nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒01‒14
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Bundling information goods and access – simulating competition By Howell, Bronwyn E.; Potgieter, Petrus H.
  2. Mixed Market Structure, Competition and Market Size: How Does Product Mix Respond? By Aya Elewa
  3. Cheap Trade Credit and Competition in Downstream Markets By Mariassunta Giannetti; Nicolas Serrano-Velarde; Emanuele Tarantino
  4. Location in a disk city with consumer concentration around the center By Stadler, Manfred
  5. How does the competitive intensity affect the firm's product strategies? By Lee, Kyungyul; Kwon, Youngsun
  6. Monopolistic Competition, As You Like It By Paolo Bertoletti; Federico Etro
  7. How disruptive are disruptive operators? By Vialle, Pierre; Whalley, Jason; Parisot, Xivier
  8. Not all price endings are created equal: Price points and asymmetric price rigidity By Daniel Levy; Avichai Snir; Alex Gotler; Haipeng (Allan) Chen
  9. On the difficulty of collusion in the presence of a more efficient outsider By Guillaume Cheikbossian; Philippe Mahenc
  10. Cartel Stability under Quality Differentiation By Iwan Bos; Marco Marini
  11. Collusion with capacity constraints under a sales maximization rationing rule By Takaomi Notsu
  12. Internet of things (IoT) platform competition: consumer switching versus provider multihoming By Basaure, Arturo; Vesselkov, Alexandr
  13. Crowd-Driven Competitive Intelligence: Understanding the Relationship Between Local Market Competition and Online Rating Distributions By Dominik Gutt; Philipp Herrmann; Mohammad S. Rahman
  14. The Single Supervisory Mechanism: competitive implications for the banking sectors in the euro area By Iryna Okolelova; Jacob Bikker
  15. Rate Optimal Specification Test When the Number of Instruments is Large By Mitsukuni Nishida
  16. Coopération, dépendance et éviction - Quelle appréhension concurrentielle des liens inter-entreprises dans les écosystèmes de téléphonie mobile ? By Frédéric Marty; Julien Pillot
  17. Consumer Preferences and Market Structure in Credit Card Markets: Evidence from Turkey By G. Gulsun Akin; Ahmet Faruk Aysan; Ezgi Özer; Levent Yildiran
  18. Hump-shaped cross-price effects and the extensive margin in cross-border shopping By Friberg, Richard; Steen, Frode; Ulsaker, Simen A.
  19. Size, Efficiency, Market Power, and Economies of Scale in the African Banking Sector By Simplice A. Asongu; Nicholas M. Odhiambo

  1. By: Howell, Bronwyn E.; Potgieter, Petrus H.
    Abstract: We discuss the effect of pricing strategies by two firms on the total firm revenue, consumer and total welfare using simulation and numerical analysis. We consider pricing decisions for mixed bundling and where each firm offers two closely related products as well as a bundle. Bundling is a key feature for information goods (Bakos & Brynjolfsson, 1999; Shapiro & Varian, 1999) and we might assume that the market has two differentiated content products (each of which is a bundle of channels, for example, or a bundle of content titles to which access is sold). In many markets, this would be a basic entertainment product and then a sports product or a premium bundle with recent films etc. We can also consider this to be an access and a content product, to consider the issues around merger of content and access firms. In the model for this paper, we introduce a principle of bounded rationality by limiting the ability of the firms to determine revenue-maximising pricing strategies. That means that the firms are able to reduce their effort to find a revenue optimum and will in general find a relatively good solution only but not necessarily an optimum one. Considering the effects of this approach might be useful for both regulators and firms. We also assume that the firms collude to maximise their joint revenue, which we regard as a realistic supposition in a duopoly market. The model can be extended to cover the case where one firm offers/bundles more than two products but this is a topic for future research.
    Date: 2018
  2. By: Aya Elewa (Paris School of Economics)
    Abstract: Assuming a double heterogeneity; within industry firm heterogeneity and within firm product heterogeneity, this paper investigates how multiproduct firms respond to tougher competition and greater market size across destinations. Building a theoretical model where monopolistically competitive and oligopolistic firms coexist in the same market, the paper studies how an increase in market size affects both types of firms’ behavior. The model shows that the final impact of bigger market size on the product-mix of multiproduct firms depends on the level of fixed entry costs. For low level of entry costs, big firms increase their product-mix when they export to larger markets as they benefit from scope economies. Yet, when fixed costs are prohibitive, a larger market induces firms to skew their export sales toward their core product. Very strong confirmation of this non-monotonic effect of market size was found for Egyptian exporters across export market destinations.
