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on Industrial Competition |
| By: | Johannes Boehm (Département d'économie); Jan Sonntag (Département d'économie) |
| Abstract: | This paper studies the prevalence of vertical market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers’ competitors than when they vertically integrate with an unrelated firm. This relationship holds also, among other things, when conditioning on mergers that follow exogenous downward pressure on the supplier’s stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumored or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place. |
| Keywords: | Mergers and acquisitions; Market foreclosure; Vertical integration; Production networks |
| JEL: | L14 L42 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/44gofgf80399mp5fq5q50vv5t6&r=all |
| By: | Jullien, Bruno; Reisinger, Markus; Rey, Patrick |
| Abstract: | This paper examines the effects of personalized pricing on brand distribution. We explore whether a brand manufacturer prefers to sell through its own retail outlet only (mono distribution) or through an independent retailer as well (dual distribution). Personalized pricing allows for higher rent extraction but also leads to more fierce intra-brand competition than does uniform pricing. Due to the latter effect, a brand manufacturer may prefer mono distribution even if the retailer broadens the demand of the manufacturer’s product. By contrast, with uniform pricing, selling through both channels is always optimal. This result holds for wholesale contracts consisting of two-part tariffs as well as for linear wholesale tariffs. We also show that the manufacturer may obtain its largest profit in a hybrid pricing regime, in which only the retailer charges personalized prices. Keywords: personalized pricing, distribution channels, dual distribution, vertical contracting, downstream competition. |
| Keywords: | personalized pricing; distribution channels; dual distribution; vertical contracting; downstream competition. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:122848&r=all |
| By: | João E. Gata |
| Abstract: | Algorithms have played an increasingly important role in economic activity, as they becoming faster and smarter.Together with the increasing use of ever larger data sets, they may lead to significant changes in the way markets work. These developments have been raising concerns not only over the rights to privacy and consumers’ autonomy, but also on competition. Infringements of antitrust laws involving the use of algorithms have occurred in the past. However, current concerns are of a different nature as they relate to the role algorithms can play as facilitators of collusive behavior in repeated games, and the role increasingly sophisticated algorithms can play as autonomous implementers of pricing strategies, learning to collude without any explicit instructions provided by humanagents. In particular, it is recognized that the use of ‘learning algorithms’ can facilitate tacit collusion and lead to an increased blurring of borders between tacit and explicit collusion. Several authors who have addressed the possibilities for achieving tacit collusion equilibrium outcomes by algorithms interacting autonomously, have also consideredsome form of ex-ante assessment and regulation over the type of algorithms used by firms. By using well-known resultsin the theory of computation, I showthat such option faces serious challenges to its effectivenessdue to undecidability results. Ex-post assessment may be constrained as well. Notwithstanding several challenges face by current software testing methodologies, competition law enforcement and policy have much to gain from an interdisciplinary collaboration with computer science and mathematics. |
| Keywords: | Collusion, Antitrust, Algorithms, Finite Automaton, Turing Machine, Church-Turing Thesis, Halting Problem, Recursiveness, Undecidability. |
| JEL: | D43 D83 K21 L41 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0772019&r=all |
| By: | Kerschbamer, Rudolf (University of Innsbruck); Neururer, Daniel (University of Innsbruck); Sutter, Matthias (Max Planck Institute for Research on Collective Goods) |
| 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:iza:izadps:dp12184&r=all |
| By: | Wyatt J. Brooks; Joseph P. Kaboski; Yao Amber Li; Wei Qian |
| Abstract: | How important is the exercise of classical monopsony power against labor for the level of wages and labor's share? We examine this in the context of China and India – two large, rapidly-growing developing economies. Using theory, we develop a novel screen to quantify how wages are affected by market power exerted in labor markets, either by a single firm or a group of cooperating firms. The theory guides the measurement of labor “markdowns”, i.e., the gap between wage and the value of the marginal product of labor, and the screen examines how they comove with local labor market share and the share of cooperating firms. Applying this test, we find that markdowns substantially lower the labor share: by up to 10 percentage points in China and 15 percentage points in India. This impact has fallen over time in both countries as firm concentration in these labor markets has decreased. |
| JEL: | E25 J42 O1 O15 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25660&r=all |
| By: | Edilio Valentini (Department of Economics, University of Chieti-Pescara); Paolo Vitale (Department of Economics, University of Chieti-Pescara) |
