nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒03‒04
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Downstream competition and profits under different input price bargaining structures By Buccella, Domenico; Fanti, Luciano
  2. Preemptive Entry in Sequential Auctions with Participation Cost By Jeongwoo Lee; Jaeok Park
  3. Organizing Competition for the Market By Iossa, Elisabetta; Rey, Patrick; Waterson, Michael
  4. Controlling Sellers Who Provide Advice: Regulation and Competition By Bardey, David; Gromb, Denis; Martimort, David; Pouyet, Jérôme
  5. Controlling Monopoly Power in a Classroom Double-Auction Market Experiment. By Giuseppe Attanasi; Kene Boun My; Andrea Guido; Mathieu Lefevbre
  6. Vertical financial interest and corporate influence By Hunold, Matthias; Schlütter, Frank
  7. Artificial intelligence, algorithmic pricing and collusion By Calvano, Emilio; Calzolari, Giacomo; Denicolò, Vincenzo; Pastorello, Sergio
  8. CORRUPT RESERVE PRICES By Sümeyra Atmaca; Koen Schoors
  9. Competition and competition policy: at the junction of the future and past By Shastitko, Andrey (Шаститко, Андрей); Kurdin, Alexander (Курдин, Александр); Markova, Olga (Маркова, Ольга); Мeleshkina, Аnna (Мелешкина, Анна); Morosanova, Anastasia (Моросанова, Анастасия); Pavlova, Natalia (Павлова, Наталья); Shpakova, Anastasia (Шпакова, Анастасия)
  10. Optimal Selling Mechanisms with Endogenous Proposal Rights By Auster, Sarah; Kos, Nenad; Piccolo, Salvatore
  11. Rent Sharing and Inclusive Growth By Bell, Brian; Bukowski, Pawel; Machin, Stephen
  12. Market Power and Income Taxation By Louis Kaplow
  13. Micro-mechanisms behind declining labour shares: Market power, production processes, and global competition By Mertens, Matthias
  14. Exchange Competition, Entry, and Welfare By Cespa, Giovanni; Vives, Xavier
  15. Production Efficiency of Nodal and Zonal Pricing in Imperfectly Competitive Electricity Markets By Sarfati, Mahir; Hesamzadeh, Mohammed Reza; Holmberg, Pär
  16. Size, Efficiency, Market Power, and Economies of Scale in the African Banking Sector By Asongu, Simplice; Odhiambo, Nicholas
  17. Media Competition, Information Provision and Political Participation: Evidence from French Local Newspapers and Elections, 1944-2014 By Julia Cage
  18. The Impact of Bank Concentration on Land Values By SantAnna, Ana Claudia; Katchova, Ani L.

  1. By: Buccella, Domenico; Fanti, Luciano
    Abstract: In a vertically related duopoly with input price bargaining, this paper re-examines the downstream firms’ profitability under different market competition degrees. Downstream firms earn highest profits with semi-collusion whose level depends on product differentiation and relative parties’ bargaining power. Holding fixed the upstream suppliers’ bargaining power, the more the products are differentiated, the higher the downstream firms’ collusive level that maximize profits, regardless of the negotiations’ structure. On the other hand, holding fixed the product differentiation degree: 1) with uncoordinated bargaining, the higher the upstream suppliers’ bargaining power is, the lower the downstream firms’ collusive level is; 2) with upstream firms’ bargaining coordination, a U-shaped relation exists between the upstream firms’ power and the downstream firms’ collusive level that maximizes their profits.
    Keywords: Decentralized/semi-coordinated bargaining; Right-to-Manage; Conjectural Variation model
    JEL: D43 J51 L13
    Date: 2019–02
  2. By: Jeongwoo Lee (University of Florida); Jaeok Park (Yonsei University)
    Abstract: This paper analyzes a scenario in which two objects are sold in sequence at two second-price auctions. There are two bidders, and each bidder's valuations of the two objects are affiliated. Participating in each auction is costly. Bidders decide whether to enter each auction, observing their entry decisions in any previous auction. We study the properties of equilibria and provide a sufficient condition for their existence. Due to affiliation, a bidder's entering the first auction may signal his strong interest in the second object. Hence, a bidder with a higher valuation of the second object tends to participate in the first auction more aggressively in order to preempt the opponent's entry into the second auction. Because of this signaling motive, the sequential auction format can generate higher revenue in the first auction and lower revenue in the second auction than those obtained by the simultaneous counterpart.
