nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒10‒21
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Imperfect competition, compensating differentials and rent sharing in the U.S. labor market By Thibaut Lamadon; Magne Mogstad; Bradley Setzler
  2. Rational Buyers Search When Prices Increase By Cabral, Luís M B; Gilbukh, Sonia
  3. All-pay competition with captive consumers By Renaud Foucart; Jana Friedrichsen
  4. Vertical Integration under an Optimal Tax Policy: a Consumer Surplus Detrimental Result By Giuranno, Michele G.; Scrimitore, Marcella; Stamatopoulos, Giorgos
  5. Foreign Competition and Domestic Innovation: Evidence from U.S. Patents By David H. Autor; David Dorn; Gordon H. Hanson; Gary Pisano; Pian Shu
  6. Assessing DOJ’s Proposed Remedy in Sprint/T-Mobile: Can Ex Ante Competitive Conditions in Wireless Markets Be Restored? By Nicholas Economides; John Kwoka; Thomas Philippon; Robert Seamans; Hal Singer; Marshall Steinbaum; Lawrence J. White
  7. Bank Market Power and Firm Finance: Evidence from Bank and Loan Level Data By Tamayo, Cesar E.; Gomez, Jose E.; Valencia, Oscar
  8. The Unexpected Consequences of Generic Entry By Micael Castanheira; Carmine Ornaghi; Georges Siotis
  9. Price Discrimination within and across EMU Markets: Evidence from French Exporters By Fontaine, Francois; Martin, Julien; Mejean, Isabelle
  10. Firm acquisitions by family firms: A mixed gamble approach By Hussinger, Katrin; Issah, Abdul-Basit
  11. Intersectoral linkages: Good shocks, bad outcomes? By Behrens, Kristian; Kichko, Sergey; Ushchev, Philip
  12. Platform Competition with Multihoming on Both Sides: Subsidize or Not? By Yannis Bakos; Hanna Halaburda
  13. Procuring Medical Devices: Evidence from Italian Public Tenders By Atella, Vincenzo; Decarolis, Francesco
  14. Concurrence ‘hybride’, innovation et régulation : un modèle de duopole By Thomas Le Texier; Ludovic Ragni
  15. Optimal mechanism for the sale of a durable good By Doval, Laura; Skreta, Vasiliki
  16. Subsidy Targeting with Market Power By Maria Polyakova; Stephen P. Ryan
  17. Markets for Local Flexibility in Distribution Networks By Radecke, Julia; Hefele, Joseph; Hirth, Lion
  18. The Impact of Incentives on the Energy Paradox: Evidence from Micro Data By Cristian Huse; Claudio Lucinda; Andre Ribeiro
  19. The Airbnb Effect on theRental Market: the Case of Madrid By Jorge Luis Casanova Ferrando

  1. By: Thibaut Lamadon; Magne Mogstad (Statistics Norway); Bradley Setzler
    Abstract: The primary goal of our paper is to quantify the importance of imperfect competition in the U.S. labor market by estimating the size of rents earned by American firms and workers from ongoing employment relationships. To this end, we construct a matched employeremployee panel data set by combining the universe of U.S. business and worker tax records for the period 2001-2015. Using this panel data, we describe several important features of the U.S. labor market, including the size of firm-specific wage premiums, the sorting of workers to firms, the production complementarities between high ability workers and productive firms, and the pass-through of firm and market shocks to workers’ wages. Guided by these empirical results, we develop, identify and estimate an equilibrium model of the labor market with two-sided heterogeneity where workers view firms as imperfect substitutes because of heterogeneous preferences over non-wage job characteristics. The model allows us to draw inference about imperfect competition, compensating differentials and rent sharing. We also use the model to quantify the relevance of non-wage job characteristics and imperfect competition for inequality and tax policy, to assess the economic determinants of worker sorting, and to offer a unifying explanation of key empirical features of the U.S. labor market.