| Abstract: | In this paper we present a dynamic discrete-time model that allows to investigate the impact of risk-aversion in an oligopoly characterized by a homogeneous non-storable good, sticky prices and uncertainty. Our model nests the classical dynamic oligopoly model with sticky prices by Fershtman and Kamien (Fershtman and Kamien, 1987), which can be viewed as the continuous-time limit of our model with no uncertainty and no risk-aversion. Focusing on the continuous-time limit of the infinite horizon formulation we show that the optimal production strategy and the consequent equilibrium price are, respectively, directly and inversely related to the degrees of uncertainty and risk-aversion. However, the effect of uncertainty and risk-aversion crucially depends on price stickiness since, when prices can adjust instantaneously, the steady state equilibrium in our model with uncertainty and risk aversion collapses to Fershtman and Kamien’s analogue. |
| Keywords: | Uncertainty, Risk-aversion, Dynamic Oligopoly |
| JEL: | D8 D81 L13 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2019.03&r=all |
| By: | Sónia Félix; Chiara Maggi |
| Abstract: | This paper studies the impact of a structural reform that reduces entry costs for firms. We provide novel empirical evidence on the response of firms’ entry, employment, and exit behavior. To do so, we use as a natural experiment a reform in Portugal that significantly reduced entry time and costs. We find that the reform had an expansionary impact: firm entry and employment increased by 25% and 4% per year, respectively. Moreover, around 60% of the increase in employment came from incumbent firms expanding their size, with most of the rise occurring among the firms that were the most productive before the reform. Standard models of entry, exit, and firm dynamics, which assume a constant elasticity of substitution, are inconsistent with our findings about the heterogeneous response of incumbents to the reform. We show that a model with heterogeneous firms and variable markups accounts for our evidence. In this framework, the most productive firms face a lower demand elasticity and increase their employment in response to the entry of new firms. |
| JEL: | D22 D40 E24 E64 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201904&r=all |
| By: | Nocco, Antonella; Ottaviano, Gianmarco; Salto, Matteo |
| Abstract: | How should multilateral trade policy be designed in a world in which countries differ in terms of market access and technology, and firms with market power differ in terms of productivity? We answer this question in a model of monopolistic competition in which variable markups increasing in firm size are a key source of misallocation across firms and countries. We use `disadvantaged' to refer to countries with smaller market size, worse state of technology (in terms of higher innovation and production costs), and worse geography (in terms of more remoteness from other countries). We show that, in a global welfare perspective, optimal multilateral trade policy should: promote the sales of low cost firms to all countries, but especially to disadvantaged ones; trim the sales of high cost firms to all countries, but especially to disadvantaged ones; reduce firm entry in all countries, but especially in disadvantaged ones. This would not only restore efficiency but also reduce welfare inequality between advantaged and disadvantaged countries if their differences in market size, state of technology and geography are large enough. |
| Keywords: | Firm Heterogeneity; International trade policy; monopolistic competition; multilateralism; Pricing to market |
| JEL: | D4 D6 F1 L0 L1 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13584&r=all |
| By: | Hollenbeck, Brett; Taylor, Wayne |
| Abstract: | Loyalty programs are widely used by firms but their effectiveness is subject to debate. These programs provide discounts and perks to loyal customers and are costly to administer, and with uncertain effectiveness at increasing spending or stealing business from rivals. We use a large new dataset on retail purchases before and after joining a loyalty program (LP) at the customer level to evaluate what determines LP effectiveness. We exploit detailed spatial data on customer and store locations, including locations of competing firms. A simple analysis shows that location relative to competitors is the strongest predictor of LP effectiveness, suggesting that LPs work primarily through business stealing and not through other demand expansion. We next estimate what variables best predict LP effectiveness using high-dimensional data on spatial relationships between customers, the focal firm’s stores, and competing stores as well as customers’ historical spending patterns. We use LASSO regularization to show that spatial relationships are more predictive of LP effects than are past sales data. Finally, we show how firms can use this type of predictive analytics model to leverage customer and competitor location data to substantially increase the performance of their LP through spatially driven targeting rules. |
| Keywords: | Loyalty programs, predictive analytics, spatial models, retail competition, machine learning |
| JEL: | C45 C52 L13 L21 M31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92900&r=all |
| By: | Ramadorai, Tarun; Uettwiller, Antoine; Walther, Ansgar |