    Date: 2018–10–28
  3. By: Mariassunta Giannetti; Nicolas Serrano-Velarde; Emanuele Tarantino
    Abstract: Using a unique dataset with information on 20 million inter-firm transactions, we provide evidence that suppliers offer cheap trade credit to ease competition in downstream markets. We show theoretically that trade credit allows suppliers to transfer surplus to high-bargaining-power customers while preserving sales to other buyers. Suppliers optimally choose a trade credit limit up to which customers can purchase on account. This contractual feature allows suppliers to target infra-marginal units and to leave unaffected customers' marginal costs. Empirically, we find that suppliers grant trade credit to high-bargaining-power customers only when they fear the cannibalization of sales to other low-bargaining-power customers. Exploiting a law that lowered the cost of offering trade credit, we show that higher provision of trade credit to high-bargaining-power customers leads to an expansion of the suppliers' customer base and higher growth of sales to low-bargaining-power customers.
    Keywords: Trade credit, competition, input prices, supply chains
    JEL: G3 D2 L1
    Date: 2018–12
  4. By: Stadler, Manfred
    Abstract: The paper studies a two-stage location-price duopoly game in a disk city with consumer concentration around the city center. When consumers are uniformly distributed over the plane, unconstrained firms locate outside of the city. Consumer concentration, however, induces firms to locate nearer to each other and, when the degree of concentration is sufficiently high, inside of the city. Prices and firm profits decrease in the degree of consumer concentration. We explicitly solve the model for classes of cone-shaped, dome-shaped, and bell-shaped consumer densities. In all cases we identify a loss of welfare due to the strategic effect which causes the firms' spatial differentiation being too large.
    Keywords: location strategies,disk city,concentration of consumer demand
    JEL: C72 L13 R32
    Date: 2018
  5. By: Lee, Kyungyul; Kwon, Youngsun
    Abstract: Competitive intensity is a level of competition intensification in a market or an industry. This is expressed in various forms and some paper measured the competitive intensity as the number of products that newly released each year in an industry (Putsis & Bayus, 2001). In other paper, they analyzed the competitive intensity as a market structure such as market concentration (Stavins, 2001) or the number of firms competing in one industry (Giachetti & Dagnino, 2014). Overall, the competitive intensity represents the complex competition within the market. Then how does competitive intensity affects to the company or to the organizational level? In modern times, corporate product innovation takes place rapidly, and the number of products and companies competing in a market is increasing geometrically. Unlike the past, a market that is monopolized by a single or few companies is hard to find except for public goods. In the smartphone market, 11 companies had competed in 2008, but the number of competing companies had risen dramatically, with more than 45 companies competed in 2016. The number of smartphones also rose sharply, with 50 new phones had launched in 2008, but about 545 new smartphones introduced in 2016. Disadvantage of the increase in the competitive intensity for the firm is that it has a major negative impact on the competitive advantage (D'Aveni, 1994). The decline in the competitive advantage of firms due to the rise of these competitive intensities makes them act newly when they enter or compete in the market...
    Date: 2018
  6. By: Paolo Bertoletti; Federico Etro
    Abstract: We study monopolistic competition with asymmetric preferences over a variety of goods provided by heterogeneous firms, and show how to compute equilibria through the Morishima measures of substitution. Further results concerning pricing and entry emerge under homotheticity and when demands depend on common aggregators, as for Generalized Additively Separable preferences (encompassing additive, Gorman-Pollak and implicit CES preferences). We discuss selection effects of changes in aggregate productivity, expenditure and market size, and present applications to trade, with markups variable across goods, and macroeconomics, with markups depending on aggregate variables.
    Keywords: Monopolistic competition, Asymmetric preferences, Heterogeneous firms, Generalized separability, Variable markups
    JEL: D11 D43 L11
    Date: 2018
  7. By: Vialle, Pierre; Whalley, Jason; Parisot, Xivier
    Abstract: The issue of disruptive operators has recently gained interest among researchers and regulators. From a regulator's perspective, disruptive operators can increase competitive rivalry in markets dominated by a handful of large companies, thus allowing consumers to obtain more benefits in terms of price and quality. However, the "disruptive" qualification of an operator in related studies does not rely on a precise definition of disruption. The disruption theory, as developed by Christensen, provides such a definition but may be too restrictive. In addition, it may not be adapted to the analysis of disruption in regulated industries such as telecommunications. In this paper, we aim at deepening our understanding of disruption in the case of the Telecommunications industry, by analysing cases of mobile operators who entered the industry thanks to 3G or 4G licences. To this end we first analyse the disruption theory literature and highlight its characteristics and limitations. It allows us to propose an eclectic analytical framework of disruptive innovations that does not restrict to Christensen's theory. We then apply it to different cases of disruptive mobile operators in order to identify the level and pattern of disruption inherent to each case, and to compare them. We conclude by discussing our findings and further research perspectives.