    Keywords: Compensating differentials; firm effects; inequality; imperfect competition; monopsony; rent sharing; wage setting; worker sorting
    JEL: J20 J30 J42
    Date: 2019–10
  2. By: Cabral, Luís M B; Gilbukh, Sonia
    Abstract: We develop a dynamic pricing model motivated by observed patterns in business-to-business (and some business-to-customer) transactions. Seller costs are perfectly correlated and evolve according to a Markov process. In every period, each buyer observes (for free) the price set by their current supplier, but not the other sellers' prices or the sellers' (common) cost level. By paying a cost s the buyer becomes "active" and benefits from (Bertrand) competition among sellers. We show that there exists a semi-separating equilibrium whereby sellers increase price immediately when costs increase and otherwise decrease price gradually. Moreover, buyers become active when prices increase but not otherwise. In sum, we deliver a theory whereby buyers become active ("search") if and only if their supplier increases price.
    JEL: D83
    Date: 2019–08
  3. By: Renaud Foucart; Jana Friedrichsen
    Abstract: We study a game in which two firms compete in quality to serve a market consisting of consumers with different initial consideration sets. If both firms invest below a certain quality threshold, they only compete for those consumers already aware of their existence. Above this threshold, a firm is visible to all and the highest quality attracts all consumers. In equilibrium, firms do not choose their investment deterministically but randomize over two disconnected intervals. On the one hand, the existence of initially captive consumers introduces an anti-competitive element: holding fixed the behavior of the rival firm, a firm with a larger captive segment enjoys a higher payoff from not investing at all. On the other hand, the fact that a firm’s initially captive consumers can still be attracted by very high quality introduces a pro-competitive element: high quality investments becomes more profitable for the underdog when the captive segment of the dominant firm increases. The share of initially captive consumers therefore has a non-monotonic effect on the investment levels of both firms.
    Keywords: quality competition, all-pay auction, endogenous prize, consideration sets
    JEL: D21 D44 M13
    Date: 2019
  4. By: Giuranno, Michele G.; Scrimitore, Marcella; Stamatopoulos, Giorgos
    Abstract: It is widely believed that vertical integration in an environment without foreclosure, or more generally without any mechanism that restricts competition among firms, raises the welfare of consumers. In this paper we show that this can be overturned in a standard setting. We consider a vertical structure where each downstream firm purchases an input from its exclusive upstream supplier in the presence of a welfare maximizing government which taxes/subsidizes the product of the downstream market. We show that a single or multiple vertical integrations alter the optimal governmental policy in a way that hurts consumers: integration induces the government to reduce the optimal subsidy and, as a result, industry output and consumer welfare decline.
    Keywords: Research Methods/ Statistical Methods
    Date: 2019–10–17
  5. By: David H. Autor; David Dorn; Gordon H. Hanson; Gary Pisano; Pian Shu
    Abstract: Manufacturing accounts for more than three-quarters of U.S. corporate patents. The competitive shock to this sector emanating from China’s economic ascent could in theory either augment or stifle U.S. innovation. Using three decades of U.S. patents matched to corporate owners, we quantify how foreign competition affects domestic innovation. Rising import exposure intensifies competitive pressure, reducing sales, profitability, and R&D expenditure at U.S. firms. Accounting for confounding sectoral patenting trends, we find that U.S. patent production declines in sectors facing greater import competition. This adverse effect is larger among initially less profitable and less capital-intensive firms.
    Keywords: innovation, patents, trade
    JEL: F10 O31
    Date: 2019
  6. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); John Kwoka (Neal F. Finnegan Distinguished Professor of Economics, College of Social Sciences and Humanities, Northeastern University); Thomas Philippon (Max L. Heine Professor of Finance, NYU Stern School of Business, New York, New York 10012); Robert Seamans (Associate Professor of Management and Organizations, NYU Stern School of Business, New York, New York 10012); Hal Singer (Managing Director at Econ One, Adjunct Professor at Georgetown McDonough School of Business); Marshall Steinbaum (Assistant Professor, Economics Department, University of Utah); Lawrence J. White (Robert Kavesh Professor of Economics, NYU Stern School of Business, New York, New York 10012)
    Abstract: As economists with significant experience in competition and regulatory matters, we offer comments on the remedies proposed by the Department of Justice to address the competitive effects flowing from the proposed merger of Sprint and T-Mobile, as recognized by the DOJ’s Complaint. We find that the Proposed Final Judgment cannot and will not address the anticompetitive harms identified in the Complaint, or restore the ex ante competitive conditions in the affected antitrust product markets. By eliminating Sprint as an independent competitor, the Sprint/T-Mobile merger, even in the presence of DOJ’s proposed remedy, would inflict serious antitrust injury on consumers and competition.