    Keywords: Sequential auctions; participation cost; preemptive entry; signaling;
    JEL: D44 D82
    Date: 2019–02
  3. By: Iossa, Elisabetta (University of Rome Tor Vergata, GREEN-Bocconi and EIEF); Rey, Patrick (University of Toulouse); Waterson, Michael (University of Warwick)
    Abstract: The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefit from a cost advantage. The paper first 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 firms remain active, staggered tenderingis preferable, asitmaximizesthe competitivepressure 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
    Date: 2019
  4. By: Bardey, David; Gromb, Denis; Martimort, David; Pouyet, Jérôme
    Abstract: A monopoly seller advises buyers about which of two goods best fits their needs but may be tempted to steer buyers towards the higher margin good. For the seller to collect information about a buyer's needs and provide truthful advice, the profits from selling both goods must lie within an implementability cone. In the optimal regulation, pricing distortions and information-collection incentives are controlled separately by price regulation and fixed rewards respectively. This no longer holds when the seller has private information about costs as both problems interact. We study the extent to which competition and the threat by buyers to switch sellers can substitute for regulation.
    Keywords: asymmetric information; Expertise; Mis-Selling; regulation
    JEL: D82 G24 I11 L13 L15 L51
    Date: 2019–02
  5. By: Giuseppe Attanasi; Kene Boun My; Andrea Guido; Mathieu Lefevbre
    Abstract: There is robust evidence in the experimental economics literature studying decentralized forms to control monopoly power via trading institutions. This strand provides evidence showing that double-auction trading institutions do affect monopoly power. In addition, recent experimental evidence shows that trading institutions themselves can shape agents' market behaviour through the formation of anchors and reference points. We recreate experimentally five different double-auction market structures (perfect competition,perfect competition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within-subject experimental design, varying the order of markets implementation. We investigate whether monopoly power endures the formation of reference prices emerged in previously implemented market structures. Results from our classroom experiments suggest that i) prevailing prices in the first implemented market work as reference points in subsequent market structures, ii) the formation of reference points negatively impacts on monopolists' power in later market structures..
    Keywords: Classroom Experiment, Monopoly, Perfect Competition, Double-Auction.
    JEL: D42
    Date: 2019
  6. By: Hunold, Matthias; Schlütter, Frank
    Abstract: The established literature on partial vertical ownership has derived distinct pro- and anti-competitive effects, depending on whether the upstream or the downstream firm holds the shares (forward or backward). We show that forward ownership can have the same effects as backward ownership (and vice versa) when it entails both profit and control rights. Moreover, we demonstrate novel anti-competitive effects of partial ownership that arise when the upstream tariffs are non-linear. This contrasts well-established findings that are based on linear tariffs and adds to the current debate on how to treat partial shareholdings in merger control.
    Keywords: corporate influence,financial interest,minority shareholding,partial ownership
    JEL: L22 L40 L8
    Date: 2019
  7. By: Calvano, Emilio; Calzolari, Giacomo; Denicolò, Vincenzo; Pastorello, Sergio
    Abstract: Increasingly, pricing algorithms are supplanting human decision making in real marketplaces. To inform the competition policy debate on the possible consequences of this development, we experiment with pricing algorithms powered by Artificial Intelligence (AI) in controlled environments (computer simulations), studying the interaction among a number of Q-learning algorithms in a workhorse oligopoly model of price competition with Logit demand and constant marginal costs. In this setting the algorithms consistently learn to charge supra-competitive prices, without communicating with one another. The high prices are sustained by classical collusive strategies with a finite phase of punishment followed by a gradual return to cooperation. This finding is robust to asymmetries in cost or demand and to changes in the number of players.
    Keywords: artificial intelligence; Collusion; Pricing-Algorithms; Q-Learning; Reinforcement Learning
    JEL: D43 D83 L13 L41
    Date: 2018–12
  8. By: Sümeyra Atmaca; Koen Schoors (-)
    Abstract: We develop a new methodology to identify corruption in public procure- ment auctions with reserve prices and apply it to Russian public procure- ment auctions of gasoline in 2011-2013. We identify corrupt procurer-seller pairs by exploiting the variation in reserve prices. Since auction reserve prices are set by the procurer before the auction, they should be indepen- dent from the identity of the winning seller. We estimate reserve prices as a function of the local market price, contract, procurer and time controls, and procurer-seller fixed effects. A procurer-seller pair is labeled as poten- tially corrupt if its pair fixed effect is significantly larger than the average procurer fixed effect. Despite their reserve price overpricing, corrupt sell- ers face less competition in auctions organized by procurers with whom they form a corrupt pair and have a higher probability of wining these auc- tions. Auctions won by corrupt pairs exhibit higher final contract prices, leading to considerable welfare losses. The detrimental effect of reserve price manipulation on final prices is mitigated by higher competition and fully offset by electronic auctions with sufficient competition.
