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on Industrial Competition |
| By: | Alleman, James; Baranes, Edmond; Rappoport, Paul |
| Abstract: | The internet giants - Facebook, Amazon, Netflix and Google, among others - have transformed society with both positive and negative effects. The negative effects have been stark. There have been huge disruptions caused by e-commerce. More recently, subtler, but even more serious negative effects are only now being recognized: threats to democracy, violations of privacy, and monopolistic behavior. By traditional measures Facebook and Google are highly concentrated. Each has obtained de facto monopolistic or oligopolistic power with little concern on the part of government. Facebook and Google and other internet giants are multisided markets (MSM); their economic rents are "hidden" from the public. On the user-side of the market, prices are zero - "free." On the other side of the market, Facebook's and Google's revenues are derived from advertising which appears when the users click on advertiser's web sites. Facebook and Google can extract exorbitant prices for ads, since they are virtually the only source that can target ads directly to potential customers. This is where the economic rents are not so obvious. This paper addresses the monopolistic/monopsony aspect of the internet giants. In the singlesided market, monopoly pricing is well defined - as well as tests for predatory behavior; not so with multisided markets. Since the definition of markets is central to the legal enforcement of antitrust statutes, the paper examines non-transactional multisided markets for their potential for determining consumers' harm and welfare effects, as well as defining monopoly and predatory pricing in this context. Initial estimates of Google's and Facebook's social cost in terms of consumers' welfare loss are $54 and $33 billion, respectively and increasing cost to consumers at least $87 billion dollars. It demonstrates and quantifies that dominate internet platforms can create three major harms to consumers: - Increasing prices to consumers via added costs to the products being advertised, - Elimination (or non-emergence) of competition in markets to the products being advertised, - Increasing prices to consumers beyond the cost of advertising via the market power of the remaining firms in the market of the products being advertised The paper outlines potential remedies to ameliorate the problems. |
| Keywords: | Advertising,Antitrust,Consumers' Surplus,Internet,Platform Economics,Regulation,Two-Sided/Multisided Markets |
| JEL: | D42 D43 K21 L12 L13 L22 L51 L96 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205162&r=all |
| By: | Hoernig, Steffen; Monteiro, Francisco |
| Abstract: | We consider internet service providers' incentives to zero-rate, i.e. do not count towards data allowances, the consumption of certain services, in the absence of payments from content providers. In a general model with various types of network effects, service substitutes or complements, monopoly and duopoly, we show that ISPs adopt zero-rating and that it increases consumer surplus and total welfare if network effects are strong enough. Capacity investment increases (decreases) with network effects if services are complements (substitutes). Under competition, the decision to zero-rate depends the residual network effect, which includes the impacts of spillovers and brand differentiation. |
| Keywords: | Zero-rating,Network effects,Net neutrality,Capacity Investment |
| JEL: | D21 L51 L96 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205182&r=all |
| By: | David BENATIA (CREST (UMR 9194), ENSAE, Institut Polytechnique de Paris.); Etienne BILLETTE de VILLEMEUR (LEM-CNRS (UMR 9221), Université de Lille.) |
| Abstract: | This paper investigates the incentives to manipulate sequential markets by strategically reneging on forward commitments. We first study the behavior of a monopolist in a two-period model with demand uncertainty. Our results deliver guidance for identifying manipulations and evaluating its market impacts. We then test the model's predictions using occurrences of reneging on long-term commitments in Alberta's electricity market. We implement a machine learning approach to identify and evaluate manipulations. We find that a dominant supplier increased its revenues by $35 million during the winter of 2010-11, causing Alberta's electricity procurement costs to increase by above $330 million (20%). |
| Keywords: | Imperfect Commitment, Market Manipulation, Market Power, Electricity Markets. |
| JEL: | D43 L12 L51 L94 |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2019-19&r=all |
| By: | Andreea Cosnita-Langlais; Maxime Charreire; Florian Baumann |
| Abstract: | When it is impossible to identify ex post the producer of a product causing harm or the damage caused is indivisible although caused by multiple injurers, courts must apportion the total damage among tortfeasors. In this model we examine how such liability sharing rules affect the likelhood of tacit collusion. For this we use a standard Cournot oligopoly model where firms are collectively held liable for joint harm inflicted on third parties. The damage caused may be either linear or cumulative in total industry output. With repeated market interaction and grim strategies, we investigate the sustainability of collusion to derive some policy implications. |
| Keywords: | Cournot oligopoly, liability sharing rules, market collusion |
| JEL: | L41 L13 K13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2019-21&r=all |
| By: | Forgó, Ferenc |