    Keywords: Telecommunications; Merger; Tunney Act; Sprint; T-Mobile; Dish; DOJ
    JEL: L1 L4 L5 L9
    Date: 2019–10
  7. By: Tamayo, Cesar E.; Gomez, Jose E.; Valencia, Oscar
    Abstract: We present new measures of market power for the banking industry in Colombia and estimate their effect on the cost of credit for non-financial firms. Our results suggest that bank competition increased during the 2006-2008 period –even as concentration increased– but decreased thereafter. Using a unique combination of loan, firm and bank-level datasets we are also able to show that banks loosing overall market power –measured by the average price-cost margin– decrease interest rates to small firms, but increase rates to firms with which they have the oldest credit relationships. This suggests (i) the existence of market power that is specific to the bank-firm relationship (i.e., informational lock-in and hold-up problems due to switching costs), and (ii) that size may be capturing other firm attributes such as observable risk, scale effects or implicit collateral.
    Keywords: Bank competition; Market power; Boone; Lerner; Colombia; Cost of firm finance; Loan-level data
    JEL: G21 D22 O16
    Date: 2019–10
  8. By: Micael Castanheira; Carmine Ornaghi; Georges Siotis
    Abstract: Generic drugs are sold at a fraction of the original brand price. Yet, generic entry typically produces a drop in the quantity market share of the molecule losing exclusivity. This effect is economically and statistically significant for a large dataset covering hundreds of prescription drugs sold in the US during the period 1994Q1-2003Q4. This paper proposes the first systematic analysis of what appears to be a market anomaly.We propose a model to characterize the market equilibrium before and after generic entry. We identify precise conditions under which entry reduces the quantity market share of the molecule. Intriguingly, this is more likely to occur when the remaining patent-protected molecules feature low horizontal differentiation. We test this and other theoretical predictions of the model and find they are validated empirically.
    Keywords: Non-Price competition, Pharmaceutical industry, Generic entry, Consumer choice
    Date: 2019–10
  9. By: Fontaine, Francois; Martin, Julien; Mejean, Isabelle
    Abstract: We study the cross-sectional dispersion of prices paid by EMU importers for French products. We document a significant level of price dispersion both within product categories across exporters, and within exporters across buyers. This latter source of price discrepancies, sellers' price discrimination across buyers, is indicative of deviations from the law-of-one price. Price discrimination (i) is substantial within the EU, within the euro area, and within EMU countries; (ii) has not decreased over the last two decades; (iii) is more prevalent among the largest firms and for more differentiated products; (iv) is lower among retailers and wholesalers; (v) is also observed within almost perfectly homogenous product categories, which suggests that a non-negligible share of price discrimination is triggered by heterogeneous markups rather than quality or composition effects. We then estimate a rich statistical decomposition of the variance of prices to shed light on exporters' pricing strategies.
    Date: 2019–08
  10. By: Hussinger, Katrin; Issah, Abdul-Basit
    Abstract: This study elucidates the mixed gamble confronting family firms when considering a related firm acquisition. The socioemotional and financial wealth trade-off associated with related firm acquisitions as well as their long-term horizon turns family firms more likely to undertake a related acquisition than non-family firms, especially when they are performing above their aspiration level. Post-merger performance pattern confirm that family firms are able to create long-term value through these acquisitions and by doing so they surpass non-family firms. These findings stand in contrast to commonly used behavioural agency predictions, but can be reconciled with theory through a mixed gambles' lens.
