nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒11‒04
thirty-two papers chosen by
Russell Pittman
United States Department of Justice

  1. Vertical Integration under an Optimal Tax Policy: a Consumer Surplus Detrimental Result By Michele G. Giuranno; Marcella Scrimitore; Giorgos Stamatopoulos
  2. Vertical Contracting with Endogenous Market Structure By Pagnozzi, Marco; Piccolo, Salvatore; Reisinger, Markus
  3. Horizontal product differentiation with limited attentive consumers By Schlatterer, Markus; Saur, Marc; Schmitt, Stefanie
  4. Underpromise and overdeliver? – Online product reviews and firm pricing By Simon Martin; Sandro Shelegia
  5. Market Power in Retail Gasoline Markets By Nguyen-Ones , Mai; Steen, Frode
  6. Hump-shaped cross-price effects and the extensive margin in cross-border shopping By Friberg, Richard; Steen, Frode; Ulsaker, Simen A.
  7. Import competition and firm productivity: Evidence from German manufacturing By Bräuer, Richard; Mertens, Matthias; Slavtchev, Viktor
  8. Agony of Choice – Trading off Stability and Competition in the Banking Markets By Laser, Falk; Hellwig, Michael
  9. High-speed rail and air transport integration in hub-and-spoke networks. The role of airports By Alessandro Avenali; Tiziana D'Alfonso; Alberto Nastasi; Pierfrancesco Reverberi
  10. Anchoring, Reference Prices, and List Price Collusion By Paha, Johannes
  11. Multiproduct Firms, Consumer Search, and Demand Heterogeneity. By Yuta KITTAKA
  12. Advertising and Content Differentiation: Evidence from YouTube By Kerkhof, Anna
  13. Information in a Monopolist's Credence Good Market By Jost, Peter-J.; Reik, Steffen; Ressi, Anna
  14. Corrupting Cartels: An Overview of the Petrobras Case By Spagnolo, Giancarlo; Barbosa, Kleno
  15. Import Competition and Industry Location in a Small-Country Model of Productivity Growth By Colin Davis; Ken-ichi Hashimoto
  16. Tying in Evolving Industries, When Future Entry Cannot be Deterred By Chiara Fumagalli; Massimo Motta
  17. A New Price Test in Geographic Market Definition - An Application to German Retail Gasoline Market By Muijs, Matthias; Bantle, Melissa
  18. Heterogeneous Impact of Import Competition on Firm Organization: Evidence from Japanese firm-level data By MATSUURA Toshiyuki
  19. Power Laws without Gibrat's Law By John Stachurski
  20. On the economic geography of dual distribution - The case of McDonald’s in Germany By Freiwald, Nisa E.; Juranek, Steffen; Walz, Uwe
  21. Indeterminacy with Increasing Returns to Variety and Sector-Specific Externalities By Jang-Ting Guo; Juin-Jen Chang; Wei-Neng Wang
  22. Hello . . . Are You Still There? An Empirical Analysis How Market Structure Affects Quality of Mobile Networks By Wellmann, Nicolas
  23. Bank Competition, Cost of Credit and Economic Activity: evidence from Brazil By Gustavo Joaquim; Bernardus Van Doornik
  24. Bank Competition for Wholesale Funding: Evidence from Corporate Deposits By Balke, Florian; Aldasoro, Inaki; Barth, Andreas; Eren, Egemen
  25. Heterogeneous effects of agglomeration on firm innovation in Germany By Niebuhr, Annekatrin; Peters, Jan Cornelius; Schmidke, Alex
  26. Excessive Targeting By Karle, Heiko
  27. Reference Pricing and Parallel Imports: Evidence from Germany By Birg, Laura
  28. Agglomeration economies and firm TFP: different effects across industries By Gornig, Martin; Schiersch, Alexander
  29. Electronic Arts: Strategic Differentiation in the Global Video Gaming Industry By Thomas Teeter; Ryan Lunsford
  30. The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports By Philippe Aghion; Antonin Bergeaud; Matthieu Lequien; Marc Melitz
  31. A Game of Hide and Seek in Networks By Francis Bloch; Bhaskar Dutta; Marcin Dziubi´nski
  32. A strategic-relational approach to analyzing industrial policy regimes within global production networks: The Ethiopian Leather and Leather Products Sector By Grumiller, Jan

  1. By: Michele G. Giuranno (University of Salento, Dipartimento di Scienze dell’Economia); Marcella Scrimitore (University of Salento, Dipartimento di Scienze dell’Economia); Giorgos Stamatopoulos (University of Crete, Department of Economics)
    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: Vertical Market, Integration, Tax Policy, Consumer Surplus
    JEL: L13 L42
    Date: 2019–10
  2. By: Pagnozzi, Marco; Piccolo, Salvatore; Reisinger, Markus
    JEL: D43 L11 L42 L81
    Date: 2019
  3. By: Schlatterer, Markus; Saur, Marc; Schmitt, Stefanie
    JEL: D43 D91 L13
    Date: 2019
