nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒10‒28
fifteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Restrictions on Privacy and Exploitation in the Digital Economy: A Competition Law Perspective By Nicholas Economides; Ioannis Lianos
  2. Endogenizing managerial delegation: A new result under Nash bargaining and network effects By Marcella Scrimitore
  3. Heterogeneous Decision-Making and Market Power By Kutlu, Levent; Sickles, Robin; Tsionas, Mike G.
  4. The Role of Demand Response in Mitigating Market Power — A Quantitative Analysis Using a Stochastic Market Equilibrium Model By Bertsch, Valentin; Devine, Mel
  5. Measuring Substitution Patterns in Differentiated Products Industries By Amit Gandhi; Jean-François Houde
  6. The Single Supervisory Mechanism : competitive implications for the banking sectors in the euro area By Iryna Okolelova; J.A. Bikker
  7. Electricity market competition when forward contracts are pairwise efficient By Van Moer, Geert
  8. Per unit and ad valorem royalties in a patent licensing game By Montinaro, Marta; Scrimitore, Marcella
  9. Reputation and news suppression in the media industry By Ascensión Andina-Díaz; José A. García-Martínez
  10. Wage Discrimination Based on the Country of Birth: Do Tenure and Product Market Competition Matter? By Fays, Valentine; Mahy, Benoît; Rycx, Francois; Volral, Mélanie
  11. The Electric Gini: Income Redistribution through Energy Prices By Arik Levinson; Emilson Silva
  12. Health and Pollution in a Vertically Differentiated Duopoly By Stefano Quarta; Skerdilajda Zanaj
  13. Does Direct Connect Benefit Travelers? By Jorge Padilla; Salvatore Piccolo
  14. Does CSR influence M&A target choices? By Mathieu Gomes
  15. Corporate social responsibility and M&A uncertainty By Mohamed Arouri; Mathieu Gomes; Kuntara Pukthuanthong

  1. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London, and Hellenic Competition Commission)
    Abstract: The recent controversy on the intersection of competition law with the protection of privacy, following the emergence of big data and social media is a major challenge for competition authorities worldwide. Recent technological progress in data analytics may greatly facilitate the prediction of personality traits and attributes from even a few digital records of human behaviour. There are different perspectives globally as to the level of personal data protection and the role competition law may play in this context, hence the discussion of integrating such concerns in competition law enforcement may be premature for some jurisdictions. However, a market failure approach may provide common intellectual foundations for the assessment of harms associated to the exploitation of personal data, even when the specific legal system does not formally recognize a fundamental right to privacy. The paper presents a model of market failure based on a requirement provision in the acquisition of personal information from users of other products/services. We establish the economic harm from the market failure and the requirement using the traditional competition law toolbox and focusing more on situations in which the restriction on privacy may be analysed as a form of exploitation. Eliminating the requirement and the market failure by creating a functioning market for the sale of personal information is imperative. This emphasis on exploitation does not mean that restrictions on privacy may not result from exclusionary practices. However, we analyse these in a separate study. Besides the traditional analysis of the requirement and market failure, we note that there are typically informational asymmetries between the data controller and the data subject. The latter may not be aware that his data was harvested, in the first place, or that the data will be processed by the data controller for a different purpose, or shared and sold to third parties. The exploitation of personal data may also result from economic coercion, on the basis of resource-dependence or lock-in of the user, the latter having no other choice, in order to enjoy the consumption of a specific service provided by the data controller or its ecosystem, than to consent to the harvesting and use of his data. A behavioural approach would also emphasise the possible internalities (demand-side market failures) coming out of the bounded rationality, or the fact that people do not internalise all consequences of their actions and face limits in their cognitive capacities. The paper also addresses the way competition law could engage with exploitative conduct leading