nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒08‒12
24 papers chosen by
Russell Pittman
United States Department of Justice

  1. Patent Protection and Threat of Litigation in Oligopoly By Carlo Capuano; Iacopo Grassi; Riccardo Martina
  2. Competition and Pass-Through: Evidence from Isolated Markets By Christos Genakos; Mario Pagliero
  3. Changing Preferences: An Experiment and Estimation of Market-Incentive E§ects on Altruism By Undral Byambadalai; Ching-to Albert Ma; Daniel Wiesen
  4. Income Distribution, Vertical Differentiation, and the Quantity Competition By Miao, Zhuang
  5. Strategic Incentives for Keeping One Set of Books under the Arm's Length Principle By Moreno Ruiz, Diego; Lemus Torres, Ana Belén
  6. Competition Between Public and Private Maternity Care Providers in France: Evidence on Market Segmentation By Herrera-Araujo, D.;; Rochaix, L.;
  7. The Gains of Ignoring Risk: Insurance with Better Informed Principals. By Laura Abrardi; Luca Colombo; Piero Tedeschi
  8. Size, Efficiency, Market Power, and Economies of Scale in the African Banking Sector By Simplice A. Asongu; Nicholas M. Odhiambo
  9. The Impact of NAFTA on Prices and Competition: Evidence from Mexican Manufacturing Plants By Ayuma Ken Kikkawa; Yuan Mei; Pablo Robles Santamarina
  10. Corporate Culture and Merger Success By Francesco Saverio Stentella Lopes; Franco Fiordelisi; Ornella Ricci
  11. Product Cycle and Prices: a Search Foundation By Mei Dong; Toshiaki Shoji; Yuki Teranishi
  12. Is competition in the transport industry bad?A welfare analysis of R&D with inter-regional transportation By Kazuhiro Takauchi; Tomomichi Mizuno
  13. Pasaje de costos a precios: evidencia microeconómica para comercios minoristas en Uruguay. By Pablo Blanchard
  14. The Non-Neutrality of the Arm's Length Principle with Imperfect Competition By Moreno Ruiz, Diego; Lemus Torres, Ana Belén
  15. Multiple Applications, Competing Mechanisms, and Market Power By James Albrecht; Xiaoming Cai; Pieter A. Gautier; Susan Vroman
  16. Federal Milk Marketing Order and Dairy Consolidation: A Synthetic Control Method By Du, Xiaoxue; Lu, Liang; Tejeda, Hernan A.; Trujillo-Barrera, Andres A.
  17. The Evolution of Ownership Structures: Privatization, Business Groups, and Pyramids By Aldunate, F; González, F; Prem, M; Urzúa, F
  18. Un bicentenario del café en Colombia: estrategia competitiva y cambio estructural By Ricardo Rocha García
  19. Competition with Indivisibilities and Few Traders By Cesar Martinelli; Jianxin Wang; Weiwei Zheng
  20. Soda Taxes, Retail Pricing and Consumer Behavior By Lang, Hairu; Kiesel, Kristin; McLaughlin, Patrick W.; Sexton, Richard J.
  21. Optimal auctions for networked markets with externalities By Benjamin Heymann; Alejandro Jofr\'e
  22. Damage to the Transportation Infrastructure and Disruption of Inter-firm Transactional Relationships By HOSONO Kaoru; MIYAKAWA Daisuke; ONO Arito; UCHIDA Hirofumi; UESUGI Iichiro
  23. Convergencia de precios en el largo plazo en Uruguay. Evidencia empírica para 4 bienes. By Andrés Bonino Gayoso
  24. Yield Uncertainty and Strategic Formation of Supply Chain Networks By Victor Amelkin; Rakesh Vohra

  1. By: Carlo Capuano (Università di Napoli Federico II); Iacopo Grassi (Università di Napoli Federico II); Riccardo Martina (Università di Napoli Federico II and CSEF)
    Abstract: In a context of imperfect patent protection, this paper analyses the strategic use of patents from a novel perspective; patents are seen as a means available to the incumbent firm to control entry and, more importantly, to influence the post-entry market interaction process effectively, by creating the conditions that favour collusion. The level of patent protection chosen by the incumbent affects the likelihood that a potential entrant will be found guilty of patent infringement. This mechanism can operate as a punishment device that eases the conditions for collusion sustainability. Therefore, in a sense, patent protection can be regarded as an instrument allowing replication of the monopoly outcome in the context of a contestable market.
