nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒05‒13
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Platform competition: market structure and pricing By Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie; Malavolti, Estelle
  2. Local Search Markets and External Competition By Patrick Legros; Konrad Stahl
  3. Price Commitments in Standard Setting under Asymmetric Information By Boone, Jan; Schuett, Florian; Tarantino, E.
  4. Uncertain Commitment Power in a Durable Good Monopoly By Seres, Gyula
  5. Experimentation in Dynamic R&D Competition By Anastasios Dosis; Abhinay Muthoo
  6. Non-horizontal mergers with investments into compatibility By Gregor Langus; Vilen Lipatov; Jorge Padilla
  7. Diffusion and Pricing Over the Product Life Cycle By Nair, Harikesh S.
  8. Marketing Agencies and Collusive Bidding in Online Ad Auctions By Decarolis, Francesco; Goldmanis, Maris; Penta, Antonio
  9. "Yogurt Cartel" of Private Label Providers in France: impact on prices and welfare By Bonnet, Céline; Bouamra-Mechemache, Zohra
  10. The roaming regulation and the case for applying behavioural industrial organisation to EU competition policy By McGowan, Féidhlim
  11. Agroholdings and Land Rental Markets: A Spatial Competition Perspective By Graubner, Marten; Ostapchuk, Igor; Gagalyuk, Taras
  12. Does an Oligopolistic Primary Market Matter? The Case of an Asian Housing Market By Tang, Edward Chi Ho; Leung, Charles Ka Yui; Ng, Joe Cho Yiu
  13. Market power and monetary policy By Aquilante, Tommaso; Chowla, Shiv; Dacic, Nikola; Haldane, Andrew; Masolo, Riccardo; Schneider, Patrick; Seneca, Martin; Tatomir, Srdan

  1. By: Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie; Malavolti, Estelle
    Abstract: We consider an e-commerce sector with two retailers (which may be marketplaces) and two delivery operators. Products are differentiated according to the retailer and the mode of delivery. The representation of product differentiation is inspired by the Anderson, De Palma and Thisse (2002) discrete choice model. We examine vertical integration of a retailer/ delivery operator pair. Vertical restraints like bundling and/or foreclosure are then considered on top of the integration. Vertical integration in itself eliminates double marginalization, which enhances consumerswelfare. On the other hand, it reduces product variety, and the market power it conveys is likely to reduce profits of the remaining firms. Bundling or foreclosure can be expected to further exacerbate these negative effects. Our most remarkable result is that vertical integration of a single retailer/operator pair will lead to bundling and foreclosure, and possibly the complete exit of the remaining retailers and operators. This is true even when no explicit bundling or foreclosure is put in place on an a priori basis. Consequently, a competition authority that is concerned with total welfare, should not allow the initial merger.
    Keywords: E-commerce; delivery operators; vertical integration; bundling; foreclosure
    Date: 2019–04–25
  2. By: Patrick Legros; Konrad Stahl
    Abstract: Increased competition tends to benefit all buyers with increasing product variety and decreasing prices. However, if local and external market channels compete for the same class of products, increased competition from the external market crowds out local variety. Under local monopoly, local buyer surplus co-moves with external buyer surplus. Under local free entry oligopoly, buyer surplus is U-shaped. If buyer surplus in the external market is low, local surplus is better provided by local oligopoly, but moves against external surplus; if it is high, local and external surplus co-move, and local surplus is better provided by local monopoly.
    Keywords: Global competition, Monopoly, Oligopoly, Search
    JEL: D83 L12 L13 L81
    Date: 2019–04
  3. By: Boone, Jan (Tilburg University, TILEC); Schuett, Florian (Tilburg University, TILEC); Tarantino, E.
    Abstract: Many observers have voiced concerns that standards create essentiality and thus monopoly power for the holders of standard essential patents (SEPs). To address these concerns, Lerner and Tirole (2015) advocate structured price commitments, whereby SEP holders commit to the maximum royalty they would charge were their technology included in the standard. We consider a setting in which a technology implementer holds private information about demand. In this setting, price commitments increase efficiency not only by curbing SEP holders' market power, but also by alleviating distortions in the design of the royalty scheme. In the absence of price commitments, the SEP holder distorts the implementer's output downward in the low-demand state to reduce the high-demand type's information rent. Price commitments reduce this distortion.
