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on Industrial Competition |
| By: | Philippe Aghion (College de France); Antonin Bergeaud (Banque de France); Huiyu Li (Federal Reserve Bank of San Francisco); Peter Klenow (Stanford University); Timo Boppart (IIES, Stockholm University) |
| Abstract: | Growth has fallen in the U.S., while firm concentration and profits have risen. Labor's share has fallen, mostly due to rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firm-level costs of spanning multiple markets, perhaps due to ICT advances. The most efficient firms spread into new markets in response, generating a temporary burst of growth but also erecting barriers to future innovation if their efficiency is difficult for other firms to imitate. Despite rising rents, even the efficient firms do less innovation in the long run as they are more likely to face stiff competition if they enter markets against each other. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:458&r=all |
| By: | Danial Lashkari (Boston College); Arthur Bauer (ENSAE-CREST); Jocelyn Boussard (Banque de France) |
| Abstract: | This paper investigates the role of IT in shaping recent trends in market concentration, factor income shares, and market competition. Relying on a novel dataset on hardware and software investments in the universe of French firms, we document a robust within-industry correlation between firm size and the intensity of IT demand. To explain this fact, we argue that the relative marginal product of IT inputs may rise with firm scale, since IT specifically helps firms deal with organizational limits to scale. We propose a general equilibrium model of industry dynamics that features firm-level production functions compatible with this mechanism. We estimate the production function and find evidence for the nonhomotheticity of IT demand and for an elasticity of substitution between IT and other inputs that falls below unity. Under the estimated model parameters, the cross-sectional predictions of the model match the observed relationship of firm size with IT intensity (positive) and labor share (negative). In addition, as a response to the fall in the relative price of IT inputs in post-1990 France, the model can explain about half of both the observed rise in market concentration and the observed market reallocations toward low-labor-share firms. |
| Keywords: | Information Technology, Labor Share, Industry Concentration, Production Function Estimation, Nonhomotheticity, Firm Heterogeneity |
| JEL: | O3 O4 E2 |
| Date: | 2019–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:984&r=all |
| By: | Victor Amelkin; Rakesh Vohra |
| Abstract: | Supply chains are the backbone of the global economy. Disruptions to them can be costly. Centrally managed supply chains invest in ensuring their resilience. Decentralized supply chains, however, must rely upon the self-interest of their individual components to maintain the resilience of the entire chain. We examine the incentives that independent self-interested agents have in forming a resilient supply chain network in the face of production disruptions and competition. In our model, competing suppliers are subject to yield uncertainty (they deliver less than ordered) and congestion (lead time uncertainty or, "soft" supply caps). Competing retailers must decide which suppliers to link to based on both price and reliability. In the presence of yield uncertainty only, the resulting supply chain networks are sparse. Retailers concentrate their links on a single supplier, counter to the idea that they should mitigate yield uncertainty by diversifying their supply base. This happens because retailers benefit from supply variance. It suggests that competition will amplify output uncertainty. When congestion is included as well, the resulting networks are denser and resemble the bipartite expander graphs that have been proposed in the supply chain literature. Finally, we show that a suppliers investments in improved yield can make them worse off. This happens because high production output saturates the market, which, in turn, lowers prices and profits for participants. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1909.08021&r=all |
| By: | David Bounie (Télécom ParisTech); Antoine Dubus (Télécom ParisTech); Patrick Waelbroeck (Télécoms Paris Tech - Télécom ParisTech) |
| Abstract: | We investigate the strategies of a data intermediary selling customized consumer information to firms for price discrimination purpose. We analyze how the mechanism through which the data intermediary sells information influences how much consumer data he will collect and sell to firms, and how it impacts consumer surplus. We consider three selling mechanisms tailored to sell customized consumer information: take it or leave it offers, sequential bargaining, and simultaneous offers. We show that the more data the intermediary collects, the lower consumer surplus. Consumer data collection is minimized, and consumer surplus maximized under the take it or leave it mechanism, which is the least profitable mechanism for the intermediary. We argue that selling mechanisms can be used as a regulatory tool by data protection agencies and competition authorities to limit consumer information collection and increase consumer surplus. |