    Keywords: patents, patent portfolio, litigation, collusion, foreclosing, entry game
    JEL: D43 K21 L13
    Date: 2019–07–27
  2. By: Christos Genakos; Mario Pagliero
    Abstract: We measure how pass-through varies with competition in isolated oligopolistic markets with captive consumers. Using daily pricing data from gas stations, we study how unanticipated and exogenous changes in excise duties (which vary across different petroleum products) are passed through to consumers in markets with different numbers of retailers. We find that pass-through increases from 0.44 in monopoly markets to 1 in markets with four or more competitors and remains constant thereafter. Moreover, the speed of price adjustment is about 60% higher in more competitive markets. Finally, we show that geographic market definitions based on arbitrary measures of distance across sellers, often used by researchers and policy makers, result in significant overestimation of the pass-through when the number of competitors is small.
    Keywords: pass-through, tax incidence, gasoline, market structure, competition
    JEL: H22 L1
    Date: 2019–07
  3. By: Undral Byambadalai (Boston University); Ching-to Albert Ma (Boston University); Daniel Wiesen (University of Cologne)
    Abstract: This paper studies how altruistic preferences are changed by markets and incentives. We conduct a laboratory experiment in a within-subject design. Subjects are asked to choose health care qualities for hypothetical patients in monopoly, duopoly, and quadropoly. Prices, costs, and patient benefits are experimental incentive parameters. In monopoly, subjects choose quality to tradeoff between profits and altruistic patient benefits. In duopoly and quadropoly, we model subjects playing a simultaneous-move game. Each subject is uncertain about an opponentÌ s altruism, and competes for patients by choosing qualities. Bayes-Nash equilibria describe subjects' quality decisions as functions of altruism. Using a nonparametric method, we estimate the population altruism distributions from Bayes-Nash equilibrium qualities in di§erent markets and incentive conÖgurations. Markets tend to reduce altruism, although duopoly and quadropoly equilibrium qualities are much higher than those in monopoly. Although markets crowd out altruism, the disciplinary powers of market competition are stronger. Counterfactuals confirm markets change preferences.
    Keywords: preferences, altruism, markets, incentives
    JEL: C14 C72
    Date: 2019–07
  4. By: Miao, Zhuang
    Abstract: The paper analyzes the effects of the change of the income distribution on the equilibrium outcomes in the duopoly-quality model with quantity competition. The analysis results show that with zero quality-cost and an income inequality not too high, then both firms always choose the highest quality level. If the quality-cost is convex, then the average quality level will decrease and the vertical differentiation level will increase in the income inequality. These results are different from the Yurko (2011), who made a similar analysis under the quality-price competition model. Another contribution of the paper is that it gives the sufficient conditions for the single firm to choose multiple levels of the quality, i.e. the quality-cost function is convex, vertical differentiation is large enough, and the marginal cost is not too high.
    Keywords: Quality; Price; Vertical Differentiation; Cournot Competition; Income Distribution
    JEL: D22 L10 L13
    Date: 2019–06–01
  5. By: Moreno Ruiz, Diego; Lemus Torres, Ana Belén
    Abstract: The OECD's recommendation that transfer prices between multinational enterprises and their subsidiaries be consistent with the Arm's Length Principle (ALP) for tax purposes does not restrict internal pricing policies. However, we show that under imperfect competition firms may choose to keep one set of books (i.e., to set transfer prices consistent with the ALP), as a way of softening competition in the external market. As a result, firms' profits are greater, and the surplus is smaller, than under vertical integration. In contrast, when firms keep two sets of books (i.e., their transfer prices differ from those used for tax purposes), competition intensifies in both markets relative to vertical integration.