| Abstract: | We scrape a comprehensive set of US firms' privacy policies to facilitate research on the supply of data privacy. We analyze these data with the help of expert legal evaluations, and also acquire data on firms' web tracking activities. We find considerable and systematic variation in privacy policies along multiple dimensions including ease of access, length, readability, and quality, both within and between industries. Motivated by a simple theory of big data acquisition and usage, we analyze the relationship between firm size, knowledge capital intensity, and privacy supply. We find that large firms with intermediate data intensity have longer, legally watertight policies, but are more likely to share user data with third parties. |
| Keywords: | data markets; privacy; third-party sharing; web tracking |
| JEL: | D8 K2 L1 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13588&r=all |
| By: | Yuichiro Matsumoto (Osaka University) |
| Abstract: | Prior studies suggest that a Pareto distribution of the firm fs productivity distribution is difficult to replicate the observed log standard deviation of firm sales. These studies are based on constant elasticity preferences, which entail too low log sales deviation. The present study shows that, in contrast to constant elasticity cases, the log standard deviation is too high in variable elasticity cases. To match the observed sales dispersion, one must set a Pareto tail parameter relatively higher values. |
| Keywords: | Firm Size Distribution, Pareto Distribution, Variable Elasticity of Substitution |
| JEL: | L10 L11 L13 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1902&r=all |
| By: | José A. Tavera (Departamento de Economía de la Pontificia Universidad Católica del Perú); Tilsa Oré Mónago |
| Abstract: | The literature on imperfect competition suggests the existence of two conditions facilitating the exercise of buyer market power: the existence of an inelastic and upward-sloping supply, and the existence of high concentration in purchases. In this study, we use monthly aggregate data (from 1999-2014) of the raw milk market in Peru. We test whether those conditions hold, by analyzing the market and estimating the supply elasticity. Our findings suggest the existence of buyer power in raw milk market since an inelastic raw milk supply and a highly concentrated market is verified. Our assessment is reinforced with the role played by the existing market power of the firms at the downstream segment and the existence of entry barriers in that market segment. JEL Classification-JEL: L11, L12, L13, L41, L42 |
| Keywords: | Milk Demand, Dairy Industry, Evaporated Milk, Raw Milk, Monempory, Monopsony, Milk Supply, Buyer Power |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pcp:pucwps:wp00470&r=all |
| By: | Natalia Fabra (Universidad Carlos III de Madrid and CEPR) |
| Keywords: | scarcity pricing, market power, capacity markets, reliability options. |
| JEL: | L13 L51 L94 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1806&r=all |
| By: | Pengcheng You; Dennice F. Gayme; Enrique Mallada |
| Abstract: | Two-stage electricity market clearing is designed to maintain market efficiency under ideal conditions, e.g., perfect forecast and nonstrategic generation. This work demonstrates that the individual strategic behavior of inelastic load participants in a two-stage settlement electricity market can deteriorate efficiency. Our analysis further implies that virtual bidding can play a role in alleviating this loss of efficiency by mitigating market power of strategic load participants. We use real-world market data from New York ISO to validate our theory. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.08341&r=all |
| By: | Juha Teirilä (Department of Economics, University of Oulu) |
| Keywords: | capacity market, strategic behaviour, competitive benchmark analysis, procurement auction |
| JEL: | D43 D44 H57 L13 L94 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1712&r=all |
| By: | Michael G. Pollitt (Energy Policy Research Group University of Cambridge); Lewis Dale (National Grid) |
| Keywords: | Chinese power market reform; industrial electricity price; electricity liberalization |
| JEL: | L94 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1839&r=all |
| By: | Michael G. Pollitt (Energy Policy Research Group University of Cambridge); Chung-Han Yang (Energy Policy Research Group University of Cambridge); Hao Chen (Energy Policy Research Group University of Cambridge) |
| Keywords: | power market reform, international experience, Guangdong, China, industrial electricity price |
| JEL: | L94 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1807&r=all |
| By: | Juha Teirilä (Department of Economics, University Oulu, Finland); Robert A. Ritz (Judge Business School & Energy Policy Research Group, University of Cambridge.) |
| Keywords: | capacity market, strategic behaviour, competitive benchmark analysis, restructured electricity market, auction design |
| JEL: | D44 H57 L13 L94 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1833&r=all |
| By: | M. Sarfati (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden - Research Institute of Industrial Economics (IFN), Sweden); M.R. Hesamzadeh (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden.); P. Holmberg (Research Institute of Industrial Economics (IFN), Sweden -Energy Policy Research Group (EPRG), University of Cambridge, UK -Program on Energy and Sustainable Development (PESD), Stanford University, CA, USA) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1837&r=all |