| Date: | 2019–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02288708&r=all |
| By: | Günter J. Hitsch; Ali Hortaçsu; Xiliang Lin |
| Abstract: | We document the degree of price dispersion and the similarities as well as differences in pricing and promotion strategies across stores in the U.S. retail (grocery) industry. Our analysis is based on “big data” that allow us to draw general conclusions based on the prices for close to 50,000 products (UPC’s) in 17,184 stores that belong to 81 different retail chains. Both at the national and local market level we find a substantial degree of price dispersion for UPC’s and brands at a given moment in time. We document that both persistent base price differences across stores and price promotions contribute to the overall price variance, and we provide a decomposition of the price variance into base price and promotion components. There is substantial heterogeneity in the degree of price dispersion across products. Some of this heterogeneity can be explained by the degree of product penetration (adoption by households) and the number of retail chains that carry a product at the market level. Prices and promotions are more homogenous at the retail chain than at the market level. In particular, within local markets, prices and promotions are substantially more similar within stores that belong to the same chain than across stores that belong to different chains. Furthermore, the incidence of price promotions is strongly coordinated within retail chains, both at the local market level and nationally. We present evidence, based on store-level demand estimates for 2,000 brands, that price elasticities and promotion effects at the local market level are substantially more similar within stores that belong to the same chain than across stores belonging to different retailers. Moreover, we find that retailers can not easily distinguish, in a statistical sense, among the price elasticities and promotion effects across stores using retailer-level data. Hence, the limited level of price discrimination across stores by retail chains likely reflects demand similarity and the inability to distinguish demand across the stores in a local market. |
| JEL: | L11 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26306&r=all |
| By: | Daron Acemoglu (Massachusetts Institute of Technology); Alireza Tahbaz-Salehi (Northwestern University) |
| Abstract: | This paper develops a theory of firm-level production networks, with firm-specific relationships, endogenous bankruptcies, and market power. Firms in each industry have access to a production technology that uses relationship-specific intermediate inputs produced by their “customized” suppliers, with prices determined via pairwise bargaining between suppliers and customers. Operating the customized technology, however, requires paying fixed costs of entry. Hence, negative shocks can result in a cascade of firm failures in the economy. We establish the existence of an equilibrium and provide comparative static results on how prices, firm failures, and macroeconomic aggregates respond to changes in parameters. We then study how the interplay between firm-level linkages and firm failures shape the propagation of shocks over the economy’s production network. Our theoretical results indicate that understanding network-originated aggregate fluctuations may require moving beyond models of sectoral linkages and focusing on how firm-level interactions can lead to chains of failures. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1148&r=all |
| By: | Jesus Juan Pablo Atal (University of Pennsylvania); Jose´ Ignacio Cuesta (University of Chicago); Morten Sæthre (Norwegian School of Economics) |
| Abstract: | Quality regulation attempts to ensure quality and to foster price competition by reducing vertical di?erentiation, but may also have unintended consequences through its e?ects on market structure. We study these e?ects in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the staggered phase-in of bioequivalence requirements in Chile, we show that stronger quality regulation decreased the number of drugs in the market by 25%, increased average paid prices by 10%, decreased total sales by 20%, and did not have a significant e?ect on observed outcomes related to drug quality. These adverse e?ects were concentrated among small markets. Our results suggest that the intended e?ects of quality regulation on price competition through increased (perceived) quality of generics were overturned by adverse competitive e?ects arising from the costs of complying with the regulation. |