    Keywords: Disruption,innovation,telecommunications,regulated industries,business model,strategy,policy
    Date: 2018
  8. By: Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis); Avichai Snir (Department of Banking & Finance, Netanya Academic College, Israel); Alex Gotler (Department of Education and Psychology, Open University, Israel); Haipeng (Allan) Chen (Gatton College of Business and Economics, University of Kentucky, USA)
    Abstract: We document an asymmetry in the rigidity of 9-ending prices relative to non-9-ending prices. Consumers have difficulty noticing higher prices if they are 9-ending, or noticing price-increases if the new prices are 9-ending, because 9-endings are used as a signal for low prices. Price setters respond strategically to the consumer-heuristic by setting 9-ending prices more often after price-increases than after price-decreases. 9-ending prices, therefore, remain 9-ending more often after price-increases than after price-decreases, leading to asymmetric rigidity: 9-ending prices are more rigid upward than downward. These findings hold for both transaction-prices and regular-prices, and for both inflation and no-inflation periods.
    Keywords: Asymmetric Price Adjustment, Sticky/Rigid Prices, 9-Ending Prices, Psychological Prices, Price Points, Regular/Sale Prices
    JEL: E31 L16 C91 C93 D80 M31
    Date: 2019–01
  9. By: Guillaume Cheikbossian (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Philippe Mahenc (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: We study the ability of several identical firms to collude in the presence of a more efficient firm, which does not take part in their collusive agreement. The cartel firms adopt stick-and-carrot strategies, while the efficient firm plays its one-period best-response function, regardless of the history of play. We characterize the most collusive symmetric punishment, which maximizes the scope for collusion. We then find that either a lower cost disadvantage or a smaller cartel size facilitates collusion. Finally, we compare our results with those obtained in the standard setup where all firms participate in the collusive agreement.
    Keywords: cost asymmetry,optimal punishments,outsider,repeated game,tacit collusion,outsider JEL classification code: C73,D43,L13
    Date: 2018–05
  10. By: Iwan Bos; Marco Marini
    Abstract: This note considers cartel stability when the cartelized products are vertically differentiated. If market shares are maintained at pre-collusive levels, then the firm with the lowest competitive price-cost margin has the strongest incentive to deviate from the collusive agreement. The lowest-quality supplier has the tightest incentive constraint when the difference in unit production costs is sufficiently small.
    Date: 2018–12
  11. By: Takaomi Notsu (Graduate School of Economics, Kyoto University)
    Abstract: In this paper, we study full collusion (total payoff maximization) in the repeated Bertrand duopoly with capacity constraints. Instead of a standard rationing rule, Efficient rule (E rule), we introduce a sales maximization rationing rule. Under this rule, when the demand of a firm with a lower price exceeds its capacity, the consumers who are willing to buy at that price are rationed to that firm according to their unwillingness to buy. Then, we investigate whether the full collusion can be sustained or not by an equilibrium under our rule. We have four main results. First, we find that unless each firm's capacity is too large, an asymmetric price pair maximizes one shot total payoffs and the maximum total payoff is strictly greater than the one under E rule. Second, we explicitly find a minimum discount factor under which the full collusion can be sustained along a simple path such that the firms alternate two asymmetric price pairs. Third, we find that there exists a range of capacity constraints within which the minimum discount factors above which the full collusion can be sustained are lower under our rule than under E rule. This implies that the payoff of the full collusion, which is greater than under E rule, can be sustained within a wider range of discount factors rather than under E rule. Fourth and finally, we show that there exists the interior optimal capacity which maximizes the total payoffs of the full collusion, and the total payoff is strictly greater than the profit of a monopolist with aggregate capacities. This implies that sufficiently patient rms intend to reduce their capacities to just the optimal level when they have extra capacities, and that each middle-size firm prefers to be independent, instead of being horizontally integrated.