    Keywords: Arm's Length Principle; Vertical Separation; Imperfect Competition; Transfer Pricing Regulation
    JEL: H2 L5 L1
    Date: 2019–08–01
  6. By: Herrera-Araujo, D.;; Rochaix, L.;
    Abstract: The French market for hospital care is shared by public and private providers. In addition to covering a number of mandates usually not undertaken by the private sector such as training, research, and disease prevention, public hospitals are required to provide basic care across the French territory. To investigate the existence of market segmentation between public and private care providers, we focus on maternity care and first examine to what extent public and private maternity units substitute each other on an extensive margin, to then analyze how competition plays out on an intensive margin. Consistent with the public mandate, our findings indicate that, after a private unit closure, public maternity units are less likely to exit a low-populated area than a high-populated area. In addition, we find evidence of an asymmetric intensive margin substitution between private and public maternity units. Maternity users tend to substitute private units (non for-profit and for-profit) for public units more often than the reverse.
    Keywords: maternity units; substitution; demand estimation; public-private;
    JEL: D03 D12 L13 L22 L81
    Date: 2019–07
  7. By: Laura Abrardi; Luca Colombo (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Piero Tedeschi
    Abstract: We study a competitive insurance market in which insurers have an imperfect informative advantage over policyholders. We show that the presence of insurers privately and heterogeneously informed about risk can explain the concentration levels, the persistent profitability and the pooling of risk observed in some insurance markets. Furthermore, we find that a lower market concentration may entail an increase in insurance premia
    Keywords: Insurance markets, Asymmetric information, Risk assessment, Market concentration.
    JEL: D43 D82 G22
    Date: 2019–07
  8. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: There is a growing body of evidence that interest rate spreads in Africa are higher for big banks compared to small banks. One concern is that big banks might be using their market power to charge higher lending rates as they become larger, more efficient, and unchallenged. In contrast, several studies found that when bank size increases beyond certain thresholds, diseconomies of scale are introduced that lead to inefficiency. In that case, we also would expect to see widened interest margins. This study examines the connection between bank size and efficiency to understand whether that relationship is influenced by exploitation of market power or economies of scale. Using a panel of 162 African banks for 2001–2011, we analyzed the empirical data using instrumental variables and fixed effects regressions, with overlapping and non-overlapping thresholds for bank size. We found two key results. First, bank size increases bank interest rate margins with an inverted U-shaped nexus. Second, market power and economies of scale do not increase or decrease the interest rate margins significantly. The main policy implication is that interest rate margins cannot be elucidated by either market power or economies of scale. Other implications are discussed.
    Keywords: Sub-Saharan Africa; banks; lending rates; efficiency; Quiet Life Hypothesis; competition
    JEL: E42 E52 E58 G21 G28
    Date: 2018–01
  9. By: Ayuma Ken Kikkawa; Yuan Mei; Pablo Robles Santamarina
    Abstract: This paper assesses the impact of the North American Free Trade Agreement on Mexican manufacturing plants’ prices and markups. We distinguish between Mexican goods that are exported and those sold domestically, and decompose their prices separately into markups and marginal costs. We then analyze how these components were affected by reductions in Mexican output tariffs, intermediate input tariffs, and U.S. tariffs. We find that declines in these tariffs led to significant reductions in the marginal costs of Mexican products. However, prices of exported goods slightly increased as exporters increased their markups in response to declines in U.S. tariffs.
