nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒06‒10
eleven papers chosen by
Russell Pittman
United States Department of Justice

  1. Media See-saws: Winners and Losers in Platform Markets By Simon P. Anderson; Martin Peitz
  2. The new media economics of video-on-demand markets: Lessons for competition policy (updated version) By Budzinski, Oliver; Lindstädt-Dreusicke, Nadine
  3. Biased managers in a vertical structure By Nicola Meccheri
  4. Search and equilibrium prices: Theory and evidence from retail diesel By Cabral, Luís M. B.; Schober, Dominik; Woll, Oliver
  5. Testing for collusion in bus contracting in London By Waterson, Michael; Xie, Jian
  6. Competition between offline and online retailers with heterogeneous customers By Stefano Colombo; Noriaki Matsushima
  7. Essays in corporate finance, political economy, and competition By Neretina, Ekaterina
  8. Collective Entry Deterrence and Free Riding: Airbus and Boeing in China By Patrice Cassagnard; Pierre Regibeau
  9. Heterogeneity in demand and optimal price conditioning for local rail transport By Evgeniy M. Ozhegov; Alina Ozhegova
  10. Promise, Trust and Betrayal: Costs of Breaching an Implicit Contract By Daniel Levy; Andrew T. Young
  11. Competition, Asymmetric Information, and the Annuity Puzzle: Evidence from a Government-Run Exchange in Chile By Gaston Illanes; Manisha Padi