    Keywords: Repeated Bertrand oligopoly, Capacity constraints, Collusion, Sales maximization rule, Simple alternating path, Size of firm
    Date: 2018–04
  12. By: Basaure, Arturo; Vesselkov, Alexandr
    Abstract: Platforms that are understood as a place or system coordinating the interaction of different stakeholders (e.g., service consumers and providers) may enable widespread adoption of IoT services and applications. However, the lack of interoperability between platforms may inhibit the diffusion of IoT services by preventing reaching a critical mass and reducing competition as it makes consumer switching and service provider multihoming prohibitively expensive. Moreover, network effects inherent in multisided platforms may lead to a monopoly power in IoT market. This paper analyzes the effect of consumer switching costs and provider multihoming on market structure and competition by means of agent-based modelling. Simulation results suggest that service provider multihoming plays a key role in increasing market competition when switching costs decrease due to, for example, consumer data portability.
    Keywords: IoT,interoperability,network effect,data sharing,consumer switching,service provider multihoming,coopetition
    Date: 2018
  13. By: Dominik Gutt (Paderborn University); Philipp Herrmann (Consultant); Mohammad S. Rahman (Purdue University)
    Abstract: In this paper, we analyze how changes in local market structure affect the properties of a market’s mean rating distribution. To this end, we combine demographic, socioeconomic, and Yelp restaurant review data for 372 isolated markets in the United States. Our empirical estimates demonstrate that an increase in overall competition – measured as total number of businesses in a market – leads to a broader range and to a decrease in the average of a market’s mean rating distribution. The implication is that a larger market has proportionately more lower rated restaurants, whereas higher rated restaurants have relatively fewer comparable substitutes and face less competition in such a market. These effects are particularly pronounced when the analysis is limited to specific cuisine types where vertical differentiation is more natural or when we control for city-specific unobserved heterogeneity. Our findings highlight that practitioners and scholars using online mean ratings of businesses from disparate markets should account for the local market structure to judiciously analyze the relative market power of a business.
    Keywords: Local Market Competition, Online Ratings, Online Offline Interplay, Geographic
    JEL: D43 D22 L11 M31
    Date: 2018–12
  14. By: Iryna Okolelova; Jacob Bikker
    Abstract: This paper investigates the impact of the SSM's launch on the market power of banks in the large euro area economies. We employ the Lerner index and the Boone estimator, non-structural measures that capture different aspects of competition. Using the results of the Lerner index, we find evidence of the significant decrease in market power for the ECB supervised entities in Austria, France, Germany and Spain. In a similar vein, the Boone indicator points toward an increase in competition among significant supervised entities of Austria, France, Germany, Italy and Spain. The evidence on changes for the total banking sector are mixed, whereas no significant effect is found for the banks remaining under national supervision. We do not find any support for significant increases in the market power of banks in Italy or Spain, suggesting that large increases in concentration do not necessarily result in anticompetitive conduct.
    Keywords: Banking; SSM; competition; market structure; concentration; Lerner index; Boone indicator
    JEL: G21 G28 L1
    Date: 2018–12
  15. By: Mitsukuni Nishida (The Johns Hopkins Carey Business School)
    Abstract: Despite a large literature that documents a market-share advantage for pioneering firms, entry-order effects on economic profits and their implications for marketing strategy are largely unknown due to limitations in accounting profits and costs. This paper empirically examines the entry-order effects on profit components: revenues, entry costs, expansion costs, and variable costs. Unlike conventional analyses, this paper leverages a structural approach that does not require information on accounting profits and costs. By assuming that forward-looking firms maximize economic profits under strategic interactions, the approach infers cost and revenue parameters such that these parameters justify the observed entry and expansion behaviors as equilibrium outcomes of a dynamic game. I apply the revealed-preference argument to the panel data set from the convenience-store industry in Japan on store counts and revenues for 47 geographic markets for years 1984 through 2010. Variation in entry order, store counts, and revenues across markets, firms, and years, together with the dynamic equilibrium model, allows researchers to uncover the entry-order effects on revenue and cost functions. I find whereas a firm earns 5.0% more revenues at the outlet level relative to the next entrant, the next entrant earns a reduction in variable costs per outlet and expansion costs per outlet by 5.7% and 15.9%, respectively. The difference in entry-order effects on profits accounts for 10.1% of the differences in total economic profits across two leading firms, 7-Eleven and LAWSON. Based on the interplay between competition, market growth, and geography, simulation analyses reveal that a firm may initially benefit from postponing its market-entry consideration, but the advantage could disappear in around 25 years. The benefits for a late entrant are larger if the market is growing and distant from the firm’s and competitor firms’ parent companies’ headquarters.