    Date: 2019
  10. By: Francesco Saverio Stentella Lopes; Franco Fiordelisi (University of Rome III and Middlesex Business School); Ornella Ricci (University of Rome III)
    Abstract: What role does corporate culture play in merger success? We show that corporate culture influences both the probability to act as an acquirer and the outcome of the deal itself. We use text analysis to measure corporate culture for all US listed companies relying on the Competing Values Framework. We disentangle companies culturally oriented inside their organization (focused on collaboration and cost control) from companies oriented outside their organization (focused on competition and innovation). We then study the impact of corporate culture on merger participation and outcome: we show that an internally-oriented corporate culture significantly decreases the participation to merger deals, but has a positive impact on the merger outcome as captured by announcement returns and by post-merger operating performance. Our results suggest that companies focused on collaboration and on their internal processes create more value through their acquisitions.
    Keywords: corporate culture; competing values framework; mergers; operating performance.
    JEL: G34
    Date: 2019–04
  11. By: Mei Dong (University of Melbourne); Toshiaki Shoji (Seikei University); Yuki Teranishi (Keio University)
    Abstract: This paper develops a price model with a product cycle. Through a frictional product market with search and matching frictions, an endogenous product cycle is accompanied with a price cycle where a price for a new good and a price for an existing good are set in a different manner. This model nests a New Keynesian Phillips curve with the Calvo's price adjustment as a special case and generates several new phenomena. Our simple model captures observed facts in Japanese product level data such as the pro-cyclicality among product entry, demand, and price. In a general equilibrium model, an endogenous product entry increase variation of the inflation rate by 20 percent in Japan. This number increases to 72 percent with a price discounting after a first price.
    Keywords: Phillips curve; product and price cycles; search and matching
    Date: 2019–08
  12. By: Kazuhiro Takauchi (Faculty of Business and Commerce,Kansai University); Tomomichi Mizuno (Graduate School of Economics, Kobe University)
    Date: 2019–07
  13. By: Pablo Blanchard (Instituto de Economía, Facultad de Ciencias Económicas y de Administración, Universidad de la República)
    Abstract: En el presente trabajo se estima el pasaje de costos a precios en comercios minoristas pequeños y medianos para arroz, pulpa de tomate y harina en Uruguay, utilizando un modelo estructural. Se estima un sistema de demanda por productos diferenciados utilizando un modelo logit de coeficientes aleatorios. Se utiliza el sistema de demanda estimado en conjunto con supuestos sobre la determinación del precio para recuperar los costos marginales, márgenes de ganancia y el pasaje de costos a precios. Se encuentran ratios de pasaje de costos a precios que van del 25% al 86% en mediana para todo el país cuando se supone competencia a la Nash-Bertrand y ratios entre el 11% y 78% cuando se supone colusión. Se utiliza información sobre precios y cantidades vendidas a beneficiarios de un programa social en Uruguay. El trabajo presenta dos limitaciones relevantes en cuanto a la información utilizada: solo se cuenta con las cantidades adquiridas mediante el programa social y no se cuenta con información para el universo de las variedades de cada producto.
    Keywords: Pasaje de costos a precios, modelos de elección discreta, coeficientes aleatorios, productos diferenciados
    JEL: D43 L11 L81
    Date: 2019–05
  14. By: Moreno Ruiz, Diego; Lemus Torres, Ana Belén
    Abstract: The Arm's Length Principle (ALP) has been broadly adopted by OECD countries to avoid the use of firms' internal transfer pricing as a device for shifting profits into low tax jurisdictions. While the ALP does not affect market outcomes under perfect competition, we show that under imperfect competition its adoption is non-neutral: a strict (lax) application of the ALP softens competition among subsidiaries (parents). Thus, under imperfect competition regulating transfer pricing optimally requires trading off its impact on market outcomes and tax revenue.