to privacy harm, both for ex ante and ex post enforcement. With regard to ex ante enforcement, the paper explores how privacy concerns may be integrated in merger control as part of the definition of product quality, the harm in question being merely exploitative (the possibility the data aggregation provides to the merged entity to exploit (personal) data in ways that harm directly consumers), rather than exclusionary (harming consumers by enabling the merged entity to marginalise a rival with better privacy policies), which is examined in a separate paper. With regard to ex post enforcement, the paper explores different theories of harm that may give rise to competition law concerns and suggest specific tests for their assessment. In particular, we analyse old and new exploitative theories of harm relating to excessive data extraction, personalised pricing, unfair commercial practices and trading conditions, exploitative requirement contracts, behavioural manipulation. We are in favour of collective action to restore the conditions of a well-functioning data market and the report makes a number of policy recommendations.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioural manipulation; remedies; portability; opt out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2019–10
  2. By: Marcella Scrimitore
    Abstract: We reconsider the endogenous choice of delegation to a manager by two down-stream firms in both a Cournot and a Bertrand vertical market with network effects. An upstream monopolist charges a two-part tariff for a crucial input. By applying the Nash solution in a centralized bargaining, we show that hiring a manager is never an equilibrium under Cournot, regardless of network effects, while it can be the equilibrium choice for firms competing à la Bertrand, depending on the interplay between the network externalities and the degree of product substitutability.
    Keywords: Nash bargaining, two-part tariff, strategic delegation, network externalities.
    JEL: D43 L14 L21
    Date: 2019–11–15
  3. By: Kutlu, Levent (University of Texas Rio Grande Valley); Sickles, Robin (Rice University); Tsionas, Mike G.
    Abstract: We provide a structural model wherein the decision-makers are payoff maximizers in a general game theoretic setting in which heterogeneity is formally factored into the decisions of the players. The decision-makers are allowed to have different types; and parameters are the same within each type but they differ across types. Using insights from our treatment of heterogeneous and strategic decision-making, we estimate the conducts (market powers) of Eurozone banks for years 2002-2015. We find that Eurozone banks are fairly competitive. However, banks in peripheral countries have more market power compared to the core of Eurozone.
    JEL: C11 C18 D24 D40 G21
    Date: 2019–09
  4. By: Bertsch, Valentin; Devine, Mel
    Date: 2019
  5. By: Amit Gandhi; Jean-François Houde
    Abstract: We study the estimation of substitution patterns within the discrete choice framework developed by Berry (1994) and Berry, Levinsohn, and Pakes (1995). Our objective, is to illustrate the consequences of using weak instruments in this non-linear GMM context, and propose a new class of instruments that can be used to estimate a large family of models with aggregate data. We argue that relevant instruments should reflect the (exogenous) degree of differentiation of each product in a market (Differentiation IVs), and provide a series of examples to illustrate the performance of simple instrument functions.
    JEL: C35 C36 L13
    Date: 2019–10
  6. By: Iryna Okolelova; J.A. Bikker
    Abstract: This paper investigates the impact of the SSM’s launch on the market power of banks in the large euro area economies. We employ the Lerner index and the Boone estimator, non-structural measures that capture different aspects of competition. Using the results of the Lerner index, we find evidence of the significant decrease in market power for the ECB supervised entities in Austria, France, Germany and Spain. In a similar vein, the Boone indicator points toward an increase in competition among significant supervised entities of Austria, France, Germany, Italy and Spain. The evidence on changes for the total banking sector are mixed, whereas no significant effect is found for the banks remaining under national supervision. We do not find any support for significant increases in the market power of banks in Italy or Spain, suggesting that large increases in concentration do not necessarily result in anticompetitive conduct.
