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on Industrial Competition |
| By: | Germán Gutiérrez; Callum Jones; Thomas Philippon |
| Abstract: | We propose a model to identify the causes of rising profits and concentration, and declining entry and investment in the US economy. Our approach combines a rich structural DSGE model with cross-sectional identification from firm and industry data. Using asset prices, our model estimates the realized and anticipated shocks that drive the endogeneity of entry and concentration and recovers shocks to entry costs. We validate our approach by showing that the model-implied entry shocks correlate with independently constructed measures of entry regulation and M&A activities. We conclude that entry costs have risen and that the ensuing decline in competition has depressed consumption by five to ten percent. |
| JEL: | D4 E0 E22 E3 L1 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25609&r=all |
| By: | Didier Laussel; Ngo Van Long; Joana Resende |
| Abstract: | We present a model of hyper-segmentation of market, where a monopolist firm uses information technology to acquire, in one period, all the information about the preferences of consumers who purchase its vertically differentiated products within that period. Lower consumer types have an incentive to delay their purchases until next period in order to obtain a higher (and non-distorted) quality offer. The monopolist counters this incentive by offering higher informational rents. We analyse the dynamic game between the monopolist and the customers. We find that in a Markov perfect equilibrium, the firm expands the market progressively. The market is not covered in a twinkle of an eye, i.e., the dynamics is non-Coasian. Also, contrary to the Coasian result for a durable-good monopoly, we find that the profit of our non-durable good monopoly increases as the interval of commitment shrinks. The model yields some implications for regulatory policies regarding information collection and commitment period. Nous présentons un modèle d’hyper-segmentation du marché, dans lequel une entreprise monopoliste utilise les technologies de l’information pour acquérir, en une période, toutes les informations relatives aux préférences des consommateurs qui achètent ses produits différenciés verticalement au cours de cette période. Les consommateurs dont la préférence pour la qualité est faible ont l’intérêt à reporter leurs achats à la période suivante afin d'obtenir une offre de qualité supérieure (sans distorsion). Le monopoleur contrecarre cette intention en proposant des primes d’information plus élevés. Nous analysons le jeu dynamique entre le monopoleur et ses clients. Nous constatons que dans un équilibre parfait de Markov, l'entreprise élargit progressivement le marché. Le marché n’est pas couvert en un clin d’œil, c’est-à-dire que la dynamique n’est pas coasienne. En outre, contrairement au résultat coasien pour un monopole sur les biens durables, nous constatons que le profit de notre monopole sur les biens non durables augmente à mesure que l’intervalle d’engagement diminue. Le modèle entraîne certaines implications pour les politiques réglementaires en matière de collecte d'informations et de période d'engagement. |
| Keywords: | Coasian Dynamics, Information Collection, Monopoly, Regulatory Policies, La dynamique coasienne, La collecte d’information, Monopole, Politiques réglementaires |
| JEL: | L12 L15 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2019s-03&r=all |
| By: | Rudolf Kerschbamer; Daniel Neururer; Matthias Sutter |
| Abstract: | Credence goods markets are characterized by pronounced informational asymmetries between consumers and expert sellers. As a consequence, consumers are often exploited and market efficiency is threatened. However, in the digital age, it has become easy and cheap for consumers to self-diagnose their needs using specialized webpages or to access other consumers' reviews on social media platforms in search for trustworthy sellers. We present a natural field experiment that examines the causal effect of information acquisition from new media on the level of sellers' price charges for computer repairs. We find that even a correct self-diagnosis of a consumer about the appropriate repair does not reduce prices, and that an incorrect diagnosis more than doubles them. Internet ratings of repair shops are a good predictor of prices. However, the predictive valued of reviews depends on whether they are judged as reliable or not. For reviews recommended by the platform Yelp we find that good ratings are associated with lower prices and bad ratings with higher prices, while non-recommended reviews have a clearly misleading effect, because non-recommended positive ratings increase the price. |
| Keywords: | credence goods, fraud, information acquisition, internet, field experiment |
| JEL: | C93 D82 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2019-02&r=all |