    Keywords: Vertical Separation; Imperfect Competition; Arm'S Length Principle; Transfer Pricing Regulation
    JEL: H26 L51 L13
    Date: 2019–07
  15. By: James Albrecht (Georgetown University); Xiaoming Cai (Tongji University); Pieter A. Gautier (Vrije Universiteit Amsterdam); Susan Vroman (Georgetown University)
    Abstract: We consider a labor market with search frictions in which workers make multiple applications and firms can post and commit to general mechanisms that may be conditioned both on the number of applications received and on the number of offers received by its candidate. When the contract space includes application fees, there exists a continuum of equilibria of which only one is socially efficient. In the inefficient equilibria, firms have market power that arises from the fact that the value of a worker's application portfolio depends on what other firms offer, which allows individual firms to free ride and offer workers less than their marginal contribution. Finally, by allowing for general mechanisms, we are able to examine the sources of inefficiency in the multiple applications literature.
    Keywords: multiple applications, directed search, competing mechanisms, efficiency, market power
    JEL: C78 D44 D83
    Date: 2019–08–01
  16. By: Du, Xiaoxue; Lu, Liang; Tejeda, Hernan A.; Trujillo-Barrera, Andres A.
    Keywords: Industrial Organization
    Date: 2019–06–25
  17. By: Aldunate, F; González, F; Prem, M; Urzúa, F
    Abstract: What is the contribution of privatization to the formation of business groups and pyramids? We use new data to study how Pinochet’s privatizations in Chile (1973-1990) affected the evolution of ownership structures. Using non-privatized firms in the same industry as comparison, and accounting for pre-privatization characteristics, we find that privatized firms were more likely to become part of business groups, began to act as providers of credit within groups, and pyramidal ownership structures were built on top of them. As most privatized firms became part of new (instead of traditional) business groups we argue that this privatization reform facilitated the renovation of elites and contributed to the formation of contemporaneous business groups.
    Keywords: Business groups, privatization, ownership
    Date: 2019–07–26
  18. By: Ricardo Rocha García
    Abstract: Un análisis empírico de la estrategia exportadora de Colombia frente a Brasil en el mercado cafetero durante 1826-2018, considerando una competencia oligopolista por productos diferenciados. La relación de cointegración bilateral de las exportaciones según precios, costos, demanda y cambios en la política comercial fue estimada mediante un modelo de mínimos cuadrados ordinarios dinámico. Los resultados sugieren que Colombia transitó desde ser un incipiente exportador y tomador de precios, hasta convertirse en oligopolista del café suave ante la política de valorización del Brasil. Luego de la ruptura del Acuerdo Internacional del Café, protagonizando un intercambio de roles, cuyos efectos se simulan según un escenario contrafactual. *** An empirical analysis of the export strategy of Colombia against Brazil in the coffee market during 1826-2018, considering an oligopolistic competition for differentiated products. The relationship of bilateral cointegration of exports according to prices, costs, demand and changes in trade policy was estimated using a dynamic ordinary least squares model. The results suggest that Colombia went from being an incipient exporter and price taker, until becoming an oligopolist of soft coffee before Brazil's valorization policy. After the breakdown of the International Coffee Agreement, starring in an exchange of roles, whose effects are simulated according to a counterfactual scenario.
    Keywords: café, exportaciones, Colombia, MCOD, política comercial estratégica
    JEL: F14 L13 N76
    Date: 2019–07–16
  19. By: Cesar Martinelli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Jianxin Wang (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Weiwei Zheng (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: We study minimal conditions for competitive behavior with few agents. We adapt the strategic market game of Dubey (1982), Simon (1984) and Benassy (1986) to an indivisible good environment. We show that all Nash equilibrium outcomes with active trading are competitive if and only if there are at least two intramarginal traders in each side of the market. Unlike previous formulations, this condition can be verified directly by checking the set of competitive equilibria. In laboratory experiments, the condition we provide turns out to be enough to induce competitive results. Moreover, the performance of a sealed-bid auction following the rules of the strategic market game approaches that of its dynamic counterpart, the double auction, over time.