    Keywords: standardization; standard-essential patents; price commitments; Information asymmetry
    JEL: D82 L15 L24
    Date: 2019
  4. By: Seres, Gyula (Tilburg University, Center For Economic Research)
    Abstract: This paper considers dynamic pricing strategies in a durable good monopoly model with uncertain commitment power to set price paths. The type of the monopolist is private information of the firm and not observable to consumers. If commitment to future prices is not possible, the initial price is high in equilibrium, but the firm falls prey to the Coase conjecture later to capture the residual demand. The relative price cut is increasing in the probability of commitment as buyers anticipate that a steady price is likely and purchase early. Pooling in prices may occur for perpetuity if commitment is suciently weak. Polling for innity is also preserved if committing to a high price is endogenously chosen by the firm.
    Keywords: monopoly; commitment; Information asymmetry
    JEL: D42 L12 D61 D82
    Date: 2019
  5. By: Anastasios Dosis (ESSEC - ESSEC Business School - Essec Business School - Economics Department - Essec Business School, THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique); Abhinay Muthoo (Departement of Economics - University of Warwick - University of Warwick [Coventry])
    Abstract: We study a two-stage, winner-takes-all, R&D race, in which, at the outset, firms are uncertain regarding the viability of the project. Learning through experimentation introduces a bilateral (dynamic) feedback mechanism. For relatively low-value products , the equilibrium stopping time coincides with the socially efficient stopping time although firms might experiment excessively in equilibrium; for relatively high-value products, firms might reduce experimentation and stop rather prematurely due to the fundamental free-riding effect. Perhaps surprisingly, a decrease in the value of the product can spur experimentation.
    Keywords: Experimentation,Learning,Dynamic R&D competition,inefficiency
    Date: 2019–02–04
  6. By: Gregor Langus; Vilen Lipatov; Jorge Padilla
    Abstract: We set up a model to analyze the effects of mergers between sellers of complementary components where firms invest in compatibility and can engage in bundling. We consider the impact of merger on prices, investment and consumer surplus. We also analyse when the merged firm may have an incentive and ability to foreclose rivals.
    Keywords: mergers, complementary goods, welfare effects, foreclosure, compatibility
    JEL: L13 L41
    Date: 2019
  7. By: Nair, Harikesh S. (Stanford Graduate School of Business)
    Abstract: This chapter presents a selective review of a literature in marketing that analyzes diffusion and pricing over the product life-cycle. I primarily focus on empirical work, and on papers that deal with the dynamics of pricing over time. I discuss how recent empirical work has linked outcomes to microfoundations and accommodated a role for forward-looking consumers and firms. I emphasize a more nuanced perspective of the product life-cycle that has emerged in the literature, as an endogenous outcome arising from the interaction of preferences, expectations, costs and competition in the market, rather than as an exogenously specified process against which marketing strategies should be optimized.
    Date: 2019–04
  8. By: Decarolis, Francesco; Goldmanis, Maris; Penta, Antonio
    Abstract: The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the of VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency.
    Keywords: Collusion; Digital Marketing Agencies; Facebook; Google; GSP; Internet Auctions; Online Advertising; VCG.
