nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒05‒20
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Spatial Competition and Price Discrimination with Capacity Constraints By Matthias Hunold; Johannes Muthers
  2. Shipping the good apples under strategic competition By Creane, Anthony
  3. Uncertain Commitment Power in a Durable Good Monopoly By Seres, Gyula
  4. Credence goods markets and the informational value of new media: A natural field experiment By Rudolf Kerschbamer; Daniel Neururer; Matthias Sutter
  5. Is there a loyalty-enhancing effect of retroactive price-reduction schemes? By Lisa Bruttel
  6. Price-cost margin and bargaining power in the European Union By Soares, Ana Cristina
  7. Lutte contre les cartels : Comment dissuader les têtes brûlées ? By Béatrice Boulu-Reshef; Constance Monnier-Schlumberger
  8. Ex-post Analyse der Ministererlaubnis-Fälle - Gemeinwohl durch Wettbewerbsbeschränkungen? By Stöhr, Annika; Budzinski, Oliver
  9. Managed competition in practice : Lessons for healthcare policy By Katona, Katalin
  10. The Competitive Impact of Branded Generic Medicine in a Developing Country By Roberto Álvarez; Aldo González; Sebastian Fernández
  11. Nonparametric Estimates of Demand in the California Health Insurance Exchange By Pietro Tebaldi; Alexander Torgovitsky; Hanbin Yang
  12. Like it or not? The impact of online platforms on the productivity of incumbent service By Alberto Bailin Rivares; Peter Gal; Valentine Millot; Stéphane Sorbe
  13. Learning about Competitors: Evidence from SME Lending By Darmouni, Olivier; Sutherland, Andrew
  14. Do LPG Prices React to the Entry of Natural Gas? Implications for Competition Policy By Aldo González; Vicente Lagos
  16. Selling Data By Carlos Segura-Rodriguez
  17. Using the Tools of Industrial Organization to Illuminate the Credit Rating Industry By Lawrence J. White
  18. Property Rights Insecurity and Agriculture Land Market - The Inherited Challenge of the Post-communist Land Reform in Albania By Zhllima, Edvin; Imami, Drini; Rama, Klodjan
  19. Experts, Reputation and Umbrella Effects: Empirical Evidence from Wine Prices By Dieter Pennerstorfer; Christoph Weiss; Andreas Huber

  1. By: Matthias Hunold; Johannes Muthers
    Abstract: We characterize mixed-strategy equilibria when capacity constrained suppliers can charge location-based prices to different customers. We establish an equilibrium with prices that weakly increase in the costs of supplying a customer. Despite prices above costs and excess capacities, each supplier exclusively serves its home market in equilibrium. Competition yields volatile market shares and an inefficient allocation of customers to firms. Even ex-post cross-supplies may restore efficiency only partly. We show that consumers may benefit from price discrimination whereas the the firms make the same profits as with uniform pricing. We use our findings to discuss recent competition policy cases and provide hints for a more refined coordinated-effects analysis. JEL classification:
    Keywords: Bertrand-Edgeworth, capacity constraints, inefficient competition, spatial price discrimination, subcontracting, transport costs
    JEL: L11 L41 L61
    Date: 2019–05
  2. By: Creane, Anthony
    Abstract: Production runs suffer from inadvertent quality variation. There are good apples; there are bad apples (also known as “seconds”). The Alchian-Allen theorem states that a common perunit charge on two goods differentiated only by quality, increases the relative export demand for the higher quality good leading to local consumers lamenting that they cannot find them locally. While usually stated for competitive markets, firms with market power also suffer from inadvertent seconds in their production. For example, brand-name retailers send their seconds to outlets, even though this undercuts the demand for their firsts. A model is presented of oligopolistic firms choosing production and what fraction of their first and seconds to export: a model of “shipping the good apples” with strategic competition. In this model an increase in the per-unit charge can increase the absolute fraction of high quality exported. Despite this, shipping the good apples may not hold, that is, an increase in the per-unit charge can decrease the quantity demanded of good apples relative to bad ones. Rather, shipping the good apples holds when the export market’s willingness-to-pay for high quality is greater (or greater value for “quality upgrading” (Johnson and Myatt, 2006)). Despite the consumers’ lament, domestic consumer welfare increases with exporting