    Keywords: Banking, SSM, competition, market structure, concentration, Lerner Index, Boone indicator
    Date: 2019–01
  7. By: Van Moer, Geert
    Abstract: This paper investigates competition in electricity markets when each pair of strategic firms exchanges forward obligations pairwise-efficiently. The gains from pairwise trade are specific to the counterparty, which can be horizontally- or vertically-related depending on whether it has access to flexibility in the spot market. The analysis shows that pairwise efficient forward trade rules out a bilateral oligopoly spot market where net buyers and net sellers strategically interact. Firms without flexibility close their position entirely in the forward market. Forward markets serve to absorb renewable energy shocks, even if forward contracts are unobservable and firms are risk-neutral.
    Keywords: Nash-in-Nash bargaining; bilateral oligopoly; renewables
    JEL: D43 L13 L94
    Date: 2019–10–22
  8. By: Montinaro, Marta; Scrimitore, Marcella
    Abstract: In a context of product innovation, we study two-part tariff licensing between a patentee and a potential rival which compete in a differentiated product market characterized by network externalities. The latter are shown to crucially affect the relative profitability of Cournot vs. Bertrand when a per unit royalty is applied. By contrast, we find that Cournot yields higher profits than Bertrand under ad valorem royalties, regardless of the strength of network effects.
    Keywords: licensing, product innovation, bertrand vs. cournot, network effects
    JEL: D43 L13 L20
    Date: 2019–03–06
  9. By: Ascensión Andina-Díaz (Department of Economics, University of Málaga); José A. García-Martínez (Department of Economics and Finance, University Miguel Hernández)
    Abstract: This paper proposes a new argument to explain why media firms silence information that may be relevant to consumers and why this behavior varies across firms. We build on the literature of career concerns and consider firms that seek to maximize their reputation for high quality. Crucial to our results is the idea that media firms can affect, with their reporting strategy, the probability that consumers learn the true state. Reputational concerns dictate that a monopoly firm suppresses scoops, even when evidence is strong. With competition, precise private information is published but weaker though informative signals are silenced. We obtain that silence is higher in media firms with high levels of initial reputation and/or great social influence. We draw predictions on a firm's optimal choice of an editorial standard, the persistence of news suppression when consumers believe one state to be more likely than another and the possibility that silence may be socially beneficial.
    Keywords: Reputation; news suppression; feedback power; competition; editorial standars; herding; efficiency
    JEL: C72 D82 D83
    Date: 2018–12
  10. By: Fays, Valentine (University of Mons); Mahy, Benoît (University of Mons); Rycx, Francois (Free University of Brussels); Volral, Mélanie (University of Mons)
    Abstract: Using a merged employer-employee panel dataset of 13,000 firms for the 1999-2010 period, this paper aims to quantify wage discrimination against migrant workers based on their countries of birth, with workers' tenure and firm product market competition as moderator variables. To do so, we specify a wage-setting equation à la Bartolucci (2014) that includes a direct measure of worker productivity. We control for a wide range of worker and firm characteristics, as well as time-invariant unobserved heterogeneity in firms and potential endogeneity in the composition of the workforce. Our preferred results estimate that wage discrimination against non-EU15 workers in Belgium is in the order of 6.1%. This figure hides large disparities in wage discrimination against foreign-born migrants depending on their countries of birth, as well as the vanishing of wage discrimination against migrants with tenure. Our results also suggest that wage discrimination disappears in highly competitive product market situations.
    Keywords: product market competition, tenure, workers' countries of birth, wage discrimination, migrants, direct productivity measure
    JEL: J24 J71 D41
    Date: 2019–10
  11. By: Arik Levinson; Emilson Silva
    Abstract: Efficient electricity pricing involves two-part tariffs: a volumetric price equal to the marginal cost of producing an additional kilowatt hour (kWh) and a fixed fee to cover any remaining fixed costs. In this paper we explore how US electricity regulators depart from this simple two-part tariff to address concerns about income inequality. We first show that in theory, price setters concerned about inequality will charge lower fixed monthly fees and higher per-kWh prices, and increasing block prices to target higher users with even higher prices. Then we use a new dataset of 1,300 utilities across the US to show that these theoretical predictions are borne out in practice. Utilities whose ratepayers have more unequal incomes levy more redistributive tariffs, charging less to low users and more to high users. To quantify these comparisons, we develop a new measure of the redistributive extent of utility tariffs that we call the “electric Gini.” Utilities with higher electric Ginis (more redistributive tariffs) shift costs from households that use relatively little electricity to households that use more. But because electricity use is only loosely correlated with income, that redistribution does not meaningfully shift costs from households with low incomes to those with high incomes.