    Keywords: firm acquisitions,related firm acquisitions,mixed gamble,aspiration level,socioemotional wealth,value creation
    JEL: G34 L10 L20 M20
    Date: 2019
  11. By: Behrens, Kristian; Kichko, Sergey; Ushchev, Philip
    Abstract: We analyze multisector models with endogenous product variety and derive general results on the magnitude of welfare changes due to sector-specific price shocks. Intersectoral linkages magnify or dampen these shocks, depending on complementarity or substitutability in consumers' preferences. Under the widely used combination of Cobb-Douglas-CES utilities and monopolistic competition, intersectoral linkages disappear. This does not hold with more general preferences or market structures, where sector-specific price shocks that are a priori welfare improving can turn out to be welfare worsening economy-wide. We illustrate this result with several examples, in particular where one sector is 'granular' and the other is monopolistically competitive.
    Keywords: Complementarity; Intersectoral linkages; Sectoral Shocks; Substitutability; welfare changes
    JEL: D11 D43 D62
    Date: 2019–08
  12. By: Yannis Bakos (Stern School of Business, New York University); Hanna Halaburda (Stern School of Business, New York University)
    Abstract: As the costs of joining platforms decrease, we often see participants in both sides of two-sided platforms to multihome, a case mostly ignored in the literature on competition between two-sided platforms. We help to fill this gap by developing a model for platform competition in a differentiated setting (a Hoteling line), which is similar to other models in the literature but focuses on the case where at least some agents on each side multihome. We show that in that case the strategic interdependence between the two sides of the same platform may be of lesser importance, or even not be present at all, compared to models that assume single-homing on at least one side of the market. The implication is that when multihoming may be present on both sides of the market, the benefit of subsidizing one side (typically the one with higher price elasticity) is diminished or may not be present at all. This outcome differs from most of the two-sided platform literature, where interdependence between the two sides served by the same platform is a major result leading to the policy implication that a platform will often maximize its total profits by subsidizing one side, typically the one with more elastic demand. Our analysis shows that the common strategic advice to subsidize one side in order to maximize total profits may be limited or even incorrect when both sides multihome, which can be significant given the increasing prevalence of multihoming.
    Keywords: multihoming, platforms, two-sided platforms, network effects, platform subsidies
    JEL: L10 L81 L82 L86 O33
    Date: 2019–09
  13. By: Atella, Vincenzo; Decarolis, Francesco
    Abstract: The public procurement of medical devices is increasingly relying on auction mechanisms to move toward more transparent procedures and to promote competition between suppliers in a market where the quality of the products matters enormously and an improper auction design could be very harmful. Based on Italian hospital data, we present new evidence on the performance of the public tenders to procure orthopaedic prosthesis for hips, knees and shoulders. Focusing on three main outcomes, the number of participants, the presence of a single firm bidding and the winning rebate, for the first time we describe how features related to the tender, hospital, region and bidders' competition all contribute to explain the functioning of the procurement auctions. The evidence we obtain can meaningfully help policy makers in designing and implementing better public procurement systems.
    Keywords: Italy; medical devices; orthopaedic prosthesis; Procurement auctions; tender characteristics
    JEL: C21 I18 J18
    Date: 2019–10
  14. By: Thomas Le Texier (Université Rennes 1; CREM CNRS); Ludovic Ragni (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: Cet article présente un modèle de duopole dans lequel une firme et une communauté se concurrencent en produisant des produits/services numériques tout en ayant la possibilité de partager leurs innovations pour développer leurs propres activités. Nous montrons que la firme bénéficie toujours d’un changement de régime ‘ouvert’ ou ‘fermé’ d’innovation. Notre analyse numérique souligne que, si un ‘basculement fermé’ est favorable au bien-être social et à l’innovation agrégée, celui-ci n’est pas systématiquement profitable à la firme. Ces observations exposent clairement une défaillance de marché potentielle, tout en nuançant les vertus du paradigme d’innovation ouverte en matière de maximisation des profits.