    Keywords: Market power, Cournot, quality, trade
    JEL: D43 F12 L2
    Date: 2019–05
  3. By: Seres, Gyula (Tilburg University, TILEC)
    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
  4. By: Rudolf Kerschbamer (University of Innsbruck); Daniel Neururer (University of Innsbruck); Matthias Sutter (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: 2019–03
  5. By: Lisa Bruttel (University of Potsdam)
    Abstract: This paper presents an experiment on the effect of retroactive price-reduction schemes on buyers’ repeated purchase decisions. Such schemes promise buyers a reduced price for all units that are bought in a certain time frame if the total quantity that is purchased passes a given threshold. This study finds a loyalty-enhancing effect of retroactive price-reduction schemes only if the buyers ex-ante expected that entering into the scheme would maximize their monetary gain, but later learn that they should leave the scheme. Furthermore, the effect crucially hinges on the framing of the price reduction.
    Keywords: rebate and discount, buyer behavior, risk aversion, loss aversion, regulation of dominant firms, experiment
    JEL: C91 D03 D81 L42
    Date: 2019–05
  6. By: Soares, Ana Cristina
    Abstract: Using firm-level data between 2004 and 2012 for eleven countries of the European Union (EU), we document the size of product and labour market imperfections within narrowly defined sectors including services which are virtually undocumented. Our findings suggest that perfect competition in both product and labour markets is widely rejected. Levels of the price-cost margin and union bargaining power tend to be higher in some service sectors depicting however substantial heterogeneity. Dispersion within sector and across countries tends to be higher in some services sectors assuming a less tradable nature which suggests that the Single Market integration is partial particularly relaxing the assumption of perfect competition in the labour market. We report also figures for the aggregate economy and show that Eastern countries tend to depict lower product and labour market imperfections compared to other countries in the EU. Also, we provide evidence in favour of a very limited adjustment of both product and labour market imperfections following the international and financial crisis.
    Keywords: market imperfection,market structure,nash bargaining,European Union
    JEL: D40 J50 L10
    Date: 2019
  7. By: Béatrice Boulu-Reshef (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); Constance Monnier-Schlumberger (PRISM-Sorbonne - PRISM - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Panthéon-Sorbonne)
    Abstract: Cet article propose une approche expérimentale qui rend possible l'identification des individus les plus susceptibles de former un cartel : les « têtes brûlées ». Les expériences testent l'efficacité dissuasive des différents dispositifs de lutte contre les cartels en comparant les propensions à s'entendre des individus dans différents types de dispositifs de sanctions-amende, clémence, conformité, et exclusion-et de détection-détection avec probabilité exogène ou par dénonciation dans le cas de la clémence. La conformité et l'exclusion s'avèrent particulièrement dissuasive, la clémence ne l'est pas. L'effet dissuasif des amendes élevées est limité pour les « têtes brûlées », qui sont davantage influencés par l'ampleur du risque de détection. Les différences de genre et d'aversion pour le risque impactent le comportement chez les autres participants mais pas chez les individus qualifiés de « têtes brûlées ».
