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on Industrial Competition |
| By: | Armstrong, Mark; Vickers, John |
| Abstract: | We explore patterns of competitive interaction by studying mixed-strategy equilibrium pricing in oligopoly settings where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of competition between pairs of firms. We then contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer consideration matter for competitive outcomes. |
| Keywords: | Bertrand-Edgeworth competition, price dispersion, consideration sets, mixed strategies, captive customers |
| JEL: | D43 D83 L11 L13 L15 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95336&r=all |
| By: | Johannes Boehm; Jan Sonntag |
| 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 for both domestic and cross-border mergers, and for domestic and international relationships. It also holds when instrumenting mergers using 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 rumoured 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: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1641&r=all |
| By: | Chiara Fumagalli; Massimo Motta |
| Abstract: | This paper shows that vertical foreclosure can have a dynamic rationale. By refusing to supply an efficient downstream rival, a vertically integrated incumbent sacrifices current profits but can exclude the rival by depriving it of the critical profits it needs to be successful. In turn, monopolising the downstream market may prevent the incumbent from losing most of its future profits because: (a) it allows the incumbent to extract more rents from an efficient upstream rival if future upstream entry cannot be discouraged; or (b) it also deters future upstream entry by weakening competition for the input and reducing the post-entry profits of the prospective upstream competitor. |
| Keywords: | Inefficient foreclosure, Refusal to supply, Scale economies, Exclusion, Monopolisation |
| JEL: | K21 L41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1899&r=all |
| By: | Miguel Casares (Universidad Pública de Navarra); Luca Deidda (Università di Sassari); José E. Galdón-Sánchez (Universidad Pública de Navarra) |
| Abstract: | We build a static general-equilibrium model with monopolistically competitive firms that borrow funds from competitive banks in an economy subject to financial frictions. These frictions are due to non verifiability of both ex post firm returns and managerial effort. Market power has opposing effects. On one side, firms’ pricing over marginal cost reduces output compared to perfect competition. On the other, by increasing firms’ profitability, market power reduces the impact of financial frictions. The resulting tradeoff is ambiguous. We show that, other things equal, there exists an optimal positive level of market power that maximizes welfare. Such optimal degree of market power increases with moral hazard and decreases with the efficiency of firm liquidation following bankruptcy. |
| Keywords: | market power, moral hazard, bankruptcy, liquidation |
| JEL: | E44 G21 G33 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1929&r=all |
| By: | Mogens Fosgerau (DTU - Technical University of Denmark [Lyngby]); Julien Monardo (ENS Cachan - École normale supérieure - Cachan, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); André de Palma (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique) |
| Abstract: | This paper proposes an empirical model of inverse demand for differentiated products: the Inverse Product Differentiation Logit (IPDL) model. The IPDL model generalizes the commonly used nested logit model to allow richer substitution patterns, including complementarity. Nevertheless, the IDPL model can be estimated by two-stage least squares using aggregate data. We apply the IDPL model to data on ready-to-eat cereals in Chicago in 1991-1992, and find that complementarity is pervasive in this market. We then show that the IPDL model belongs to a wider class of inverse demand models in which products can be complements, and which is sufficiently large to encompass a large class of discrete choice demand models. We establish invertibility for this wider class, thus extending previous results on demand inversion. |
| Keywords: | Demand estimation,Demand invertibility,Differentiated products,Discrete choice,Nested logit,Random utility,Representative consumer |
| Date: | 2019–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02183411&r=all |
| By: | David C. Maré (Motu Economic and Public Policy Research); Richard Fabling (Independent Researcher) |
| Abstract: | We demonstrate the power of recently redeveloped productivity microdata to produce a range of meaningful competition indicators highlighting different aspects of industry competitiveness. Combining these competition metrics into composite indicators, we summarise the diverse range of competitive environments in New Zealand by clustering industries into four distinct groups. Estimating the relationship between competition and productivity within these groups provides some suggestive results that the tail of unproductive firms may be truncated when competition is greater, in part due to greater selection-to-exit based on productivity. Overall, the limited evidence we find for a direct relationship between competition and productivity does not necessarily imply that the two are unrelated, but more likely reflects that changes in competition in New Zealand over the sample period have not been particularly pronounced, making it difficult to identify a systematic relationship. |
| Keywords: | competition, profit elasticity, price-cost margin, industry concentration, multifactor productivity |
| JEL: | D22 D24 L11 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:19_16&r=all |
| By: | Jan Eeckhout |
| Keywords: | wages; market power; mark-ups; technology; market dynamism; market structure |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbaacp:acp2019-07&r=all |
| By: | Kim, Youngjune; Pendell, Dustin L.; Xia, Tian |
| Keywords: | Demand and Price Analysis |
| Date: | 2019–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea19:290801&r=all |
| By: | Amin, Modhurima D.; Badruddoza, Syed; Rosenman, Robert |
| Keywords: | Industrial Organization |
| Date: | 2019–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea19:290995&r=all |
| By: | Albrecht, James (Georgetown University); Cai, Xiaoming (Tongji University); Gautier, Pieter A. (Vrije Universiteit Amsterdam); Vroman, Susan (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: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12512&r=all |
| By: | Daniel Czarnievicz (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Leandro Zipitría (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República) |
