nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒02‒11
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Horizontal product differentiation with limited attentive consumers By Saur, Marc P.; Schlatterer, Markus G.; Schmitt, Stefanie Yvonne
  2. Organizing Competition for the Market By Iossa, Elisabetta; Rey, Patrick; Waterson, Michael
  3. Discretely Innovating: The Effect of Barriers to Entry on Innovation and Growth By Steven Bond-Smith
  4. The Impact of Compatibility on Innovation in Markets with Network Effects By Steven Bond-Smith
  5. Universal Intellectual Property Rights: Too Much of a Good Thing? By Auriol, Emmanuelle; Biancini, Sara; Paillacar, Rodrigo
  6. Intellectual Monopoly in Global Value Chains By Cédric Durand; William Milberg
  7. Cheap talk, monitoring and collusion By David Spector
  8. Consumer myopia, imperfect competition and the energy efficiency gap: evidence from the UK refrigerator market By Cohen, François; Glachant, Matthieu; Söderberg, Magnus
  9. Norwegian export of farmed salmon − trade costs and market concentration By Asche, Frank; Gaasland, Ivar; Straume, Hans-Martin; Vårdal, Erling
  10. Hotel rankings of online travel agents, channel pricing, and consumer protection By Hunold, Matthias; Kesler, Reinhold; Laitenberger, Ulrich
  11. Does occupational licensing impact incomes? - The German crafts case By Fredriksen, Kaja
  12. Low Interest Rates, Market Power, and Productivity Growth By Ernest Liu; Atif Mian; Amir Sufi
  13. The good MOOC and the universities By Emilie Dargaud; Frédéric Jouneau-Sion
  14. Surfing Incognito: Welfare Effects of Anonymous Shopping By Johan N. M. Lagerlöf
  15. Prevention efforts, insurance demand and price incentives under coherent risk measures By Sarah Bensalem; Nicolás Hernández Santibáñez; Nabil Kazi-Tani
  16. Chinese competition and network effects on the extensive margin By Daniel Goya
  17. Labor-Market Concentration and Labor Compensation By Qiu, Yue; Sojourner, Aaron J.
  18. Subsidy Bidding Wars and the Structure of Multi-Plant Firms By Simon Lapointe; Pierre-Henri Morand

  1. By: Saur, Marc P.; Schlatterer, Markus G.; Schmitt, Stefanie Yvonne
    Abstract: We analyze the effects of consumers' limited attention on welfare in a model of horizontal product differentiation. We present a novel approach of modeling limited attention: an attention radius. Each consumer only notices goods that are within her attention radius, i.e., goods that are sufficiently similar to her preferred version of the good. Limited attention induces firms to differentiate their products in a way that is beneficial to consumers. In addition, prices may be lower under limited than under full attention. Consumer surplus and welfare are not maximized under full attention but increase for some degree of limited attention.
    Keywords: Attention,Horizontal Product Differentiation,Hotelling,Price Discrimination
    JEL: D43 D91 L13
    Date: 2019
  2. By: Iossa, Elisabetta; Rey, Patrick; Waterson, Michael
    Abstract: The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefi t from a cost advantage. The paper fi rst compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other fi rms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms.
    Keywords: Dynamic procurement; incumbency advantage; local monopoly; competition; asymmetric auctions; synchronous contracts; staggered contracts
    JEL: D44 H40 H57 L43 L51 R48
    Date: 2019–01
  3. By: Steven Bond-Smith (Bankwest Curtin Economic Centre, Curtin University)
    Abstract: This article considers the effect of a discrete entry barrier (i.e. an integer number of firms) in an endogenous growth model to draw conclusions about the relationship between contestability, innovation and growth. Sector-specific workers provide a tool for calibrating numerical examples. Sectors with lower entrepreneurial contestability have lower innovation and sectors characterized by Cournot oligopoly have lower innovation than sectors characterized by Bertrand. Wage inequality varies depending on the extent that the entry barrier is binding upon a marginal entrant. The model offers policy implications to support entrepreneurial entry, particularly in relatively small or isolated regional economies.
    Keywords: innovation, contestability, Cournot, Bertrand, competition, endogenous growth
    JEL: O41 L13
    Date: 2018–12
  4. By: Steven Bond-Smith (Bankwest Curtin Economic Centre, Curtin University)
    Abstract: This article analyses the relationship between compatibility and innovation in markets with network effects using a model of competition with endogenous R&D, commercialization and compatibility. Incumbent acquisition of an innovation or profit from entry provides entrepreneurs with an incentive for developing technological improvements. Entrepreneurs receive greater returns for the innovation if larger incumbents offer compatibility with their installed base. As a result, entrepreneurs must innovate strategically to pre-empt an incompatibility response from incumbents. Similarly, small incumbents also bid strategically to block entry or rival acquisition if it also avoids an incompatibility response from a larger incumbent. A credible threat of incompatibility reduces the entrepreneur?s reserve to sell an innovation, but can also increase offers to acquire the innovation from smaller incumbents attempting to avoid incompatibility. This leads to a complex relationship between the strength of network effects, innovation incentives, the entrepreneur?s ambition for improvement and potentially disrupting the compatibility regime. For weak to moderate network effects entrepreneurs are likely to target more substantial, but improbable innovations such that their network is sufficiently attractive for incumbents to offer compatibility. For a small range of sufficiently strong network effects, entrepreneurs target incremental innovations to avoid the incumbent threatening incompatibility.
