |
| Date: | 2018–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1869&r=com |
| By: | Sarfatia, M.; M., Hesamzadeha.; Holmberg, P. |
| Abstract: | In part I of this paper, we proposed a Mixed-Integer Linear Program (MILP) to analyse imperfect competition of oligopoly producers in two-stage zonal power markets. In part II of this paper, we propose a solution algorithm which decomposes the proposed MILP model into several subproblems and solve them in parallel and iteratively. Our solution algorithm reduces the solution time of the MILP model and it allows us to analyze largescale examples. To tackle the multiple Subgame Perfect Nash Equilibria (SPNE) situation, we propose a SPNE-band approach. The SPNE band is split into several subintervals and the proposed solution algorithm finds a representative SPNE in each subinterval. Each subinterval is independent from each other, so this structure enables us to use parallel computing. We also design a pre-feasibility test to identify the subintervals without SPNE. Our proposed solution algorithm and our SPNE-band approach are demonstrated on the 6-node and the modified IEEE 30-node example systems. The computational tractability of our solution algorithm is illustrated for the IEEE 118-node and 300-node systems. |
| Keywords: | Modified Benders decomposition, Multiple Subgame Perfect Nash equilibria, Parallel computing, Wholesale electricity market, Zonal pricing |
| JEL: | C61 C63 C72 D43 L13 L94 |
| Date: | 2018–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1870&r=com |
| By: | Tetsuji Okazaki; Ken Onishi; Naoki Wakamori |
| Abstract: | Strategic interaction among firms may hinder the reduction of excess capacity in a declining industry. Policy interventions that attempt to reduce excess capacity may increase efficiency by accelerating the capital adjustment but may decrease efficiency by increasing the market power of firms and/or by distorting firms' divestment decisions. We study capacity coordination policies-forcing firms to reduce their capacity simultaneously-applied to the Japanese cement industry. Estimation results suggest that these interventions (i) did not increase market power because reduction in capacity resulted in higher utilization of the remaining plants, and (ii) did not distort firms' scrappage decisions. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:18-005e&r=com |
| By: | Karbowski, Adam; Kryśkiewicz, Łukasz; Prokop, Jacek |
| Abstract: | The present article shows and discusses the economic problems of market cartelization, and perceives cartels as objects of public policy and interest. In this paper, the term ‘cartel’ has been profoundly explained and elaborated, and the selected examples of industry cartelization, coming both from the Polish national economy and economy of the whole European Union, have been presented. Next, the discussion has been set in relevant economic theories that allow to interpret cartel behavior from the viewpoint of regulators (policy-makers) or in the light of collusion detection mechanisms. |
| Keywords: | Cartels; Public Policy |
| JEL: | K2 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90364&r=com |
| By: | Hollenbeck, Brett; Uetake, Kosuke |
| Abstract: | In 2012 the state of Washington created a legal framework for production and retail sales of marijuana. Nine other U.S. states and Canada have followed. These states hope to generate tax revenue for their state budgets while limiting harms associated with marijuana consumption. We use a unique administrative dataset containing all transactions in the history of the industry in Washington to evaluate the effectiveness of different tax and regulatory policies under consideration by policymakers and study the role of imperfect competition in determining these results. We examine 3 main research questions. First, how effective is Washington’s excise tax at raising revenue? With the nation’s highest tax rate on marijuana, is Washington maximizing revenue or potentially overtaxing, leading to reduced legal sales and lower tax revenue. Second, what is the incidence of taxes in this industry? Finally, most states have restricted entry, resulting in firms with substantial market power. What is the role of imperfect competition in studying these basic questions on tax policy? We combine structural methods and a reduced form sufficient statistic approach to show a number of results. First, Washington’s 37% excise tax is still on the upward sloping portion of the Laffer curve and state revenue could be substantially higher with a higher tax rate. The amount of revenue generated by a tax increase is significantly larger due to retailer market power than it would be under perfect competition. In addition, these taxes are primarily borne by consumers and not by firms, and there is a large social cost associated with each dollar raised. |
| Keywords: | tax incidence, marijuana, pass-through, imperfect competition, regulation |
| JEL: | D22 H21 H22 L13 L51 L81 |
| Date: | 2018–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90085&r=com |
| By: | Pápai, Zoltán; Csorba, Gergely; Nagy, Péter; McLean, Aliz |
| Abstract: | Network sharing agreements have become increasingly widespread in mobile telecommunications markets. They carry undeniable advantages to operators and consumers alike, but also the potential for consumer harm. Not all NSAs are created equal: the assessment of the balance of harm and benefits to customers due to an NSA is a complex endeavour. In this paper, we present a framework for the competitive assessment of NSAs, detailing the possible concerns that may arise, the main factors that influence their seriousness, ways to mitigate the concerns and the principles of assessing efficiency benefits. |
| Keywords: | mobile markets,network sharing,competition,competition assessment |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse18:184960&r=com |
| By: | Briglauer, Wolfgang; Camarda, Enrico Maria; Vogelsang, Ingo |
| Abstract: | This paper examines the determinants of sector-specific regulation imposed on broadband markets related both to efficiency objectives of regulators and to those of narrowly defined interest groups. We test hypotheses derived from the normative and positive theoretical literature employing recent panel data on 27 European Union member states taking into account endogeneity of the underlying regulation and market structure variables. Our empirical specification employs three different estimators based on instrumental variables in order to identify causal effects. We find evidence supporting both regulators pursuing normative objectives and inefficiencies related to regulatory path dependence, bureaucracy goals and an inadequate consideration of competition from mobile broadband networks. Our results call for adjustments in the institutional design of the decision making process under the current European Union regulatory framework. |
| Keywords: | broadband markets,"old" and "new" networks,EU regulatory framework,normative theory,positive theory,path dependence,bureaucracy,EU panel data |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18051&r=com |
| By: | Atik, Can |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse18:184928&r=com |
| By: | ITF |
| Abstract: | This report reviews methods adopted in the United States and Canada for determining fairness and efficiency in rail markets and discusses their potential application in Mexico. It specifically examines how waybill and financial data are used in the economic regulation of railways and makes recommendations for establishing a data collection and analysis system suited to the Mexican railway system. Mexico has transformed its loss-making national railway into profitable concessions that have invested in infrastructure and carry growing volumes of freight. Some of the provisions agreed in the concession titles regarding interconnection and competition on specific links have not, however, developed as expected. A new regulatory agency was established in 2016/17 to address this and establish the capacity for the government to intervene effectively where necessary. A top priority for the Agencia Reguladora del Transporte Ferroviario de México is to develop a data collection and analysis system to understand rail markets in relation to issues of potential abusive pricing and reasonable conditions of access. |
| Date: | 2018–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:oec:itfaac:63-en&r=com |