| Abstract: | El trabajo describe la concentración y los márgenes de costo en cinco mercados minoristas en Uruguay: aceite de girasol, aceite de maíz, arroz, pan lactal y salsa de tomate. El análisis se realiza utilizando información de precios y cantidades de compra y venta de supermercados y proveedores. Esta información no permite identificar conductas anticompetitivas en los mercados. El trabajo realiza una serie de recomendaciones para aumentar la competencia en los mercados minoristas. |
| Keywords: | competencia, supermercados, análisis precio costo |
| JEL: | D43 L13 L81 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:0618&r=all |
| By: | Renneboog, Luc (Tilburg University, Center For Economic Research); Vansteenkiste, C. (Tilburg University, Center For Economic Research) |
| Abstract: | This paper provides an overview of the academic literature on the market for corporate control, and focuses specifically on firms’ performance around and after a takeover. Despite the aggregate M&A market amounting to several trillions USD on an annual basis, acquiring firms often underperform relative to non-acquiring firms, especially in public takeovers. Although hundreds of academic studies have investigated the deal- and firm-level factors associated with M&A announcement returns, short-run returns are often not sustained in the long run. Moreover, the wide variety of performance measures and heterogeneity in sample sizes complicates the drawing of accurate and unambiguous conclusions. In this light, our survey compiles the recent literature and aims to identify the areas of research for which short-run returns predict (or fail to predict) long-run performance. We find that post-takeover deal performance is affected by key determinants including serial acquisitions, CEO overconfidence, acquirer-target relatedness and complementarity, and shareholder intervention in the form of voting or activism. |
| Keywords: | takeovers; merges and acquisitions; long-run performance; corporate governance |
| JEL: | G34 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:cb487f33-0217-412f-a1ec-d4db204b9dfb&r=all |
| By: | Myeongwan Kim |
| Abstract: | A key economic issue in Canada is the declining Business Enterprise Research and Development in manufacturing since the early 2000s. Accompanying this, the total factor productivity (TFP) growth in manufacturing slowed after 2000. However, there has not been a definitive explanation for these trends. To deepen our understanding of this phenomenon, we focus on the increasing Chinese import share in the total domestic absorption in Canadian manufacturing since the early 2000s, which appears to be driven by positive supply shocks within Chinese manufacturing. Based on a firm-level database covering all incorporated firms in Canadian manufacturing, we find that rising Chinese import competition led to declines in R&D expenditure and TFP growth within firms but reallocated employment towards more productive firms and induced less productive firms to exit. The negative within-effects were pronounced for firms that were initially smaller, less profitable, and less productive. These firms also experienced declines in their profit margins due to rising Chinese import competition while larger and better-performing firms did not. Our estimates imply that rising Chinese import competition can explain about 7 per cent of the total decline of $1.36 billion (2007 CAD) in R&D expenditure in Canadian manufacturing between 2005 and 2010. Although it led to declines in TFP within firms, the positive reallocation effects more than offset the negative within-effect. Had there been no increase in Chinese import competition between 2005 and 2010, TFP in Canadian manufacturing would have declined by 1.26 per cent per year instead of the actual 1.09 per cent per year over this period. |
| Keywords: | China Shock, Canada, Imports, Productivity, Innovation |
| JEL: | O32 O51 O53 L60 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:sls:resrep:1711&r=all |
| By: | Vasudha Jain; Mark Whitmeyer |
| Abstract: | Firms strategically disclose product information in order to attract consumers, but recipients often find it costly to process all of it, especially when products have complex features. We study a model of competitive information disclosure by two senders, in which the receiver may garble each sender's experiment, subject to a cost increasing in the informativeness of the garbling. As long as attention costs are not too low, there is an interval of prior means over which it is an equilibrium for both senders to offer full information, which interval expands as attention costs grow. Information on one sender substitutes for information on the other, which allows the receiver to nullify the profitability of a deviation. We thus provide a novel channel through which competition encourages information disclosure. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1907.09255&r=all |
| By: | Jung, Jinho; Sesmero, Juan Pablo; Siebert, Ralph |
| Keywords: | Industrial Organization |
| Date: | 2019–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea19:290999&r=all |
| By: | Romain Espinosa (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | In this paper I investigate the role of e-reputation mechanisms on illegal platforms that specialize in drug sales. I ask whether online reputation systems can limit the risk of scamming (i.e. fraud) by dishonest sellers, and thus prevent Akerlof-like market destruction. I do so by analyzing all published offers on the second-largest platform operating on March 18th 2017 (Hansa). Three types of drugs show relatively low scamming risks, with the average probability that a random seller effectively send the ordered good of over 83%. The recent shutdowns of the two leading platforms are likely to increase this probability by 2.7 to 9.7%. Endogeneity may either lead us to overestimate the effect of e-reputation mechanisms (e.g., unobserved heterogeneity in sellers) or underestimate it (e.g., better-functioning markets may attract more scammers). |
| Keywords: | Darknet markets,Hansa,e-reputation,scamming,drug price,honesty |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-02180182&r=all |
| By: | Simplice A. Asongu, Phd; Nicholas M. Odhiambo (Department of Economics, University of South Africa) |
| Abstract: | The Quiet Life Hypothesis (QLH) is the pursuit of less efficiency by firms. In this study, we assess if powerful banks in the African banking industry are increasing financial access. The QLH is therefore consistent with the pursuit of financial intermediation inefficiency by large banks. To investigate the hypothesis, we first estimate the Lerner index. Then, using Two Stage Least Squares, we assess the effect of the Lerner index on financial access proxied by loan price and loan quantity. The empirical evidence is based on a panel of 162 banks from 42 countries for the period 2001-2011. The findings support the QLH, although quiet life is driven by the below-median Lerner index sub- sample. Policy implications are discussed. |
| Keywords: | Financial Access; Bank performance; Africa. |
| JEL: | R10 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:dbn:wps208:3003&r=all |