| Keywords: | Aggregate quality regulation, competition, bioequivalence, generic pharmaceuticals |
| JEL: | I11 L11 L15 |
| Date: | 2019–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:19-017&r=all |
| By: | Sylvain Benoit (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Yannick Lucotte (LEO - Laboratoire d'Économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - Université de Tours - UO - Université d'Orléans); Sébastien Ringuedé (LEO - Laboratoire d'Economie d'Orléans - Université - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Using daily price quotes from about 8,000 French gas stations, this paper empirically analyses whether the level of competition determines the degree of price stickiness on the retail gasoline market. The degree of price rigidity is measured by the frequency of price changes, while the distance to the nearest station and the number of gas stations within a given radius are considered as proxies for local competition. The results confirm that local competition is an important determinant of the price-setting behavior of gas stations. Indeed, considering Ordinary Least Squares (OLS) and spatial regression models, we find that the degree of price rigidity is positively related to the distance to the nearest station, and negatively related to the concentration of firms in a given geographical area. This result can be notably explained by the fact that gas stations facing a high competitive pressure are more likely to adjust their prices more quickly and more frequently in response to crude oil price decreases than stations enjoying market power. |
| Keywords: | Retail gasoline pricing,Price-setting behavior,Price stickiness,Localcompetition |
| Date: | 2019–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02292332&r=all |
| By: | Panagiotou, Dimitrios; Stavrakoudis, Athanassios |
| Abstract: | The present study estimates the degree of market power in the major U.S. beef and pork export destinations. The recently developed stochastic frontier (SF) estimator is used. Estimations of market and time specific Lerner indices are provided. Balanced panel data between 1980-2011 were employed. The average Lerner index is 39% for the U.S. beef exports and is the highest in the markets of ASEAN, Hong Kong/China, Japan, South Korea and Taiwan. For the U.S. pork exports, the average Lerner index is 16% and is the highest in the markets of Mexico and Taiwan. |
| Keywords: | Stochastic frontier; market power; U.S. meat exports |
| JEL: | D21 L22 L66 |
| Date: | 2018–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96128&r=all |
| By: | Michele Bisceglia (Toulouse School of Economics and Università di Bergamo); Jorge Padilla (Compass Lexecon); Salvatore Piccolo (Università di Bergamo, Compass Lexecon and CSEF) |
| Abstract: | We consider a three-level supply chain where a monopolistic seller distributes its product both directly through its own distribution channel and indirectly through platforms accessed by intermediaries competing for final consumers. In this setting, we examine the welfare effects of platform parity agreements, namely contractual provisions according to which the seller cannot charge different prices for the same product distributed through different platforms. We find that these agreements mitigate the marginalization problem both in a wholesale and an agency model. However, only in the former model platform parity unambiguously increases consumer surplus; in the latter, it also increases the commissions paid by the monopolist to the platforms, whereby exacerbating the marginalization problem. On the net, platform parity benefits consumers in the agency model when competition between direct and indirect distribution is sufficiently intense. Interestingly, in both models consumers' preferences are always aligned with the platforms' but not with the seller's. |
| Keywords: | Agency Model, Distribution Channels, Platform Parity Agreements, Wholesale Model. |
| JEL: | L42 L50 L81 |
| Date: | 2019–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:542&r=all |
| By: | Joseph E. Stiglitz; Jungyoll Yun; Andrew Kosenko |
| Abstract: | We study the Rothschild-Stiglitz model of insurance markets, introducing endogenous information disclosure about insurance sales and purchases by firms and consumers. We show that a competitive equilibrium exists under unusually mild conditions, and characterize the unique equilibrium outcome. With two types of consumers the outcome is particularly simple, consisting of a pooling contract which maximizes the well-being of the low risk individual (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk individual to full insurance (at his own odds). We show that this outcome is extremely robust and constrained Pareto efficient. Asymmetric equilibrium information flows with endogenous consumer disclosure are critical in supporting the equilibrium. |
| JEL: | D43 D82 D86 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26251&r=all |