  4. By: Simon Martin; Sandro Shelegia
    Abstract: This paper presents a quality signaling model with consumer reviews. Reviews refl ect true quality as well as consumers' expectations of quality, improving with the former and worsening with the latter. Expectation-based reviews give rise to a novel separating equilibrium with several interesting properties: (i) low quality types are deterred from charging high prices by disappointed consumers who may write bad reviews; (ii) high quality types are deterred from imitating low types and thus generating good reviews by low equilibrium prices set by the low types; (iii) prices charged by lowest quality types can be below marginal cost. The equilibrium price schedule is inversely related to the number of consumers who rely on product reviews. Hence higher reliance on reviews reduces prices. In contrast, more informative reviews may lead to lower as well as higher prices depending on how reviews are generated. These results extend to the duopoly model, where we show that prices are lower (higher) than under monopoly for prices above (below) marginal cost.
    Keywords: Quality signaling, consumer reviews, reputation
    JEL: C73 D82 D83 L14 L15
    Date: 2019–10
  5. By: Nguyen-Ones , Mai (Dept of Business and Management Science NHH); Steen, Frode (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We estimate a structural model to uncover the degree of competition in retail gasoline markets using daily station-level data on quantity and price from the Swedish market. The structural model enables us to consider key features on both the demand and supply side that are important when evaluating retailers’ ability to obtain market power. Endowed with station-level information on service level, contractual form and number of nearby stations, we take into account the main drivers of differentiation in the local market. Our findings suggest that retailers in general exercise significant intermediate levels of market power. Further, local station characteristics significantly affect to which extent stations are able to extract market power. Results are robust to different estimation methods.
    Keywords: Gasoline markets; market power; markup estimation; local market competition
    JEL: D22 L13 L25 L81
    Date: 2018–04–13
  6. By: Friberg, Richard (Stockholm School of Economics); Steen, Frode (Dept. of Economics, Norwegian School of Economics and Business Administration); Ulsaker, Simen A. (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper examines the effect of cross-border shopping on grocery demand in Norway using monthly store×category sales data from Norway’s largest grocery chain 2011-2016. The sensitivity of demand to foreign price is hump-shaped and greatest 30-60 minutes’ driving distance from the closest foreign store. Combining continuous demand, fixed costs of cross-border shopping and linear transport costs `a la Hotelling we show how this hump-shape can arise through a combination of intensive and extensive margins of cross-border shopping. Our conclusions are further supported by novel survey evidence and cross-border traffic data.
    Keywords: Cross-border shopping; competition in grocery markets; product differentiation
    JEL: F15 H73 L66 R20
    Date: 2018–12–17
  7. By: Bräuer, Richard; Mertens, Matthias; Slavtchev, Viktor
    Abstract: This study analyses empirically the effects of import competition on firm productivity (TFPQ) using administrative firm-level panel data from German manufacturing. We find that only import competition from high-income countries is associated with positive incentives for firms to invest in productivity improvement, whereas import competition from middle- and low-income countries is not. To rationalise these findings, we further look at the characteristics of imports from the two types of countries and the effects on R&D, employment and sales. We provide evidence that imports from high-income countries are relatively capital-intensive and technologically more sophisticated goods, at which German firms tend to be relatively good. Costly investment in productivity appears feasible reaction to such type of competition and we find no evidence for downscaling. Imports from middle- and low-wage countries are relatively labour-intensive and technologically less sophisticated goods, at which German firms tend to generally be at disadvantage. In this case, there are no incentives to invest in innovation and productivity and firms tend to decline in sales and employment.