| By: | Federico Etro |
| Abstract: | I study monopolistic competition in patent races where firms are heterogeneous in R&D costs. Only the most efficient firms invest, and they invest more when the value of innovation is higher, while the endogenous set of active firms depends on the profitability of innovation. In particular, selection effect (increasing R&D productivity) emerge after a reduction of the entry cost or after an increase (a reduction) of the value of innovation if the elasticity of the probability of innovation is increasing (decreasing) in investment. In Schumpeterian models selection effects foster endogenous growth. |
| Keywords: | Patent races, heterogeneous firms, monopolistic competition, Schumpeterian growth. |
| JEL: | L1 O3 O4 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2019_09.rdf&r=all |
| By: | Keaton S. Miller; Amil Petrin; Robert Town; Michael Chernew |
| Abstract: | When markets fail to provide socially optimal outcomes, governments often intervene through ‘managed competition’ where firms compete for per-consumer subsidies. Subsidies are generally set across geographies according to estimates of the cost of government provision, a method which may not be welfare-maximizing. We introduce a framework for determining the optimal subsidy schedule that features heterogeneity in consumer preferences and inertia, and firms with heterogeneous costs that can set prices and product characteristics in response to changes in the subsidy. We apply it to the Medicare Advantage program, which offers Medicare recipients private insurance that replaces Traditional Medicare. We calculate counterfactual equilibria as a function of the subsidies by estimating policy functions for product characteristics from the data and solving for Nash equilibria in prices. The optimal schedule increases consumer surplus by 30% over the current policy and is well-approximated with a linear rule using market-level observables. |
| JEL: | I11 L13 L51 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25616&r=all |
| By: | Cellini, Roberto; Lisi, Domenico |
| Abstract: | In this paper, we study the effect of readmission treatment payment in a dynamic framework characterised by competition among hospitals and sluggish beliefs of patients concerning the service quality. We find that the effect of readmission treatment payment depends on the interplay between the effect of quality in lowering readmissions and its effect on future demand. When the readmission occurrence strongly depends on the service quality, the higher the readmission treatment payment for hospitals, the lower the incentive to provide quality. Instead, when readmission depends barely on quality, the readmission payment acts as the treatment price for first admissions, and thus it reinforces the incentive to provide quality. We also show that the detrimental effect of readmission payments on quality are fed by a high degree of demand sluggishness, that is, by situation where current quality has modest effect on future demand changes. Our findings are robust to different equilibrium concepts of the differential game (i.e., open-loop and state-feedback). The results suggest that a discounted regulated price for readmission can be an effective (and cost-free) policy tool to improve healthcare quality, especially when the market is characterised by sluggish beliefs about quality. |
| Keywords: | Readmissions; Hospital quality; Demand sluggishness; Differential game. |
| JEL: | C73 I11 I18 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92505&r=all |
| By: | Barbara Annicchiarico; Enrico Marvasi |
| Abstract: | We extend the protection for sale model of Grossman and Helpman (1994) by introducing a general model of monopolistic competition with variable markups and incomplete pass-through. We show that the structure of protection emerging in the political equilibrium not only depends on the weight attached by the government to consumer welfare when making its policy decision, but also on the degree of market power of firms and on the terms-of-trade variations due to the degree of pass-through. Our results highlight the importance of preferences in shaping the structure of protection and are consistent with the occurring of protectionism also in unorganized industries. |
| Keywords: | Protection for Sale; Monopolistic Competition; Incomplete Pass-Through; Endogenous Markups. |
| JEL: | F12 F13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2019_06.rdf&r=all |
| By: | Pierre Picard (CREST - Centre de Recherche en Economie et en Statistique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique); Jennifer Wang; Kili Wang (TKU - Tamkang University [New Taipei]) |