    Keywords: network effects, innovation, compatibility
    JEL: L15 L26 L50 O31
    Date: 2018–12
  5. By: Auriol, Emmanuelle; Biancini, Sara; Paillacar, Rodrigo
    Abstract: Developing countries' incentives to protect intellectual property rights (IPR) are studied in a model of vertical innovation. Enforcing IPR boosts export opportunities to advanced economies but slows down technological transfers and incentives to invest in R&D. Asymmetric protection of IPR, strict in the North and lax in the South, leads in many cases to a higher world level of innovation than universal enforcement. IPR enforcement is U-shaped in the relative size of the export market compared to the domestic one: rich countries and small/poor countries enforce IPR, the former to protect their innovations, the latter to access foreign markets, while large emerging countries free-ride on rich countries' technology to serve their internal demand.
    Keywords: Intellectual Property Rights; Innovation; Imitation; Duopoly; Developing Countries
    JEL: F12 F13 F15 L13 O31 O34
    Date: 2019–01
  6. By: Cédric Durand (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); William Milberg
    Date: 2018–07–27
  7. By: David Spector (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - ENS Paris - École normale supérieure - Paris, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Many collusive agreements involve the exchange of self-reported sales data between competitors, which use them to monitor compliance with a target market share allocation. Such communication may facilitate collusion even if it is unverifiable cheap talk and the underlying information becomes publicly available with a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars. Such communication may allow firms to earn profits that could not be earned in any collusive, symmetric pure-strategy equilibrium without communication.
    Date: 2019–01
  8. By: Cohen, François; Glachant, Matthieu; Söderberg, Magnus
    Abstract: The empirical literature on the energy efficiency gap concentrates on demand inefficiencies in the energy-using durables markets and finds evidence that consumers underestimate future energy costs when purchasing a new appliance. We take a broader view and also consider the impact of imperfect competition. Using data on the UK refrigerator market (2002-2007), we find that the average energy consumption of appliances sold during this period was only 7.2% higher than what would have been observed under a scenario with a perfectly competitive market and non-myopic consumers. One reason for this small gap is that market power actually reduces energy use.
    Keywords: Energy Efficiency; Electricity Prices; Consumer Myopia; Imperfect Competition
    JEL: D12 L68 Q41
    Date: 2017–04–01
  9. By: Asche, Frank (Institute for Sustainable Food Systems and School of Forestry Resources and Conservation, University); Gaasland, Ivar (Department of Economics, BI Norwegian Business School); Straume, Hans-Martin (* Department of Economics, BI Norwegian Business School); Vårdal, Erling (University of Bergen, Department of Economics)
    Abstract: While variation in unit value most commonly has been associated with quality in the trade literature, observed differences in prices between markets might also be explained by variation in market concentration and the degree of competition. Using transaction data on Norwegian exports of salmon, we introduce a Herfindahl index as a measure of competition in a standard gravity model. We find that competition typically is weaker in small and distant markets that due to high trade costs are served by relatively few firms. We argue that the anti-competitive impact of trade costs may explain price differentiation between markets even for homogeneous products.
    Keywords: Gravity; Trade costs; Market concentration; Salmon
    JEL: C13 F14 Q22
    Date: 2018–12–03
  10. By: Hunold, Matthias; Kesler, Reinhold; Laitenberger, Ulrich
    Abstract: We investigate whether online travel agents (OTAs) assign hotels worse positions in their search results if these set lower hotel prices at other OTAs or on their own websites. We formally characterize how an OTA can use such a strategy to reduce price differentiation across distribution channels. Our empirical analysis shows that the position of a hotel in the search results of OTAs is better when the prices charged by the hotel on other channels are higher. This is consistent with the hypothesis that OTAs alter their search results to discipline hotels for aggressive prices on competing channels, thereby reducing the search quality for consumers.
    Keywords: consumer protection,free-riding,hotel booking,online travel agents,ranking,search bias
    JEL: D40 L42 L81
    Date: 2018
  11. By: Fredriksen, Kaja
    Abstract: The empirical literature on occupational licensing finds standard monopoly effects of entry regulations: Less competition and economic rents for professionals. I exploit the natural experimental design of a change in the German crafts regulation in 2004, which removed the traditional licensing requirement only for certain trades, and find no robust effects. I point out that existing studies on the income effects of occupational licensing suffer from methodological weaknesses. Most studies rely on cross-section estimates that are likely to be biased due to unobserved heterogeneity whereas others do not rigorously define the population of interest. Based on my results, I suggest that demand-effects and market saturation have so far been inadequately discussed in the literature.