    Keywords: Firme, Communauté, Innovation fermée, Innovation ouverte, Appropriation
    JEL: D43 L13 L86
    Date: 2019–10
  15. By: Doval, Laura; Skreta, Vasiliki
    Abstract: We show that posted prices are the optimal mechanism to sell a durable good to a privately informed buyer when the seller has limited commitment in an infinite horizon setting. We provide a methodology for mechanism design with limited commitment and transferable utility. Whereas in the case of commitment, subject to the buyer's truthtelling and participation constraints, the seller's problem is a decision problem, in the case of limited commitment, the seller's problem corresponds to an intrapersonal game, where different "incarnations" of the seller represent the different beliefs he may have about the buyer's valuation.
    Keywords: information design; intrapersonal equilibrium; Limited Commitment; mechanism design; posted price; self-generation
    JEL: D84 D86
    Date: 2019–08
  16. By: Maria Polyakova; Stephen P. Ryan
    Abstract: In-kind public transfers are commonly targeted based on observable characteristics of potential recipients. This paper argues that when the subsidized good is provided by imperfectly-competitive firms, targeting can give rise to a “demographic externality,” creating unintended redistribution of surplus and distorting efficiency. We illustrate this mechanism empirically in the context of means-tested subsidies for privately-provided health insurance plans under the Affordable Care Act (ACA). Using a structural model of supply and demand, we show that market power increases the welfare loss from subsidy targeting, vis-a-vis income-invariant subsidies, by 33 percent.
    JEL: H0 H2 H20 H21 H22 H23 H31 H41 H5 H51 I1 I10 I11 I13 I18 I38 L0
    Date: 2019–10
  17. By: Radecke, Julia; Hefele, Joseph; Hirth, Lion
    Abstract: The three D’s of the energy transformation – decarbonization, decentralization and digitalization – provide both chal-lenges and opportunities for distribution grids. Small-scale generation, batteries, electric heating, and e-mobility may put grids under considerable strain. However, if operated smartly, they also represent a deep pool of flexibility that can help grid operators relieve congestion and defer investment. One way of incentivizing such resources is to implement local markets for flexibility. In Europe, at least two dozen research pilots, stakeholder initiatives, and business cases have proposed specific designs for such markets. This paper provides an overview and analysis of these proposals. With many proposals being poorly documented, we largely rely on interviews for details on market design. We find that only one third of proposals allow free price formation, hence, despite their names, most are not what we consider a market. None of the proposals aims to replace existing congestion management mechanisms; rather they are meant as complementary tools. Usually markets employ dispatch payments; only few remunerate the reservation of flexibility availability. Though most proposals acknowledge market power and strategic interaction with other electricity markets (“inc-dec gaming”), few have developed concrete measures to address these problems. As they are in an early stage of development, market designs may still evolve.
    Date: 2019
  18. By: Cristian Huse; Claudio Lucinda; Andre Ribeiro
    Abstract: We examine the effects on the valuation of energy efficiency of PERCEE, the largest temporary electricity savings program worldwide. Using data from a representative sample of Brazilian households, we estimate a structural model of appliance choice accounting for heterogeneity in prices and operating costs. We document that it is only through incentives introduced by the PERCEE program that one cannot reject the null of correct valuation of energy costs against the two-sided alternative. Moreover, once PERCEE ends, households essentially revert to pre-program valuations, suggesting the lack of long-run effects of the program. Despite increases in the valuation of energy costs, the heterogeneous responses imply that monetary savings and the social benefit of carbon savings are concentrated among few consumers. Finally, we exploit PERCEE's design to decompose the energy efficiency gap into incentives and information components to find that the former is about twice as large as the latter.
    Keywords: energy efficiency, energy paradox, energy efficiency gap, information label, electricity demand, energy demand, mixed logit, household appliance
    JEL: D12 D83 L15 L68 Q48
    Date: 2019–10–08
  19. By: Jorge Luis Casanova Ferrando
    Abstract: The debate over Airbnb is increasingly gaining attention both in academic and nonacademic spheres. However, in the specialized literature almost all analyses have ignored the spatial dependence behind it, that is, whether landlord’s decisions to raise or keep prices are related to each other. In the City of Madrid, non-spatial and spatial regressions of individual rental prices on dwelling characteristics and Airbnb density were compared. The results suggest that traditional models were biased as once spatial effects are introduced, the impact of Airbnb is no longer significant.
    Date: 2019–10

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