| Abstract: | Necessary conditions for the existence of pure Nash equilibria introduced by Joó (A note on minimax theorems, Annales Univ. Sci. Budapest, 39(1996) 175-179) for concave non-cooperative games are generalized and then applied to Cournot oligopoly games. If for a specified class of games there always exists a pure Nash equilibrium, then cost functions of the firms must be convex. Analogously, if for another specified class of games there always exists a pure Nash equilibrium, then revenue functions of the firms must be concave in their respective variables. |
| Keywords: | Nash equilibrium, Cournot oligopoly |
| JEL: | L13 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cvh:coecwp:2019/08&r=all |
| By: | Merino Troncoso, Carlos |
| Abstract: | Standard antitrust optimal fines rely on a microeconomic static model. Motchenkova describes optimal antitrust dynamic sanctions and their application for EU and US methodology. For the EU fine, and based on this methodology, we find an equilibrium point for a high level of offense (2 times normal profits ) and a high detection probability (0.6). |
| Keywords: | antitrust,cartel,differential games |
| JEL: | K21 L4 |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96781&r=all |
| By: | Polemis, Michael |
| Abstract: | We study the impact of product market competition on productivity in 462 US manufacturing sectors for the period 1958-2009 through the lens of a panel quantile regression analysis. We confirm that there is a nonmonotonic inverse-U relationship between competition and total factor productivity. We argue that the turning point increases substantially as we move to the higher quantiles of the productivity distribution function. Our findings survive robustness checks under alternative competition measure and quantile estimator. |
| Keywords: | Quantile regression; Competition; Nonlinearities; Manufacturing; US |
| JEL: | C21 C23 L11 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96808&r=all |
| By: | Chiara Fumagalli; Massimo Motta |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp19123&r=all |
| By: | Philippe CHONÉ (Centre for Research in Economics and Statistics (CREST).); Lionel WILNER (INSEE-CREST.) |
| Abstract: | To assess strategic interactions in industries where endogenous product characteristics are unobserved to the researcher, we propose an empirical method that brings a competition-in-utility-space framework to the data. We apply the method to the French hospital industry. The utilities offered to patients are inferred from local market shares under AKM exclusion restrictions. The hospitals' objective functions are identified thanks to the gradual introduction of stronger financial incentives over the period of study. Offering more utility to each patient entails incurring higher costs per patient, implying that utilities are mostly strategic complements. Counterfactual simulations show that stronger incentives affect market shares but have little impact on the total number of patient admissions. We quantify the resulting gains for patients and losses for hospitals. |
| Keywords: | Competition in utility space; financial incentives; payment reform; hospital choice. |
| JEL: | D22 I11 L13 |
| Date: | 2019–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2019-21&r=all |
| By: | Philippe CHONÉ (Centre for Research in Economics and Statistics (CREST).); Elise COUDIN (Centre for Research in Economics and Statistics and Institut National de la Statistique et des Etudes Economiques (INSEE).); Anne PLA (Ministry for Solidarity and Health, Direction de la Recherche, des Etudes, de l’Evaluation et des Statistiques.) |
| Abstract: | We assess the extent to which specialist physicians respond to local competition when deciding how much services to provide under a fee-for-service payment system. We use an exhaustive administrative panel data set of French physicians, and account for the dual nature of the regulatory environment, with part of the physicians being subject to price regulation. The activity of fee-regulated physicians depends only on their individual preferences, and is not affected by changes in their demand or competitive environment. By contrast, the prices charged by free-billing physicians decrease and their activity increases with physician density. Reaction functions are upward-slopping, with the quantities of services provided being strategic complements. Our findings are consistent with a static oligopoly model where the consumption-leisure preferences of doctors exhibit strong income effects. |
| Keywords: | Fee-for-service payment, physician labor supply, income effects, spatial competition. |
| JEL: | I11 L13 |
| Date: | 2019–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2019-20&r=all |
| By: | Songane, Mario; Grossmann, Volker |
| Abstract: | Human papillomavirus (HPV) is responsible for almost all of the 530,000 new cases of cervical cancer and approximately 266,000 deaths per year. HPV vaccination is an integral component of the World Health Organization’s global strategy to fight the disease. However, high vaccine prices enforced through patent protection are limiting vaccine expansion, particularly in low- and middle-income countries. This raises the question of the patent buyout price for Merck’s HPV vaccines (Gardasil-4 and 9), which hold 87% of the global HPV vaccine market. It also raises the question about the market power from patent protection, that we assess by estimating the ratio of R&D costs for Gardasil and its patent value. We estimate the patent buyout price for various groups of countries and in total. The estimated global Gardasil patent buyout price in 2020 is between US$ 15.33 – 18.32 billion (in 2018 US$), the estimated present discounted value of the profit stream for 2007-2028 amounts to US$ 22.29 – 33.08 billion, and the estimated total R&D cost is between US$ 1.10 – 1.21 billion. Thus, we arrive at a ratio of R&D costs to the patent value of the order of 3-5%, suggesting that patent protection provides Merck with extraordinarily strong market power. |