    Keywords: Dynamic Games; Structural Estimation; First-Mover Advantage; Pioneer Advantage; Firm Performance; Order-of-Entry; Convenience Store; Chain; Retailing
    Date: 2018–07
  16. By: Frédéric Marty; Julien Pillot
    Abstract: This contribution aims at analysing the potential effects of competition law based decisions in the mobile operating systems domain, considering their two-sided structure. Based on the notion of complementary investments, it proposes to investigate the relationships between the pivotal player and its partners. After establishing the economic and technical grounds underlying their contractual relationships, we assess them under the length of competition laws requirements. We show that, despite the gains that can result from these relationships, their asymmetrical nature may induce abuses of dominance or anticompetitive takeovers. However, we stress that competition law based remedies may be poorly efficient to address these issues. Cette contribution porte sur les effets des décisions concurrentielles dans le domaine des systèmes d’exploitation mobiles en regard de leur structure de plateforme biface. S’appuyant sur la notion d’investissement complémentaire, elle se propose d’analyser les relations entre la firme pivot de chaque système et ses partenaires. Il s’agit d’évaluer en termes concurrentiels les dispositifs techniques et financiers qui les lient. Au-delà de cette question liée à l’évaluation de leur effet net sur la concurrence, il s’agit également de s’interroger sur les possibles abus d’exploitation et d’éviction qui peuvent résulter de telles relations complémentaires mais asymétriques. Cette contribution discute enfin les possibles effets de remèdes concurrentiels portant sur ces relations.
    Keywords: mobile operating systems,two-sided markets,dominant position abuses,merger control,remedies, systèmes d’exploitation mobiles,marchés biface,abus de position dominante,concentration
    JEL: K21 L13 L86
    Date: 2018–12–21
  17. By: G. Gulsun Akin (Bogazici University); Ahmet Faruk Aysan; Ezgi Özer; Levent Yildiran
    Abstract: Using a discrete choice random utility model and unique data from a nationwide consumer survey, we show that consumers view credit cards as highly differentiated products with both bank-level and card-level nonprice features. They select their credit cards by predominantly considering these nonprice features. Although they charge higher prices, the majority of consumers choose private banks as issuers due to their bank-level and card-level nonprice benefits. Consumers who prioritize prices tend to choose participation or public banks. Product differentiation and bundling seem to underlie banks’ market power in the Turkish credit card market. Large private banks and public banks reap the benefits of bundling more than the other banks. Of card-level nonprice features, installments, bonuses/rewards/miles, and the prestige of the card seem to be particularly effective in consumers’ decisions. We argue that this highly differentiated nature of credit cards can be an alternative explanation for the credit card pricing puzzles.
    Date: 2018–11–19
  18. By: Friberg, Richard; Steen, Frode (Dept. of Economics, Norwegian School of Economics and Business Administration); Ulsaker, Simen A. (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper examines the effect of cross-border shopping on grocery demand in Norway using monthly store×category sales data from Norway’s largest grocery chain 2011-2016. The sensitivity of demand to foreign price is hump-shaped and greatest 30-60 minutes’ driving distance from the closest foreign store. Combining continuous demand, fixed costs of cross-border shopping and linear transport costs `a la Hotelling we show how this hump-shape can arise through a combination of intensive and extensive margins of cross-border shopping. Our conclusions are further supported by novel survey evidence and cross-border traffic data.
    Keywords: Cross-border shopping; competition in grocery markets; product differentiation
    JEL: F15 H73 L66 R20
    Date: 2018–12–17
  19. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: There is a growing body of evidence that interest rate spreads in Africa are higher for big banks compared to small banks. One concern is that big banks might be using their market power to charge higher lending rates as they become larger, more efficient, and unchallenged. In contrast, several studies found that when bank size increases beyond certain thresholds, diseconomies of scale are introduced that lead to inefficiency. In that case, we also would expect to see widened interest margins. This study examines the connection between bank size and efficiency to understand whether that relationship is influenced by exploitation of market power or economies of scale. Using a panel of 162 African banks for 2001–2011, we analyzed the empirical data using instrumental variables and fixed effects regressions, with overlapping and non-overlapping thresholds for bank size. We found two key results. First, bank size increases bank interest rate margins with an inverted U-shaped nexus. Second, market power and economies of scale do not increase or decrease the interest rate margins significantly. The main policy implication is that interest rate margins cannot be elucidated by either market power or economies of scale. Other implications are discussed.
    Keywords: Sub-Saharan Africa; banks; lending rates; efficiency; Quiet Life Hypothesis
    JEL: E42 E52 E58 G21 G28
    Date: 2018–01

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