    Keywords: Expérience,cartel,sanctions,têtes brûlées
    Date: 2019–05–08
  8. By: Stöhr, Annika; Budzinski, Oliver
    Abstract: Die sogenannte Ministererlaubnis als Teil der deutschen Fusionskontrolle repräsentiert wahrscheinlich das umstrittenste Instrument sowohl in der juristischen als auch in der ökonomischen Fachdiskussion. Vereinfachend ausgedrückt ermöglicht die Ministererlaubnis dem Bundeswirtschaftsminister, ein Zusammenschlussverbot des Bundeskartellamtes aufgrund von erwarteten positiven Gemeinwohleffekten aufzuheben. Zu den Kritikpunkten zählt dabei, dass die tatsächlichen Erlaubnisentscheidungen weniger durch Gemeinwohlerwägungen zu begründen seien als vielmehr durch politökonomische Interessen bzw. erfolgreiche Lobbyaktivitäten. Zwar können wir im vorliegenden Beitrag nicht die tatsächlichen Motivationen der Erlaubnisentscheidungen nachweisen, aber wir können mit Hilfe von Ex-Post-Analysen zeigen, dass sich nur in einem geringen Teil der Erlaubnisfälle die Gründe, welche zur Erlaubnis führten, ex-post empirisch bestätigt haben und auch auf die Fusion zurückzuführen sind. Damit kann die Ministererlaubnis in ihrer gegenwärtigen Form nicht als effektives Instrument einer gemeinwohlorientierten Korrektur von Fusionskontrollentscheidungen eingestuft werden.
    Keywords: Ministererlaubnis,Wettbewerbspolitik,Zusammenschlusskontrolle,Mergers & Acquisitions,Wettbewerbsökonomik,Antitrust,Ex-Post-Analysen,Recht & Ökonomik,Fusionskontrolle,Wettbewerbsordnung,Wirtschaftspolitik
    JEL: L40 K21 B52 L51
    Date: 2019
  9. By: Katona, Katalin (Tilburg University, School of Economics and Management)
    Abstract: This dissertation contributes to a better understanding of the health insurance markets in managed competition setting by discussing potential market failures and policy interventions. After the introduction of Chapter 1, Chapter 2 measures price elasticity in the Netherlands before and after the health insurance reforms in 2006. Chapter 3 provides evidence for adverse selection in the Dutch health insurance market due to voluntary deductibles. Chapter 4 illustrates the welfare effects of increased degree of substitution in the health insurance market using a theoretical model. Chapter 5 explores the incentives for and welfare effects of vertical integration and exclusive behavior between health insurers and hospitals in a theoretical model. Finally, Chapter 6 studies the effect of financing the healthcare expenditures through insurance (rather than directly out of packet) on the hospital merger analyses. The empirical studies (Chapter 2 and 3) use data from the Netherlands. Nonetheless, the main conclusions and the theoretical models (Chapter 4, 5 and 6) can also be applied to other health care systems based on the principles of managed competition.
    Date: 2019
  10. By: Roberto Álvarez; Aldo González; Sebastian Fernández
    Abstract: This paper studies the effect of the entry of branded generic medications — representing 47 molecules — between January 2002 and July 2017 in the Chilean retail pharmaceutical market. Using a differences-in-differences approach, we measure the impact on prices and quantities on the market after the entry of branded generic pharmaceuticals, following the patent expiration of innovator drugs. The results show that in a period of 48 months from the first entry, the quantities sold in the retail market increased by 148.1%. This is explained by the lower prices of the branded generics, as the gross average price is 33% cheaper than the innovator alternatives. Finally, no statistically significant effect is observed on prices and quantities for innovators, suggesting that the segmented market theory might apply to the Chilean pharmaceutical market.
    Date: 2019–05
  11. By: Pietro Tebaldi; Alexander Torgovitsky; Hanbin Yang
    Abstract: We estimate the demand for health insurance in the California Affordable Care Act marketplace (Covered California) without using parametric assumptions about the unobserved components of utility. To do this, we develop a computational method for constructing sharp identified sets in a nonparametric discrete choice model. The model allows for endogeneity in prices (premiums) and for the use of instrumental variables to address this endogeneity. We use the method to estimate bounds on the effects of changing premium subsidies on coverage choices, consumer surplus, and government spending. We find that a $10 decrease in monthly premium subsidies would cause between a 1.6% and 7.0% decline in the proportion of low-income adults with coverage. The reduction in total annual consumer surplus would be between $63 and $78 million, while the savings in yearly subsidy outlays would be between $238 and $604 million. Comparable logit models yield price sensitivity estimates towards the lower end of the bounds.