    Date: 2019–07
  20. By: Lang, Hairu; Kiesel, Kristin; McLaughlin, Patrick W.; Sexton, Richard J.
    Keywords: Demand and Price Analysis
    Date: 2019–06–25
  21. By: Benjamin Heymann; Alejandro Jofr\'e
    Abstract: Motivated by the problem of market power in electricity markets, we introduced in previous works a mechanism for simplified markets of two agents with linear cost. In standard procurement auctions, the market power resulting from the quadratic transmission losses allows the producers to bid above their true values, which are their production cost. The mechanism proposed in the previous paper optimally reduces the producers' margin to the society's benefit. In this paper, we extend those results to a more general market made of a finite number of agents with piecewise linear cost functions, which makes the problem more difficult, but simultaneously more realistic. We show that the methodology works for a large class of externalities. We also provide an algorithm to solve the principal allocation problem. Our contribution provides a benchmark to assess the sub-optimality of the mechanisms used in practice.
    Date: 2019–07
  22. By: HOSONO Kaoru; MIYAKAWA Daisuke; ONO Arito; UCHIDA Hirofumi; UESUGI Iichiro
    Abstract: We investigate the effects of an exogenous increase in transportation costs caused by the disruption of a highway due to the Tohoku Earthquake in Japan, on inter-firm transactional relationships and firm performance. We find that as the transit time to partner firms (suppliers and customers) increased due to the disrupted highway, the likelihood of continued transactional relationships decreased. This effect is more pronounced when the corresponding partner is a customer with a lower share of sales. We also find that the disruption to the transactional relationships deteriorates the firms' ex-post business conditions and credit scores.
    Date: 2019–06
  23. By: Andrés Bonino Gayoso
    Abstract: En el presente documento se estudia si durante el período comprendido entre enero de 2008 y mayo de 2017 se produjo en Uruguay un proceso de convergencia de precios a nivel de establecimientos de venta. Se utiliza un panel de datos conformado por precios diarios de 4 bienes fijados por 386 supermercados, con cobertura nacional. Los bienes fueron seleccionados buscando representar categorías de productos para las cuales los hogares suelen realizar compras en un supermercado con alta frecuencia. El análisis de convergencia se realiza a partir del estudio de la evolución de la dispersión de precios en el tiempo. Se encuentra que esta se redujo en el período solamente 0,88 % a nivel de todo el país, por lo que no parece suciente como para concluir que los precios hayan convergido. Este resultado era esperable debido a que las posibles fuentes de diferenciales de precios no registraron cambios signicativos durante el período. Por lo tanto, la reducción en la dispersión de precios estimada no parece suficiente como para afirmar que la Ley de un Solo Precio en su versión absoluta se cumple en el largo plazo en el país. Como parte del análisis de robustez, se realizan estimaciones para diversas desagregaciones territoriales, así como para diferentes momentos de ingreso de los establecimientos a la muestra y para distintos niveles inflacionarios. El resultado encontrado es robusto para diferentes desagregaciones territoriales.
    Keywords: Ley de un Solo Precio, supermercados, dispersión de precios, convergencia de precios
    JEL: F14 F15 L66 L81
    Date: 2019–04
  24. By: Victor Amelkin; Rakesh Vohra
    Abstract: How does supply uncertainty affect the structure of supply chain networks? To answer this question we consider a setting where retailers and suppliers must establish a costly relationship with each other prior to engaging in trade. Suppliers, with uncertain yield, announce wholesale prices, while retailers must decide which suppliers to link to based on their wholesale prices. Subsequently, retailers compete with each other in Cournot fashion to sell the acquired supply to consumers. We find that in equilibrium retailers concentrate their links among too few suppliers, i.e., there is insufficient diversification of the supply base. We find that either reduction of supply variance or increase of mean supply, increases a supplier's profit. However, these two ways of improving service have qualitatively different effects on welfare: improvement of the expected supply by a supplier makes everyone better off, whereas improvement of supply variance lowers consumer surplus.
    Date: 2019–07

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