    Keywords: productivity,multi-product firms,import competition
    JEL: D22 D24 F10 F14 F60 F61 L25
    Date: 2019
  8. By: Laser, Falk; Hellwig, Michael
    JEL: D22 G21 G34 L11 L25 L40 L41
    Date: 2019
  9. By: Alessandro Avenali (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy); Tiziana D'Alfonso (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy); Alberto Nastasi (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy); Pierfrancesco Reverberi (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy)
    Abstract: Air transport and HSR are not simple competitors. Indeed, air and HSR services can be complements on long-haul routes served by connecting flights through a hub airport. This complementarity creates room for cooperation between airlines and HSR operators, particularly relating to international connecting passengers. Airport managers are also interested in such agreements since they affect, among others, air traffic volumes and the demand for slots on the part of the airlines. In this framework, we develop a theoretical model to study transport operators’ incentives to cooperate, and the strategic role of airports in facilitating or dampening airline-HSR cooperation via the airport per passenger fee. In our model, transport operators cooperate to offer a bundle of domestic HSR and international air services via a multimodal hub airport. We show that the scope for cooperation depends on two main factors, that is, the related sunk costs and mode substitution between air and HSR services.
    Keywords: Airline ; high speed rail ; cooperation ; competition ; airport per passenger fee ; sunk costs
    Date: 2019
  10. By: Paha, Johannes
    JEL: D90 D91 K21 L41 M30
    Date: 2019
  11. By: Yuta KITTAKA
    Abstract: This study constructs a consumer search model in which some consumers search for multiple products, whereas others search for a single product. A price difference arises because of a difference in the price elasticity for each group. We show that a positive demand shock to one of the products decreases the price of another product, whereas it increases its own price, and a negative correlation between the demands for each product strengthens these tendencies. Both prices decrease, however, following a positive demand shock when the demands for each product are positively correlated. We also show that multiproduct firms set a relatively high price for a more demanded product, as such a product's price tends to be more elastic with respect to search costs. A price difference between products increases as the demand gap between products increases or as economies of scale in search increase.
    Date: 2019–10
  12. By: Kerkhof, Anna
    Abstract: Does advertising revenue increase or diminish content differentiation in media markets? This paper shows that an increase in the technically feasible number of ad breaks per video leads to an increase in content differentiation between several thousand YouTube channels. I exploit two institutional features of YouTube's monetization policy to identify the causal effect of advertising on the YouTubers' content choice. The analysis of around one million YouTube videos shows that advertising leads to a twenty percentage point reduction in the YouTubers' probability to duplicate popular content, i.e., content in high demand by the audience. I also provide evidence of the economic mechanism behind the result: popular content is covered by many competing YouTubers; hence, viewers who perceive advertising as a nuisance could easily switch to a competitor if a YouTuber increased her number of ad breaks per video. This is less likely, however, when the YouTuber differentiates her content from her competitors.
    Keywords: advertising,content differentiation,economics of digitization,horizontal product differentiation,long tail,media diversity,user-generated content,YouTube
    JEL: D22 L15 L82 L86
    Date: 2019
  13. By: Jost, Peter-J.; Reik, Steffen; Ressi, Anna
    JEL: D42 D82 L0 L10 L15 I11
    Date: 2019
  14. By: Spagnolo, Giancarlo (Stockholm Institute of Transition Economics); Barbosa, Kleno (Stockholm Institute of Transition Economics)
    Abstract: This paper provides an overview of the corruption case and the connected cartels that affected one of the biggest Brazilian state-owned companies, Petrobras, and the highly controversial ‘Operation Car Wash’. We focus on the behavior of cartel members and study the size of the contracts affected or potentially affected by the illegal activity, comparing them with comparable sets of contracts selected with three different matching approaches.
    Keywords: Corruption; Cartels; Brazil
    JEL: F19
    Date: 2019–10–25
  15. By: Colin Davis; Ken-ichi Hashimoto
    Abstract: We study the effects of import competition on industry locations patterns in a small open economy with two regions. Domestic productivity growth converges to the international rate through firm-level investment in process innovation. With firms locating production and innovation in their lowest cost locations, the concentration of industry in the larger region is linked with firm-level innovation through an import competition effect that is increasing in the market share of imported goods and the productivity differential of domestic firms with the rest of the world. We show that increased import competition, through either a larger number of imported goods or a faster international rate of productivity growth, leads to greater industry concentration by reducing domestic market entry and decreasing the relative productivity of domestic firms. We also consider the implications of improved regional and international economic integration.