| Keywords: | Human Papilloma Virus (HPV) vaccine; Market power; Patent buyout price; Patent value; R&D costs |
| JEL: | I18 O30 |
| Date: | 2019–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:fri:fribow:fribow00510&r=all |
| By: | Cosman, Jacob; Schiff, Nathan |
| Abstract: | We examine the response to entry in a large market with differentiated products using a novel longitudinal dataset of over 550,000 New York City restaurant menus from 68 consecutive weeks. We compare “treated” restaurants facing a nearby entrant to “control” restaurants with no new competition, matching restaurants using location characteristics and a pairwise distance measure based on menu text. Restaurants frequently adjust prices and product offerings, but we find no evidence that they respond differentially to new competition. However, restaurants in the top entry decile are 5% more likely to exit after a year than restaurants in the lowest entry decile. |
| Keywords: | spatial competition, monopolistic competition, product differentiation, entry |
| JEL: | D22 D43 L13 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96617&r=all |
| By: | Henten, Anders; Falch, Morten |
| Abstract: | The paper aims at analyzing the implications of symmetric telecom regulation on competition and investment in the telecom area. Symmetric regulation, where it is not only the operators with significant market power (SMP) at national or large geographical scales which are subject to special access obligations, has been on the agenda for long. However, emphasis has hitherto been on asymmetric regulation, but during the past few years, symmetric regulation has gradually gained weight in different EU countries, and the new European Electronic Communications Code (Directive 2018/1972) also aims at putting more emphasis on symmetric regulation (de Streel and Larouche, 2016; Briglauer et al., 2017). The paper elaborates on the rules for the implementation of symmetric regulation in the Communications Code and discusses how symmetric regulation can potentially effect competition and investment. The assessment will look at the potential impacts of symmetric regulation on competition and discuss how competition can affect investment. The reason for this sequence of analysis is that it is assumed that the implications of symmetric regulation on investment, to a large extent, will be mediated by the implications of symmetric regulation on competition. However, symmetric regulation will also directly impact investment in the sense that the implementation of symmetric regulation may lower the incentives for physical infrastructure investment by new-coming network operators to a geographical area. It could also limit incentives for additional investment by operators that are already there with physical networks, as they may have to open their networks for other competing operators. But it could also lead to increased investments, which is the hope enshrined in the new European Communications Code of 2018... |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205181&r=all |
| By: | Park, Sungwook; Kwon, Youngsun |
| Abstract: | Over-the-top media firms such as Netflix, Amazon Prime, and Hulu are transforming the coopetition relationship among media firms in the broadcasting market and the structure of the broadcasting industry. New entrants like OTT media firms kept using various coopetition strategies including mergers and acquisitions in order to gain a foothold in the firmly entrenched broadcasting industry. A few OTT media firms already successfully made inroads into the media industry and are expanding their turf in many countries, triggering drastic changes in the structure of the broadcasting industry. The entry of OTT firms has also been increasing tension with fixed and mobile broadband network operators worldwide and induced NOs to become OTT media firms themselves. In this paper, we propose an empirical study on the major countries with large broadcasting market size. This paper shows that OTT services in major countries having the huge TV market commonly use "localization strategy", "partnership strategy", "content differentiation strategy", "revenue enhancement strategy", and "service optimization strategy". Add to these strategies, pay-TV incumbents use "envelopment strategy" and "diversification strategy" as well. In addition, OTT service revenues and fixed broadband subscriptions by major countries are set as independent variables, and the herfindahl-hirschman index of pay-TV market, which measures the market concentration, and the ratio of households subscribing to pay-TV services by major countries are set as dependent variables. Considering different characteristics of broadcasting market of each country, public funding, subscription revenue, advertising revenue, IPTV, satellite broadcasting platform, and cable broadcasting platform are set as dummy variables for applying the least square dummy variable analysis. As a result, it turns out that the increase in fixed broadband subscriptions has a statistically significant impact on the increase in the pay-TV market concentration and the cord-cutting phenomenon, but OTT service revenues do not affect. |
| Keywords: | OTT,Broadcasting industry,Media Coopetition,Catfish effect |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205203&r=all |
| By: | Barua, Bidushi; Matinmikko-Blue, Marja; Latva-aho, Matti |