| By: | Daniel P. Gross |
| Abstract: | Collusion is widely condemned for its negative effects on consumer welfare and market efficiency. In this paper, I show that collusion may also in some cases facilitate the creation of unexpected new sources of value. I bring this possibility into focus through the lens of a historical episode from the 19th century, when colluding railroads in the U.S. South converted 13,000 miles of railroad track to standard gauge over the course of two days in 1886, integrating the South into the national transportation network. Route-level freight traffic data reveal that the gauge change caused a large shift in market share from steamships to railroads, but did not affect total shipments or prices on these routes. Guided by these results, I develop a model of compatibility choice in a collusive market and argue that collusion may have enabled the gauge change to take place as it did, while also tempering the effects on prices and total shipments. |
| JEL: | F14 F15 L15 L41 L92 N71 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26261&r=all |
| By: | Richard Blundell; Ran Gu; Søren Leth-Petersen; Hamish Low; Costas Meghir |
| Abstract: | We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss. |
| JEL: | D12 D14 D4 E21 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26281&r=all |
| By: | Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | Le développement de l’économie des plateformes ne se limite plus aux services rendus à des consommateurs mais concerne également les services rendus à des acteurs industriels. Les services rendus en matière de stockage et de traitement des données par les plateformes infonuagiques ou la structuration de nouveaux processus productifs de type industrie 4.0 font écho à la constitution d’écosystèmes coopératifs et ouverts dans le secteur immobilier, lesquels sont favorisés par la numérisation des activités et le développement de l’internet des objets. Ce travail établit un parallèle entre ces différents types de plateformes et la numérisation du secteur immobilier. Il s’interroge sur les conditions de la coopération intra-plateforme et sur celle de la concurrence inter-plateformes, notamment en regard de la réglementation afférente à la protection des données personnelles mais aussi celle relative à la protection des communications électroniques et celle portant sur le secret des affaires. |
| Keywords: | plateformes électroniques, industrie 4.0, internet des objets, protection des données personnelles, concurrence, coopération, immobilier |
| JEL: | L23 L40 L85 L86 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2019-26&r=all |
| By: | Ufuk Akcigit; Yusuf Emre Akgunduz; Seyit Mumin Cilasun; Elif Ozcan Tok; Fatih Yilmaz |
| Abstract: | In this paper, we investigate various trends on competition and business dynamism in the Turkish manufacturing sector. More speci?cally, using micro level administrative data sets of ?rm balance sheets, credit registry and social security records, we focus on moments such as ?rm entry, exit, pro?tability, worker reallocation, labor share, labor productivity and credit distributions, among several others. Our results indicate that business dynamism in the Turkish manufacturing sector was relatively stable and even improving until 2012 but has been declining since then. We ?nd that market concentration and exit rates have started to rise, yet new business creation, labor share of output and economic activities of young ?rms have declined. Using a model with endogenous market competition, we show that an adverse shock to cost of R&D investment can explain these empirical trends. We identify increases in ?nancing costs after 2012 of followers as a potential mechanism for our ?ndings in Turkey. We next perform a policy analysis with our model which suggests that providing support (e.g., R&D subsidy) to immediate followers can undo the adverse effects of the negative shock to ?nancing costs and therefore foster competition and faster growth. |
| Keywords: | Business dynamism, Market concentration, Competition, Turkish economy |
| JEL: | E22 E25 L12 O31 O33 O34 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1930&r=all |
| By: | Piotr Gabrielczak (University of Lodz); Tomasz Serwach (University of Lodz) |
| Abstract: | The article focuses on power laws and their growing popularity in science in general and in economics specifically. The theoretical mechanisms responsible for their generating are reviewed. We also empirically test whether firm-size distribution of companies in Poland has the characteristics of the Zipf’s law – a special case of a power law. This is confirmed based on an investigation within the sample of 2000 largest companies and a set of alternative estimators of the power law exponent. |
| Keywords: | power law, Zipf’s law, firm-size distribution, scaling |
| JEL: | C46 D39 L25 |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:ann:wpaper:3/2019&r=all |