| By: | M. Sarfati (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden -Research Institute of Industrial Economics (IFN), Sweden); M.R. Hesamzadeh (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden.); P. Holmberg (Research Institute of Industrial Economics (IFN), Sweden - Energy Policy Research Group (EPRG), University of Cambridge, UK - Program on Energy and Sustainable Development (PESD), Stanford University, CA, USA) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1838&r=all |
| By: | M. R. Hesamzadeh (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden); P. Holmberg (Research Institute of Industrial Economics (IFN), Sweden -Energy Policy Research Group (EPRG), University of Cambridge); M. Sarfati (Energy Policy Research Group (EPRG), University of Cambridge) |
| Keywords: | Two-stage game, Zonal pricing, Wholesale electricity market, Bilinear programming |
| JEL: | C61 C63 C72 D43 L13 L94 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1813&r=all |
| By: | Paul Simshauser (Griffith Business School, Griffith University Energy Policy Research Group, University of Cambridge) |
| Keywords: | Price discrimination, electricity prices, jawboning |
| JEL: | D4 L5 L9 Q4 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1827&r=all |
| By: | Gauthier de Maere d'Aertrycke (CEEME - Engie); Andreas Ehrenmann (CEEME - Engie); Daniel Ralph (Cambridge Judge Business School, University of Cambridge); Yves Smeers (Center for Operations Research and Econometrics, Universit´e catholique de Louvain) |
| Keywords: | Capacity expansion, spot market, perfect or Cournot competition, risk aversion, risk trading, complete or incomplete risk market, coherent risk measure, risky capacity equilibria |
| JEL: | C62 C72 L94 C73 G32 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1720&r=all |
| By: | Stephen Littlechild (University of Birmingham, and Judge Business School, University of Cambridge) |
| Keywords: | retail energy markets, market power, efficient costs |
| JEL: | L94 L95 L51 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1703&r=all |
| By: | David Newbery (Energy Policy Research Group (EPRG) Judge Business School & Faculty of Economics Cambridge University); Michael Pollitt (Energy Policy Research Group (EPRG) Judge Business School & Faculty of Economics Cambridge University); Robert Ritz (Energy Policy Research Group (EPRG) Judge Business School & Faculty of Economics Cambridge University); Wadim Strielkowski (Energy Policy Research Group (EPRG) Judge Business School & Faculty of Economics Cambridge University) |
| Keywords: | Electricity markets, wholesale market design, renewable energy, interconnection, electricity storage, long-term contracts, capacity markets |
| JEL: | H23 L94 Q28 Q48 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1711&r=all |
| By: | Victor Ahlqvist (Research Institute of Industrial Economics (IFN), Stockholm); Pär Holmberg (Research Institute of Industrial Economics (IFN), Stockholm. Energy Policy Research Group (EPRG), University of Cambridge. Program on Energy and Sustainable Development (PESD), Stanford University.); Thomas Tangerås (Research Institute of Industrial Economics (IFN), Stockholm. Energy Policy Research Group (EPRG), University of Cambridge. Program on Energy and Sustainable Development (PESD), Stanford University.) |
| Keywords: | wholesale electricity markets, market clearing, centralization, decentralization, unit-commitment, self-dispatch |
| JEL: | D44 L13 L94 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1902&r=all |
| By: | Paul Simshauser (Griffith Business School, Griffith University); Joel Gilmore (Corporate Development & Regulatory Affairs at Infigen Energy.) |
| Keywords: | Variable Renewable Energy, Electricity Prices, Power System Planning |
| JEL: | D61 L94 L11 Q40 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1841&r=all |
| By: | Michael G. Pollitt (Energy Policy Research Group University of Cambridge) |
| Keywords: | electricity single market, decarbonisation |
| JEL: | L94 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1815&r=all |
| By: | Tooraj Jamasb (Durham University Business School, Durham University); Manuel Llorca (Durham University Business School, Durham University); Pavan Khetrapal (Department of Electrical Engineering, National Institute of Technology, MANIT-Bhopal, India); Tripta Thakur (Department of Electrical Engineering, National Institute of Technology, MANIT-Bhopal, India) |
| Keywords: | Quality of state institutions; electricity distribution in India; heteroscedastic stochastic frontier models; inefficiency determinants. |
| JEL: | D22 L51 L94 O43 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1809&r=all |
| By: | Michael Grubb; David Newbery |
| Keywords: | Electricity market design, capacity auctions, renewables support |
| JEL: | L94 D44 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1817&r=all |
| By: | Paul Nillesen (Strategy& (part of PwC) Dansk Energi, PwC, Cambridge University); Michael G. Pollitt (Energy Policy Research Group, Judge Business School University of Cambridge) |
| Keywords: | electricity distribution, ownership unbundling |
| JEL: | L94 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg1905&r=all |