    Keywords: Labor markets,occupational licensing,monopoly rent,natural experiment,craftsmanship
    JEL: I28 I39 J24 L51
    Date: 2018
  12. By: Ernest Liu; Atif Mian; Amir Sufi
    Abstract: How does the production side of the economy respond to a low interest rate environment? This study provides a new theoretical result that low interest rates encourage market concentration by giving industry leaders a strategic advantage over followers, and this effect strengthens as the interest rate approaches zero. The model provides a unified explanation for why the fall in long-term interest rates has been associated with rising market concentration, reduced dynamism, a widening productivity-gap between industry leaders and followers, and slower productivity growth. Support for the model's key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.
    JEL: E2 E22 G01 G12
    Date: 2019–01
  13. By: Emilie Dargaud (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Frédéric Jouneau-Sion (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose a model to analyze competition between an on-line course and a traditional brick-and-mortar supply for higher education. The brick and mortar supplier is physically located and students pay a transportation cost to attend the traditional course. On the contrary, the on-line course is free, without transportation cost but students incurred a fixed homogeneous disutility when choosing this type of course. We derive the optimal fee policy of a single university as a function of its location and the fixed cost associated with the on-line course. We also study the impact of distant learning on the competition between two brick and mortar universities. One university is assumed to enjoy a central position, whereas the other one is located at the extreme left of the town. We discuss equilibria and market sharing in non-regulated (i.e pure fee competition) and regulated (i.e. quantity competition) settings. Finally, public issues are addressed. In particular, the socially optimal provision of MOOC and the supply of MOOC by universities are carefully discussed.
    Keywords: On-line learning,spatial competition
    Date: 2019
  14. By: Johan N. M. Lagerlöf (Department of Economics, University of Copenhagen, Denmark)
    Abstract: This paper studies consumers’ incentives to hide their purchase histories when the seller’s prices depend on previous behavior. Through distinct channels, hiding both hinders and facilitates trade. Indeed, the social optimum involves hiding to some extent, yet not fully. Two opposing effects determine whether a consumer hides too much or too little: the first-period social gains are only partially internalized, and there is a private (socially irrelevant) second-period gain due to price differences. If time discounting is small, the second effect dominates and there is socially excessive hiding. This result is reversed if discounting is large.
    Keywords: behavior-based price discrimination, dynamic pricing, consumer protection, customer recognition, privacy
    JEL: D42 D80 L12 L40
    Date: 2018–12–03
  15. By: Sarah Bensalem (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Nicolás Hernández Santibáñez (Department of Mathematics - University of Michigan - University of Michigan [Ann Arbor]); Nabil Kazi-Tani (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)
    Abstract: This paper studies an equilibrium model between an insurance buyer and an insurance seller, where both parties' risk preferences are given by convex risk measures. The interaction is modeled through a Stackelberg type game, where the insurance seller plays first by offering prices, in the form of safety loadings. Then the insurance buyer chooses his optimal proportional insurance share and his optimal prevention effort in order to minimize his risk measure. The loss distribution is given by a family of stochastically ordered probability measures, indexed by the prevention effort. We give special attention to the problems of self-insurance and self-protection. We prove that the formulated game admits a unique equilibrium, that we can explicitly solve by further specifying the agents criteria and the loss distribution. In self-insurance, we consider also an adverse selection setting, where the type of the insurance buyers is given by his loss probability, and study the screening and shutdown contracts. Finally, we provide case studies in which we explicitly apply our theoretical results.
    Keywords: Coherent risk measures,Stackelberg game,Prevention,Self-insurance,Self-protection
    Date: 2019–01–16
  16. By: Daniel Goya
    Abstract: I construct a network of input-output linkages in Chilean manufacturing and show that a negative demand shock has an impact on the number of firms producing in sectors that supply the sectors affected by the shock. Approximately one-third of the effect of increased Chinese competition on the extensive margin can be attributed to these network effects. The observed effect is a combination of multiproduct firms dropping varieties and firms leaving the market. I also study whether there is evidence of 'cascading failures' that could amplify the impact of idiosyncratic shocks. I find no evidence of these 'cascading effects'.
    Keywords: production networks, extensive margin, propagation of shocks, input-output, Chinese competition.
    JEL: D57 L25
    Date: 2019–02
  17. By: Qiu, Yue (Temple University); Sojourner, Aaron J. (University of Minnesota)
    Abstract: This paper estimates the effect of labor-market concentration on labor compensation across the U.S. private sector since 2000. We distinguish between concentration in local labor markets versus local product markets, guarding against bias from confounded product-market concentration. Analysis extends beyond wages to rates of employment-based health insurance coverage. Estimates suggest negative effects of labor-market concentration on labor compensation. This comes through both reducing the human-capital level of those in the market and reducing pay conditional on human-capital level. Higher product-market concentration exacerbates and higher unionization rates mitigates these effects.
    Keywords: labor-market concentration, monopsony, wages, health insurance, unions
    JEL: J31 J32 J42 L13 J51
    Date: 2019–01
  18. By: Simon Lapointe (LBNC - Laboratoire Biens, Normes, Contrats - UAPV - Université d'Avignon et des Pays de Vaucluse); Pierre-Henri Morand (LBNC - Laboratoire Biens, Normes, Contrats - UAPV - Université d'Avignon et des Pays de Vaucluse)
    Date: 2019–01–22

This nep-com issue is ©2019 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.