    JEL: C72 D44 L81
    Date: 2019–04–23
  9. By: Bonnet, Céline; Bouamra-Mechemache, Zohra
    Abstract: During the period 2006 to 2012, French competition authorities pressed charges against the country’s top 11 firms for engaging in a price-fixing cartel in the fresh dairy store brand segment. Using an empirical vertical bargaining model, this paper studies the effects of the "yogurt cartel" on the price of store brand and national brand products, on the profit sharing between dairy dessert companies and retailers, and consumer welfare. We find that data supports collusive behavior in the dairy dessert market. The cartel leads to price effects for store brands varying from 7.3% for other dairy desserts to 11.3% for yogurts, and those price effects would even be stronger if the cartel also affects the ability of retailers to negotiate with manufacturers. We also show that in a hypothetical situation without the collusion of private label providers, the prices of national brands would have been higher and manufacturers’ profits for the sales of their national brand products would have been lower. The cartel thus benefits manufacturers both in the national brand and private label markets. We show that the national brand dairy dessert market should be taken into account when evaluating the damages to the private label dairy dessert market, which the French competition authorities failed to do.
    Keywords: Yogurt cartel; private label; bargaining; profit sharing; food; collusion.
    JEL: L13 L41 L66
    Date: 2019–05–02
  10. By: McGowan, Féidhlim
    Date: 2018
  11. By: Graubner, Marten; Ostapchuk, Igor; Gagalyuk, Taras
    Abstract: With the emergence of large, horizontally integrated farm enterprises especially in Eastern European countries, the question arises whether these agroholdings exercise market power in (local) land markets. Using a theoretical framework of spatial competition that accounts for the presence of multi-farm agroholdings, we derive equilibrium prices under alternative spatial competition settings. Based on the investigation of Ukrainian farms, we provide a theoretical explanation and empirical support that farms affiliated with an agroholding possess (ceteris paribus) more land and set higher land rental prices compared to independent farms. The results indicate that agroholdings can act as price leaders in local land markets.
    Keywords: Land Economics/Use
    Date: 2019–03–28
  12. By: Tang, Edward Chi Ho; Leung, Charles Ka Yui; Ng, Joe Cho Yiu
    Abstract: This paper takes advantage of the oligopolistic structure of the Hong Kong primary housing market and examines whether the time-variations of the market concentration are caused by or cause the variations of the local economic factors. The analysis also takes into consideration of the changes of the U.S. variables and commodity prices, which arguably may represent changes in the construction cost. We find clear evidence of time-varying responses of housing market variables to macroeconomic variables. Policy implications and directions for future research are also discussed.
    Keywords: Oligopoly, market share, Herfindahl index, macroeconomic variables, dynamic factor model, Time-Varying Bayesian Factor Augmented VAR
    JEL: E30 L12 L85 R31
    Date: 2018–06
  13. By: Aquilante, Tommaso (Bank of England); Chowla, Shiv (Bank of England); Dacic, Nikola (Bank of England); Haldane, Andrew (Bank of England); Masolo, Riccardo (Bank of England); Schneider, Patrick (Bank of England); Seneca, Martin (Bank of England); Tatomir, Srdan (Bank of England)
    Abstract: In this paper we explore the link between monetary policy and market power. We start by establishing several facts on market power in UK markets using micro data. First, while no clear trend emerges for market concentration, market power measured by markups estimated at the firm level have clearly increased in recent years, with the rise being reasonably broad-based across sectors. Second, we show that the increase is heavily concentrated in the upper tail of the distribution — companies whose mark-ups are in, say, the top quartile. Third, internationally-oriented firms are the driving force behind the rise in markups. Fourth, following Díez et al (2018), we find some reduced-form evidence of a non-monotonic relation between markups and investment at the firm level, with high levels of markups being associated with lower investment. Having established these facts, we show that the Phillips curve becomes steeper in the textbook New Keynesian model when firms tend to have more market power, reducing the sacrifice ratio for monetary policy. As inflation becomes less costly in an economy with high market power, however, the optimal targeting rule for monetary policy also changes. A rise in both the trend and volatility of mark-ups may lead to a significant rise in inflation variability. But a secular rise in mark-ups by itself improves monetary policy’s ability to stabilise inflation without inducing large movements in output.
    Keywords: Markups; market power; secular trends; monetary policy; DSGE
    JEL: D20 D40 E31 E52
    Date: 2019–05–03

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