    Date: 2019–10
  16. By: Chiara Fumagalli (Università Bocconi, CSEF and CEPR); Massimo Motta (ICREA-Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
    Abstract: We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when tying cannot be used as a defensive strategy to protect the incumbent's dominant position in the primary market. By engaging in tying, an incumbent firm sacrifices current profits but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home.
    Keywords: Inefficient foreclosure, Tying, Scale economies, Network Externalities
    JEL: K21 L41
    Date: 2019–10–30
  17. By: Muijs, Matthias; Bantle, Melissa
    JEL: D22 D40 D43 L10
    Date: 2019
  18. By: MATSUURA Toshiyuki
    Abstract: This paper empirically investigates the effect of import competition on within-firm employment reorganization using Japanese firm-level data sets. We conduct a firm-level examination of whether the import competition against low wage countries leads to the shift from manufacturing activity to non-manufacturing activity, such as headquarter services or R&D. Moreover, we explore the heterogeneity of impacts of import competition according to firm size and export status. We find that competition from Chinese imports induces manufacturing firms to increase their share of service workers, especially those workers that engage in wholesale & retail, and in other service activities.
    Date: 2019–10
  19. By: John Stachurski
    Abstract: This paper shows that the power law property of the firm size distribution is a robust prediction of the standard entry-exit model of firm dynamics. Only one variation is required: the usual restriction that firm productivity lies below an ad hoc upper bound is dropped. We prove that, after this small modification, the Pareto tail of the distribution is predicted under a wide and empirically plausible class of specifications for firm-level productivity growth. We also provide necessary and sufficient conditions under which the entry-exit model exhibits a unique stationary recursive equilibrium in the setting where firm size is unbounded.
    Date: 2019–10
  20. By: Freiwald, Nisa E. (Goethe Business School, Goethe University Frankfurt); Juranek, Steffen (Dept. of Business and Management Science, Norwegian School of Economics); Walz, Uwe (Faculty of Economics and Business, Goethe University Frankfurt)
    Abstract: We analyze the allocation of ownership in a franchise system by focusing on location-specific characteristics of the outlets. This study uses a comprehensive data set on McDonald’s restaurants in Germany to investigate the drivers of the decision on whether outlets are companyowned or franchised. We find strong evidence for the repeat-customer hypothesis by showing that outlets are significantly more likely to be company-owned when they are located at places with relatively few repeat customers.We observe the same for outlets that are closer to McDonald’s headquarters. Finally, we find pronounced clustering of multi-unit franchisees.
    Keywords: Franchising; dual distribution; agency theory; geo-locational data; economic geography
    JEL: L24 L81
    Date: 2019–10–29
  21. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Juin-Jen Chang (Academia Sinica); Wei-Neng Wang (Academia Sinica)
    Keywords: Indeterminacy, Increasing Returns to Variety, Sector-Specific Externalities.
    JEL: E30 E32 O41
    Date: 2019–05
  22. By: Wellmann, Nicolas
    JEL: L96
    Date: 2019
  23. By: Gustavo Joaquim; Bernardus Van Doornik
    Abstract: We estimate the effect of bank competition on financial and real variables. To do so, we use regional heterogeneous exposure to mergers and acquisitions (M&A) of large banks as an instrument for changes in competition of local banking markets in Brazil. We use detailed administrative data on loans and firms and a difference-in-differences empirical strategy that compares changes in outcomes for markets affected or not by the M&A episodes. We find that, following M&A episodes, spreads increase and lending decreases persistently in exposed markets relative to controls. We show that this is larger for more concentrated markets at the time of the M&A episode, and is unlikely to be driven by other factors, such as branch closures. We find that non-agricultural employment falls .2% for an increase of 1% in spreads. We develop a model of heterogeneous firms and concentration in the banking sector that is consistent with the micro evidence. In our model, the semi-elasticity of credit to lending rates is a sufficient statistic for the effect of concentration on output, which we estimate to be -3.17. Among other counterfactuals, we show that if Brazilian spreads fell to world levels, output would increase by approximately 5%.