    JEL: C14 C3 C5 I13
    Date: 2019–05
  12. By: Alberto Bailin Rivares; Peter Gal; Valentine Millot; Stéphane Sorbe
    Abstract: This paper uses a novel empirical approach to assess if the development of online platforms affects the productivity of service firms. We build a proxy measure of platform use across four industries (hotels, restaurants, taxis and retail trade) and ten OECD countries using internet search data from Google Trends, which we link to firm-level data on productivity in these industries. We find that platform development supports the productivity of the average incumbent service firm and also stimulates labour reallocation towards more productive firms in these industries. This may notably reflect that platforms’ user review and rating systems reduce information asymmetries between consumers and service providers, enhancing competition between providers. The effects depend on platform type. “Aggregator” platforms that connect incumbent service providers to consumers tend to push up the productivity of incumbents, while more disruptive platforms that enable new types of providers to compete with them (e.g. home sharing, ride hailing) have on average no significant effect on it. Consistent with this, we find that different platform types affect differently the profits, mark-ups, employment and wages of incumbent service firms. Finally, the productivity gains from platforms are lower when a platform is persistently dominant on its market, suggesting that the contestability of platform markets should be promoted.
    Keywords: competition, digital, google trends, platforms, productivity, services, user rating
    JEL: D24 L13 L80 O33
    Date: 2019–05–21
  13. By: Darmouni, Olivier; Sutherland, Andrew
    Abstract: This paper provides evidence of strategic complementarities in lenders’ contract terms in SME financing. To isolate this strategic effect from lenders’ joint reaction to unobserved common shocks to fundamentals, we exploit the staggered entry of lenders into an information sharing platform. Upon joining, lenders adjust their terms toward what others are offering. This effect is mediated by market power and seems to be driven by incentives to match rivals in order to preserve market share as opposed to learning about fundamentals. We also find evidence that this strategic behavior increased delinquencies during the recent crisis.
    Keywords: competition, strategic complementarities, information sharing, credit bureau, corporate loans, SME
    JEL: D22 D43 D82 D83 G00 G21 G24 G30
    Date: 2018
  14. By: Aldo González; Vicente Lagos
    Abstract: In developing countries, the penetration of Liquefied Petroleum Gas (LPG) is still high, and hence the entry of Natural Gas (NG) networks coexists with the use of LPG by an important fraction of households. Thus, a relevant policy question is whether the number and degree of horizontal integration among NG and LPG providers has an influence on the level of retail prices. Using selfreported LPG retail prices of the largest LPG provider in Chile for the period 2013-2014, we estimate that the presence of a competing NG network generates an average decrease of LPG retail prices within the range [-2,-4%] depending on the econometric specification. Thus, since the presence of an additional competing provider (i.e., an NG retailer) has an influence on the level of prices, LPG and NG may be indeed considered as imperfect substitutes. The main policy implication of this result is that the degree of horizontal integration between both types of providers should matter and there would be room for regulatory intervention aimed at proposing remedies in order to mitigate any potential anticompetitive effect.
    Date: 2019–05
  15. By: Ambre Nicolle (Télécom ParisTech); Lukasz Grzybowski (Télécom ParisTech); Christine Zulehner (University of Vienna [Vienna])
    Abstract: In this paper, we assess the impact of competition, investment and regulation on prices of mobile services in France. We estimate hedonic price regressions using data on tariff plans offered by the main mobile telecommunications operator in France between May 2011 and December 2014. In this time period, the obtained quality-adjusted price index decreased by about 42.8% as compared to a decline in weighted average prices without quality-adjustment of 8.7%. In a second step, we relate the quality-adjusted prices to a set of competition, investment and regulation variables and find that the launch of 4G networks by mobile operators was the main driver of price reductions for classic tariffs with commitment. Low-cost tariffs without commitment which were introduced to preempt the entry of low-cost competitor declined at the time of entry. Moreover, we find that regulation, which is approximated by the level of mobile termination charges and international roaming price caps for voice and data, has a joint significant impact on quality-adjusted prices. In percentage terms, competition is responsible for about 23.4% of total price decline and investments in 4G for 56.1%.