    Keywords: public procurement, corruption, regulation
    JEL: H57 H83 K42
    Date: 2019–02
  9. By: Shastitko, Andrey (Шаститко, Андрей) (The Russian Presidential Academy of National Economy and Public Administration); Kurdin, Alexander (Курдин, Александр) (The Russian Presidential Academy of National Economy and Public Administration); Markova, Olga (Маркова, Ольга) (The Russian Presidential Academy of National Economy and Public Administration); Мeleshkina, Аnna (Мелешкина, Анна) (The Russian Presidential Academy of National Economy and Public Administration); Morosanova, Anastasia (Моросанова, Анастасия) (The Russian Presidential Academy of National Economy and Public Administration); Pavlova, Natalia (Павлова, Наталья) (The Russian Presidential Academy of National Economy and Public Administration); Shpakova, Anastasia (Шпакова, Анастасия) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The report reviewed four current areas of competition policy, related both to new phenomena and traditional antitrust plots. 1) Digital transformation leads to the emergence of new business strategies, however, new sources of risks of restricting competition arise: algorithmic pricing, big data, multilateral markets, platforms. 2) Imports of technology and political sanctions can reduce the effectiveness of the use of antitrust immunity for holders of exclusive rights to the results of intellectual activity (RID). A gradual transition to a new regime of anti-monopoly policy in the field of RID circulation is needed. 3) The development of supranational antitrust promotes the use of complementary capabilities of different countries antimonopoly authorities. Barriers to supranational antitrust are the heterogeneity of the participating States and the lack of sustainability of supranational antitrust authorities. 4) The problem of bilateral monopoly does not lose relevance. High transaction costs and negative externalities from the parties' failure to reach an agreement are the basis for government intervention using the comparative advantages of the antimonopoly authority.
    Date: 2019–01
  10. By: Auster, Sarah; Kos, Nenad; Piccolo, Salvatore
    Abstract: We study a model of optimal pricing where the right to propose a mechanism is determined endogenously: a privately informed buyer covertly invests to increase the probability of offering a mechanism. We establish the existence of equilibrium and show that higher types get to propose a mechanism more often than lower types allowing the seller to learn from the trading process. In any equilibrium, the seller either offers the price he would have offered if he was always the one to make an offer or randomises over prices. Pure strategy equilibria may fail to exist, even when types are continuously distributed. A full characterization of equilibria is provided in the model with two types, where notably the seller's profit is shown to be non-monotonic in the share of high-value buyers.
    Keywords: bargaining power; mechanism design; Optimal Pricing
    JEL: C72 D82 D83
    Date: 2019–02
  11. By: Bell, Brian; Bukowski, Pawel; Machin, Stephen
    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: Inclusive growth; Rent sharing
    JEL: J30
    Date: 2018–12
  12. By: Louis Kaplow
    Abstract: Does significant market power or the presence of large rents affect optimal income taxation, calling for greater redistribution due to tainted gains? Or perhaps less because of an additional wedge that distorts labor effort? Do concerns about inequality have implications for antitrust, regulation, trade, and other policies that influence market power, which contributes to inequality? This article addresses these questions in a model with heterogeneous abilities and hence a concern for distribution, markups, multiple sectors, ownership that is a function of income, allowance for any share of profits to be recoveries of investments (including rent-seeking efforts), endogenous labor supply, and a nonlinear income tax. In this model, proportional markups with no profit dissipation have no effect on the economy, and a policy that reduces a nonproportional markup raises (lowers) welfare when it is higher (lower) than a weighted average of other markups. With proportional (partial or full) profit dissipation, proportional markups are equivalent to a downward shift of the distribution of abilities, and the welfare effect of correcting nonproportional markups associated with nonproportional profit dissipation now depends also on the degree of dissipation and how that is affected by the policy. In all cases, optimal policies maximize consumer plus producer surplus, without regard to a policy’s distributive effects on consumers and profits or how markups and income taxation distort labor effort.