| Abstract: | The outsourcing of retail services is frequently at the origin of agency costs, associated with the discretion in the way retailers do their job. This is particularly the case when retailers and customers collude to exploit loopholes in the contracts between producers and customers. In this paper, we analyze how insurance distribution channels may a¤ect such misbehaviors, when car repairers join policyholders to defraud insurers. We focus attention on the Taiwan automobile insurance market by using a database provided by two large Taiwanese automobile insurers. The theoretical underpinning of our analysis is provided by a model of claims fraud with collusion and audit. Our econometric analysis confirms that fraud occurs through the postponing of claims to the end of the policy year, possibly by filing a single claim for several events. It highlights the role of car dealer agencies in the collusive fraud mechanism.. |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02045335&r=all |
| By: | Helmuth Cremer; Catarina Goulão; Jean-Marie Lozachmeur |
| Abstract: | We consider an unhealthy good, such as a sugar-sweetened beverage, the health damages of which are misperceived by consumers. The sugar content is endogenous. We first study the solution under “pseudo” perfect competition. In that case a simple Pigouvian tax levied per unit of output but proportional to the sugar content is sufficient to achieve a first best solution. Then we consider a monopoly. Market power affects both output and sugar content, possibly in opposite directions, and these effects have to be balanced against Pigouvian considerations. We show that, nevertheless, a tax per unit of output achieves an efficient solution, but it must be an affine function of the sugar content; taxing “grams of sugar” is no longer sufficient. Interestingly, both the total tax as well as its sugar component can be positive as well as negative. |
| Keywords: | sin tax, tax incidence, misperception, monopoly |
| JEL: | H22 I12 D42 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7525&r=all |
| By: | Bonfiglioli, Alessandra; Crinò, Rosario; Gancia, Gino |
| Abstract: | We use transaction-level data to study changes in the concentration of US imports. Concentration has fallen in the typical industry, while it is stable by industry and country of origin. The fall in concentration is driven by the extensive margin: the number of exporting firm has grown, and the number of exported products has fallen more for top firms. Instead, average revenue per product of top firms has increased. At the industry level, top firms are converging, but top firms within country are diverging. These facts suggest that intensified competition in international markets coexists with growing concentration among national producers. |
| Keywords: | Concentration; Firm Heterogeneity; International trade; Superstar Firms; US Imports |
| JEL: | E23 F12 F14 L11 R12 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13566&r=all |
| By: | Yiquan Gu; Leonardo Madio; Carlo Reggiani |
| Abstract: | Data brokers collect, manage, and sell customer data. We propose a simple model, in which data brokers sell data to downstream firms. We characterise the optimal strategy of data brokers and highlight the role played by the data structure for co-opetition. If data are “sub-additive”, with the combined value lower than the sum of the values of the two datasets, data brokers share data and sell them jointly. When data are “additive” or “supra- additive”, with the combined value equal to or greater than the sum of the two datasets, data brokers compete. Results are robust to several extensions. |
| Keywords: | data brokers, personal information, privacy, co-opetition |
| JEL: | D43 L13 L86 M31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7523&r=all |
| By: | Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Entry by multinational enterprises (MNEs) into emerging markets has increased substantially over the last decades. Many of these MNE entries have taken place in concentrated markets. To capture these features, we construct a strategic interaction model of MNE cross-border acquisition and greenfield entry into an oligopolistic market. We provide an event study framework suitable to derive predictions for the stock market values of MNE entries. We show that share values of acquirers will increase when an acquisition is announced if and only if the domestic assets are not too strategically important. If there is risk associated with cross-border M&As, we show that such risks reduce the likelihood and the acquisition price of cross-border M&As. These mechanisms provide an explanation for why acquirers tend to overperform when acquiring in emerging markets but underperform when acquiring in developed markets. We also show that shareholders of targets firms in emerging markets may benefit from not selling their firms too early in the development phase. |
| Keywords: | FDI; Cross-Border Mergers and Acquisitions; Stock Market Value; Emerging Markets |
| JEL: | F23 G34 L13 |
| Date: | 2019–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1267&r=all |