    Date: 2018–04
  16. By: Carlos Segura-Rodriguez (Department of Economics, University of Pennsylvania)
    Abstract: I study how a monopolist data broker (seller), who wants to maximize profits, should present and sell consumer data to a firm (buyer). The buyer has an interest in forecasting a particular consumer characteristic, but the seller is uncertain about which characteristic the buyer wants to forecast and how much the buyer values information. I assume that the joint distribution of both the unknown characteristics and the data is elliptical. This information environment reduces to a multidimensional, multi-product mechanism design problem in which the buyer’s payoffs are nonlinear. Hence, I cannot use the common differential approach to solve for the optimal mechanism. I obtain two main results. First, I show that the seller should optimally offer statistics that are linear combinations of the data and independent noise. Second, by using a direct approach, I show that in the optimal mechanism the seller might want to offer a continuum of different statistics, and these statistics, without containing independent noise, are less correlated than they would be if the seller could perfectly price discriminate. Thus this distortion affects the mimicking type more than the mimicked type.
    Keywords: Information Design, Mechanism Design, Multidimensional Screening,Product Design, Elliptical Distribution
    JEL: D42 D82 D83 D86
    Date: 2019–04–21
  17. By: Lawrence J. White
    Abstract: Until slightly more than a decade ago, the credit rating industry was largely a little-recognized and little-understood part of the financial system “plumbing†. This obscurity changed with the financial crisis of 2008 and its aftermath. After a few years of intensive attention, however, the CRAs have retreated back to semi-obscurity and attract little media or political attention. The tools of industrial organization (IO) can help us understand this industry: its structure; its behavior; and its outcomes; and the public policies that are likely to improve its functioning.
    Keywords: credit rating agency (CRA); prudential regulation; barriers to entry; asymmetric information
    JEL: G14 L59
    Date: 2019
  18. By: Zhllima, Edvin; Imami, Drini; Rama, Klodjan
    Abstract: Land consolidation has been viewed by policy makers as panacea for tackling the inherited challenges of Albania´s egalitarian land reform. The paper argues that farmers´ efforts towards farm consolidation through land purchase and rent-in are affected by overall structural factors. Farm structure, farm-orientation and other socio-economic factors play an important role in farmers´ decision to purchase and rent-in agricultural land. Rental market has been the most common mechanism for consolidation, although agriculture land rent is not suitable for all agriculture activities, such as those which require long term investments.
    Keywords: Land Economics/Use
    Date: 2019–05–13
  19. By: Dieter Pennerstorfer; Christoph Weiss; Andreas Huber
    Abstract: We investigate the relationship between external quality evaluation via experts, firm reputation and product prices and extend the existing empirical literature in three dimensions. First, we empirically account for endogenous reputation effects. An increase in quality has an immediate positive impact on product prices but also improves the reputation of a firm, which contributes to higher prices in the future. Secondly, we analyse umbrella effects of reputation: investments in product quality of the ’top product‘ are particularly profitable as they also generate a ’ reputational dividend‘ for other products with lower quality. And finally, we investigate selection effects in expert evaluations. Experts typically evaluate a selection of products only and we find endogenous selection effects to be important for analysing product quality empirically.
    Keywords: experts evaluations, hedonic pricing, wine quality, endogenous reputation, sample selection, umbrella branding
    JEL: C33 L66 Q11
    Date: 2019–03

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.