    JEL: D42 D61 H21 H23 K21 L12 L40
    Date: 2019–02
  13. By: Mertens, Matthias
    Abstract: This article investigates how changing production processes and increasing market power at the firm level relate to a fall in Germany's manufacturing sector labour share. Coinciding with the fall of the labour share, I document a rise in firms' product and labour market power. Notably, labour market power is a more relevant source of firms' market power than product market power. Increasing product and labour market power, however, only account for 30% of the fall in the labour share. The remaining 70% are explained by a transition of firms towards less labour-intensive production activities. I study the role of final product trade in causing those secular movements. I find that rising foreign export demand contributes to a decline in the labour share by increasing labour market power within firms and by inducing a reallocation of economic activity from nonexporting-high-labour-share to exporting-low-labour-share firms.
    Keywords: labour share,market power,labour market distortions,international trade,factor substitution
    JEL: D24 E25 F16 J50 L10 L60
    Date: 2019
  14. By: Cespa, Giovanni; Vives, Xavier
    Abstract: We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies in a context of limited market participation. To this end we integrate a two-period market microstructure model with an exchange competition model with entry in which exchanges supply technological services, and have market power. We find that technological services can be strategic substitutes or complements in platform competition. Free entry of platforms delivers a superior outcome in terms of liquidity and (generally) welfare compared to the case of an unregulated monopoly. Controlling entry or, even better typically, platform fees may further increase welfare. The market may deliver excessive or insufficient entry. However, if the regulator is constrained to not making transfers to platforms then there is never insufficient entry.
    Keywords: Cournot with free entry; Endogenous Market Structure; Industrial Organization of Exchanges; market fragmentation; platform competition; welfare
    JEL: G10 G12 G14
    Date: 2018–12
  15. By: Sarfati, Mahir (Royal Institute of Technology (KTH)); Hesamzadeh, Mohammed Reza (Royal Institute of Technology (KTH)); Holmberg, Pär (Research Institute of Industrial Economics (IFN))
    Abstract: Electricity markets employ different congestion management methods to handle the limited transmission capacity of the power system. This paper compares production efficiency and other aspects of nodal and zonal pricing. We consider two types of zonal pricing: zonal pricing with Available Transmission Capacity (ATC) and zonal pricing with Flow-Based Market Coupling (FBMC). We develop a mathematical model to study the imperfect competition under zonal pricing with FBMC. Zonal pricing with FBMC is employed in two stages, a day-ahead market stage and a re-dispatch stage. We show that the optimality conditions and market clearing conditions can be reformulated as a mixed integer linear program (MILP), which is straightforward to implement. Zonal pricing with ATC and nodal pricing is used as our benchmarks. The imperfect competition under zonal pricing with ATC and nodal pricing are also formulated as MILP models. All MILP models are demonstrated on 6-node and the modified IEEE 24-node systems. Our numerical results show that the zonal pricing with ATC results in large production inefficiencies due to the inc-dec game. Improving the representation of the transmission network as in the zonal pricing with FBMC mitigates the inc-dec game.
    Keywords: Congestion management; Zonal pricing; Flow-based market coupling
    JEL: C61 C72 D43 L13 L94
    Date: 2019–02–15
  16. By: Asongu, Simplice; Odhiambo, Nicholas
    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; competition
    JEL: E42 E52 E58 G21 G28
    Date: 2018–01
  17. By: Julia Cage (Département d'économie)
    Abstract: This paper investigates the impact of increased media competition on the quantity and quality of news provided and, ultimately, on political participation. Drawing upon existing literature on vertical product differentiation, I explore the conditions under which an increase in the number of newspapers can decrease both the quantity and quality of news provided. I build a new county-level panel dataset of local newspaper presence, newspapers' newsrooms, costs and revenues and political turnout in France, from 1944 to 2014. I estimate the effect of newspaper entry by comparing counties that experience entry to similar counties in the same years that do not. Both sets of counties exhibit similar trends prior to newspaper entry, but those with entry experience substantial declines in the average number of journalists (business-stealing effect). An increased number of newspapers is also associated with fewer articles and less hard news provision. These effects are stronger in counties with more homogeneous populations, as predicted by my simple theoretical framework, whereas there is little impact in counties with more heterogeneous populations. Newspaper entry, and the associated decline in information provision, is ultimately found to decrease voter turnout at local elections.
    Keywords: Hard news; Media competition; Newspaper content; Political participation; Size of the news room; Soft news
    JEL: D72 L11 L13 L82
    Date: 2017–08
  18. By: SantAnna, Ana Claudia; Katchova, Ani L.
    Keywords: Agricultural Finance, Agribusiness
    Date: 2019–02

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