  1. By: Simon P. Anderson; Martin Peitz
    Abstract: We customize the aggregative game approach to oligopoly to study media platforms which may differ by popularity. Advertiser, platform, and consumer surplus are tied together by a simple summary statistic. When media are ad-financed and ads are a nuisance to consumers we establish see-saws between consumers and advertisers. Entry increases consumer surplus, but decreases advertiser surplus if industry platform profits decrease with entry. Merger decreases consumer surplus, but advertiser surplus tends to increase. By contrast, when platforms use two-sided pricing or consumers like advertising, advertiser and consumer interests are often aligned.
    Keywords: media economics, mergers, entry, advertising, aggregative games
    JEL: D43 L13
    Date: 2019–05
  2. By: Budzinski, Oliver; Lindstädt-Dreusicke, Nadine
    Abstract: The markets for audiovisual content are subject to dynamic change. Where once "traditional" (free-to-air, cable, satellite) television was dominating, i.e. linear audiovisual media services, markets display nowadays strong growth of different types of video-on-demand (VoD), i.e. nonlinear audiovisual media services, including both Paid-for VoD like Amazon Prime and Netflix and Advertised-financed VoD like YouTube. Competition policy decisions in such dynamic markets are always particularly challenging. The German competition authority was presented such a challenge when, at the beginning of the 2010s, German television providers sought to enter online VoD markets with the help of cooperative platforms. We review the antitrust concerns that were raised back then in an ex post analysis. In doing so, we first discuss the dynamic development of the German VoD markets during the last decade. In the second part of this paper, we derive four aspects, in which the previous antitrust analysis cannot be upheld from today's perspective. First, relevant implications of modern platform economics were neglected. Second, some inconsistencies in the assessment of the two projects appear to be inappropriate. Third, the emerging competitive pressure of international VoD providers was strongly underestimated. Fourth, the question of market power in online advertising markets looks very different at the end of the decade.
    Keywords: video-on-demand,media economics,two-sided markets,competition,platform economics,commercial television,public service broadcasters,antitrust policy,YouTube,Amazon,Netflix
    JEL: L40 L82 K21 L13 D40
    Date: 2019
  3. By: Nicola Meccheri (Department of Economics and Management, University of Pisa, Italy; Rimini Centre for Economic Analysis)
    Abstract: This paper analyses the choice of managers' types in a vertical structure with a common input supplier. Depending on the degree of product differentiation, the choice of either an overconfident or an underconfident manager can arise whatever the downstream competition mode. Moreover, when competition is in quantities, the well-known prisoner’s dilemma result of strategic delegation does not apply when owners optimally delegate to underconfident managers. Instead, under price competition, a prisoner’s dilemma applies but only when the strategic decision is optimally delegated to overconfident managers. Moreover, the standard result that firms choose to compete in quantities is preserved when the degree of product substitutability is high, but a novel outcome with multiple asymmetric equilibria arises when the degree of product differentiation is low.
    Keywords: biased managers, strategic delegation, vertical structure
    JEL: D43 D91 L13
    Date: 2019–05
  4. By: Cabral, Luís M. B.; Schober, Dominik; Woll, Oliver
    Abstract: We examine the relation between consumer search and equilibrium prices when collusion is endogenously determined. We develop a theoretical model and show that average price is a U-shaped function of the measure of searchers: prices are highest when there are no searchers (local monopoly power) or when there are many searchers (and sellers opt to collude). We test this prediction with diesel retail prices in Dortmund, Germany. We estimate a U-shaped relation with statistical precision and a €.025/liter price variation due to the variation in the measure of searchers.
    Keywords: Collusion,Cartelization,Fuel Retailing,Search,Competitive Intensity
    JEL: L1 L4 L5 L9
    Date: 2019
  5. By: Waterson, Michael (University of Warwick); Xie, Jian (University of Warwick)
    Abstract: We investigate the London bus market, a large market with regular procurement of bus services, for possible collusion using a wide variety of techniques, making use of the data at our disposal. There is little evidence of collusion in bidding for contracts apparent from our data, despite some features of the market that might lead to collusive behaviour.
    Keywords: Cartel behaviour ; Procurement ; Detecting Cartels ; Bus market
    JEL: D44 L41 L92 D22
    Date: 2019
  6. By: Stefano Colombo; Noriaki Matsushima
    Abstract: We consider the spatial competition between two traditional physical (or offline) retailers and an Internet (or online) retailer where the efficiency of the latter differs from that of the former. We assume consumers are heterogeneous across two dimensions: (i) the costs of traveling to either of the offline retailers and (ii) the costs of purchasing from the online retailer. Both dimensions depend on the spatial location of consumers and are independent of each other. We show that the online retailer maximizes its profit at an intermediate level of the consumer disutility of online purchase when its efficiency is low.
    Date: 2019–05
  7. By: Neretina, Ekaterina (Tilburg University, School of Economics and Management)
    Abstract: This thesis consists of three chapters and it highlights the implications of limited competition in Financial Economics. The first chapter shows negative externalities from corporate lobbying on the market value of competitor companies that do lobby themselves. It also demonstrates that the competitors do not lobby when they lack voting power to support lawmakers in the elections, or when they fail to coordinate in trade associations. Two other chapters focus on implications of limited competition in intermediation industries. The second chapter shows that segmentation in the corporate bond market results in limited choice of underwriters to the issuers, providing underwriters with high bargaining power and oligopolistic rents. The third chapter shows that dominant plaintiff law firms that charge premium fees for their services do not improve the settlement outcomes for their clients, but merely use their ability to select large and profitable lawsuits.
    Date: 2019
  8. By: Patrice Cassagnard (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Pierre Regibeau (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: We propose a simple two-stages duopoly game where two firms produce an homogeneous good to satisfy the demand in a foreign market. First they decide whether to serve this market with exports or with foreign direct investments and then they play a one-shot Cournot-Nash game. This game has been made even more complex by the fact that foreign direct investments induce technological spillovers which imply the possible entry of a third firm. From the complete characterization of the equilibria we show that a small disadvantage of one of the both firms can conduce this firm to invest alone in the foreign country rather than export. In this case, the investment is motivated by the fact that the dissipation risk of both firm-specific assets to a local potential entrant -triopoly payoffs- is beared by the two firms whereas the gain -increased market share in duopoly- is captured by the firm which chooses to invest abroad. We have in mind the competition between Airbus and Boeing in China.
    Keywords: Entry Deterrence,FDI,Export,Cournot duopoly,Spillovers,Airbus and Boeing
    Date: 2018–07
  9. By: Evgeniy M. Ozhegov; Alina Ozhegova
    Abstract: This paper describes the results of research project on optimal pricing for LLC "Perm Local Rail Company". In this study we propose a regression tree based approach for estimation of demand function for local rail tickets considering high degree of demand heterogeneity by various trip directions and the goals of travel. Employing detailed data on ticket sales for 5 years we estimate the parameters of demand function and reveal the significant variation in price elasticity of demand. While in average the demand is elastic by price, near a quarter of trips is characterized by weakly elastic demand. Lower elasticity of demand is correlated with lower degree of competition with other transport and inflexible frequency of travel.
    Date: 2019–05
  10. By: Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis); Andrew T. Young (College of Business Administration, Texas Tech University, USA)
    Abstract: We study the cost of breaching an implicit contract in a goods market, building on a recent study that documented the presence of such a contract in the Coca-Cola market, in the US, during 1886‒1959. The implicit contract promised a serving of Coca-Cola of a constant quality (the “real thing”), and of a constant quantity (6.5oz in a bottle or from the fountain), at a constant nominal price of 5¢. We offer two types of evidence. First, we document a case that occurred in 1930, where the Coca-Cola Company chose to incur a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost, to prevent a quality adjustment of Coca-Cola, which would be considered a breach of the implicit contract. Second, we explore the consequences of the Company’s 1985 decision to replace the original Coke with the “New Coke.” Using the model of Exit, Voice, and Loyalty (Hirschman 1970), we argue that the unprecedented public outcry that followed the New Coke’s introduction, was a response to the Company’s breaching of the implicit contract. We document the direct and quantifiable costs of this implicit contract breach, and demonstrate that the indirect, although unquantifiable, costs in terms of lost customer goodwill were substantial.
    Keywords: Implicit Contract, Cost of Breaching a Contract, Cost of Breaking a Contract, Invisible Handshake, Customer Market, Long-Term Relationship, Price Rigidity, Sticky Prices, Nickel Coke, Coca-Cola, Secret Formula
    JEL: A14 E12 E31 K10 L14 L16 L66 M30 N80
    Date: 2019–05
  11. By: Gaston Illanes; Manisha Padi
    Abstract: Purchasing an annuity insures an individual against the risk of outliving their money, by promising a steady stream of income until death. The value of annuities is high in theory, but in practice annuity markets tend to function poorly, with low annuitization rates and high markups. Chile provides an interesting counterexample to this phenomenon, as over 60 percent of eligible retirees purchase annuities from the private market and observed markups are low. This paper shows that Chilean Social Security policy promotes private annuitization, in contrast to U.S. Social Security policy. To study this effect, we build a lifecycle consumption-savings model and show through calibrations that the Chilean setting is likely to have lower welfare loss from adverse selection and is more robust to markets unraveling than the U.S. We then use a novel administrative dataset on all annuity offers made to Chilean retirees between 2004 and 2013 to estimate a flexible demand system built on top of the consumption-savings model. The model estimates allow us to simulate how the Chilean equilibrium would shift under alternative regulatory regimes. We find that reforming the Chilean system to more closely resemble the U.S. Social Security system would likely make the annuity market fully unravel. This result highlights the impact of the rules governing how retirees can access their pension balances on the annuity market equilibrium.
    Date: 2019–01

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