    JEL: Q41 Q48
    Date: 2019–10
  12. By: Stefano Quarta; Skerdilajda Zanaj
    Abstract: In this paper, we analyze a vertically differentiated mixed duopoly in medical care services. Pollution is the source of illness. The government has a dual role. It decides how much to invest to reduce the pollution level and it may participate in the health market running a public hospital. We find that the presence of the public provider increases the average quality of the service in the market and it reduces the rate of mortality. Furthermore, when the public hospital offers services with the highest quality, then this has positive spillovers on the quality offered by the private provider. Despite these positive welfare improving features, the mixed duopoly in medical care goes along with the highest level of pollution. In the presence of an increasing concern about the relationship between pollution and health, understanding the role of public intervention appears crucial.
    Keywords: Pollution, health, public provider, mixed duopoly.
    JEL: L13 H42 H44 I11
    Date: 2019–11–14
  13. By: Jorge Padilla (Compass Lexecon); Salvatore Piccolo (Università di Bergamo, Compass Lexecon and CSEF)
    Abstract: Direct connect refers to a business practice that has become fashionable again in the travel industry after a period of irrelevance. Airlines provide direct access to their sales systems to travel retailers, who can thus avoid dealing with traditional indirect distribution intermediaries, such as GDS aggregators. Although this practice is often advertised as pro-competitive, we show that it may actually harm consumers, especially in very competitive environments.
    Keywords: Agency Model, Direct Connect, Distribution Channels, Travel Industry.
    JEL: L42 L50 L81
    Date: 2019–10–22
  14. By: Mathieu Gomes (CleRMa - Clermont Recherche Management - Clermont Auvergne - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne)
    Abstract: We examine the impact of corporate social responsibility (CSR) on mergers and acquisitions (M&A) target choices. We offer evidence that CSR performance of firms matter for M&A acquirers. Indeed, our results based on 608 deals between 2003 and 2014 reveal that target firms have on average higher CSR scores than similar non-target firms. We also show directly that a firm's CSR is positively associated with its propensity to become a M&A target. These results hold for all CSR dimensions (environment, social, and governance). Overall, our results suggest that CSR matters in M&A decisions.
    Keywords: Corporate social responsibility,Mergers and acquisitions,Matched-pair analysis,Logistic regression
    Date: 2019–09–02
  15. By: Mohamed Arouri (GRM - Groupe de Recherche en Management - EA 4711 - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur); Mathieu Gomes (CleRMa - Clermont Recherche Management - Clermont Auvergne - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne); Kuntara Pukthuanthong
    Abstract: We contribute to the corporate social responsibility (CSR) literature by investigating whether the CSR of acquirers impacts mergers and acquisitions (M&A) completion uncertainty. Using arbitrage spreads following initial acquisition announcements as a measure of deal uncertainty, we document-for an international sample of 726 M&A operations spanning the 2004-2016 period-a negative association between arbitrage spreads and acquirers' CSR. Specifically, we show arbitrage spreads are reduced by 1.10 percentage points for each standard deviation unit-increase in the acquirer's CSR score. Findings are qualitatively similar when we focus on individual CSR dimensions (environmental, social, and governance). Our results suggest the CSR of acquirers is an important determinant of the way market participants assess the outcome of M&As worldwide.
    Keywords: Corporate Social Responsibility (CSR),Mergers and Acquisitions (M&A),Risk
    Date: 2019–06

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