    Date: 2019–10
  24. By: Balke, Florian; Aldasoro, Inaki; Barth, Andreas; Eren, Egemen
    JEL: G21 G28
    Date: 2019
  25. By: Niebuhr, Annekatrin; Peters, Jan Cornelius; Schmidke, Alex
    JEL: D22 O31 R12
    Date: 2019
  26. By: Karle, Heiko
    JEL: D43 M37
    Date: 2019
  27. By: Birg, Laura
    JEL: F12 I11 I18
    Date: 2019
  28. By: Gornig, Martin; Schiersch, Alexander
    JEL: R11 R12 R15 D24
    Date: 2019
  29. By: Thomas Teeter (University of the Incarnate Word, San Antonio, TX); Ryan Lunsford (University of the Incarnate Word, San Antonio, TX)
    Abstract: Electronic Arts Incorporated is a leading global developer of video game software with FY2018 revenues in excess of $5B. And although the organization has demonstrated innovative leadership in the industry for many years and has an established portfolio of “hit†game titles, industry trends have created an increasingly competitive environment. Digital game distribution, for example, has dramatically reduced the cost of product delivery, but has also negated a previous barrier to entry for new competitors. In a $36B industry that has been completely reshaped by digital content and distribution, EA seeks to better engage and retain players via digital capabilities. This case study analyzes EA’s differentiated competitive strategy founded on three pillars: Player-First, Commitment to Digital, and One EA. Each of these strategic focuses has a direct connection to trends in the transforming video game industry, as the company seeks to expand its player base across platforms, geographies, and business models. Together, these highlight the path for the company to operate more efficiently, create more engaging products and services, and develop increased customer loyalty towards EA games.
    Keywords: Electronic Arts Inc., digital content, video games, strategy
    Date: 2019–08
  30. By: Philippe Aghion; Antonin Bergeaud; Matthieu Lequien; Marc Melitz
    Abstract: We analyze how demand conditions faced by a firm impacts its innovation decisions. To disentangle the direction of causality between innovation and demand conditions, we construct a firm-level export demand shock which responds to aggregate conditions in a firm's export destinations but is exogenous to firm-level decisions. Using exhaustive data covering the French manufacturing sector, we show that French firms respond to exogenous growth shocks in their export destinations by patenting more; and that this response is entirely driven by the subset of initially more productive firms. The patent response arises 3 to 5 years after a demand shock, highlighting the time required to innovate. In contrast, the demand shock raises contemporaneous sales and employment for all firms, without any notable differences between high and low productivity firms. We show that this finding of a skewed innovation response to common demand shocks arises naturally from a model of endogenous innovation and competition with firm heterogeneity. The market size increase drives all firms to innovate more by increasing the innovation rents; yet by inducing more entry and thus more competition, it also discourages innovation by low productivity firms.
    Keywords: innovation, export, demand shocks, patents
    JEL: D21 F13 F14 F41 O30 O47
    Date: 2019–10
  31. By: Francis Bloch (Universit´e Paris 1 and Paris School of Economics); Bhaskar Dutta (University of Warwick and Ashoka University); Marcin Dziubi´nski (Institute of Informatics, University of Warsaw)
    Abstract: We propose and study a strategic model of hiding in a network, where the network designer chooses the links and his position in the network facing the seeker who inspects and disrupts the network. We characterize optimal networks for the hider, as well as equilibrium hiding and seeking strategies on these networks. We show that optimal networks are either equivalent to cycles or variants of a core-periphery networks where every node in the periphery is connected to a single node in the core.
    Keywords: Networks, Hide and Seek
    Date: 2019–10
  32. By: Grumiller, Jan
    Abstract: This paper contributes to debates regarding the lack of theorization of the state and the overemphasis on lead firms in studies of global value chains (GVCs) and global production networks (GPNs). This paper combines the GVC/GPN frameworks with a strategic-relational approach (SRA), a SRA conceptualization of the developmental state, and literature about the embeddedness of firms. Empirically, the paper analyzes the conflictual relationship between firms and the state's strategies that structure and re-structure the development, industrial policy regime, and GVC/GPN integration of the Ethiopian leather and leather products (LLP) industry.
    Keywords: global value chains,developmental state,embedded autonomy,network embeddedness
    Date: 2019

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