| Abstract: | Local 5G networks in specific geographical areas can satisfy local capacity, coverage needs, and offer context specific services to complement Mobile Network Operator's (MNOs') offerings. For enabling the emergence of these networks into the future mobile communication market, it is necessary to determine the contractual relationships possible for different deployments of these networks. We define the features of such contracts and the factors such as competition, level of differentiation in services offered, price structure, price transparency, and the role of regulation, that will influence these contracts, taking into account the characteristics of 5G and beyond networks. A mathematical model of a pricing mechanism is proposed to determine the optimal price the local network deserves to get from the MNO and the optimal price which the MNO demands from its customers that were served by the local network. Finally, the impact of competition in the retail market, fraction of MNO customers served by the local network, on these prices are analyzed and presented using simulations. The results indicate that lower the share of MNO customers served by the 5G local network, the stronger is the incentive of the corresponding local network to increase its optimal wholesale price. Moreover, the local 5G network gains from a greater competition between MNOs as it leads to the rise in demand without the local network having to reduce the prices they demand from the MNOs for their services. |
| Keywords: | Competition,contracts,micro operator networks,pricing mechanism,regulation |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205166&r=all |
| By: | Knieps, Günter |
| Abstract: | Disruption of tradition network industries and the emergence of innovative physical operator platforms provide challenging governance problems of contractual relationships among different actors involved. The problem solution competence of operator platforms (two-sided, multi-sided) is the entrepreneurial search for the required governance structures. Operator platforms need as input a combination of physical networks and network services with complementary (big data) virtual networks. The problem of division of labor between all-IP broadband network providers, virtual network service providers and platform operators arises concomitant with the implementation of adequate governance structures. |
| Keywords: | Internet of things,operator platforms,governance,sharing economy |
| JEL: | L51 L92 L96 O31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205191&r=all |
| By: | Aimene, Louise; Lebourges, Marc; Liang, Julienne |
| Abstract: | Does co-investment enhance fiber to the home (FTTH) coverage, adoption and competition? We combine several French municipality-level datasets and use a two-stage control-function approach to answer this question. In the first stage, we estimate an equilibrium model of entry that predicts the number of FTTH investors in a municipality. In the second stage, we insert the correction term derived from the entry model in the FTTH coverage (adoption, competition) regression to correct for endogeneity of investor entry. The two stages make two contributions. First, we find some FTTH demand and cost factors, which are significant determinants of investor entry. Second, we show that the presence of co-investors does not impact coverage dynamics at the municipality-level, which appears to be determined by French regulatory coverage obligations, i.e., full coverage in five years. In addition, we observe that the presence of co-investment, leads to an increase of 7.6% in FTTH adoption during the 2015-2018 study period and also a more intense competition as shown through the decrease in Orange total retail broadband market penetration by 7.8% for Orange, which is the incumbent operator in France. Our findings confirm that co-investment supports the policy objectives of adoption and competition and should be supported by regulation. |
| Keywords: | Entry model,FTTH coverage,FTTH adoption,competition,co-investment |
| JEL: | L43 L51 L96 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205160&r=all |
| By: | Basaure, A.; Finley, B. |
| Abstract: | Deployment of 5G networks is often described as a disruptive phenomena. Specifically 5G should enable new emerging Internet of Things (IoT) applications. However, such applications require new regulation and business models to incentivize costly infrastructure investments. Currently, no clear consensus exists on the appropriate regulatory regime for 5G urban deployment. This work explores two alternative regulatory scenarios for a connected vehicles scenario to analyze how the most important regulatory decisions affect an urban network deployment. One alternative is to maintain the current scheme of spectrum assignment while facilitating additional flexibility for infrastructure sharing (ex-post competition). The other alternative is to define local areas for monopoly 5G provisioning and define the conditions for competition ex-ante. Through agent-based simulations, this work shows that a local licensing scenario may achieve a better performance than a coopetition scenario. Additional sensitivity checks also help detail the existing trade-offs. Finally, the work discusses the implications and limitation of the findings. |
| Keywords: | 5G,IoT,connected cars,regulation,local licensing,coopetition,ex-ante versus ex-post competition |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205167&r=all |
| By: | Aimene, Louise; Jeanjean, Francois; Liang, Julienne |
| Abstract: | We evaluate the impact of mobile operators merger on unitary price of data and voice by using country-level observations on data retail revenue, cellular data traffic, voice retail revenue, outgoing voice minutes. Using difference-in-differences estimation strategy, we estimate the effect of 4-to-3 operators merger by comparing the difference between the no-merging countries and the merging countries before and after the introduction of 4-to-3 operators merger. In accordance with the theoretical prediction provided in this paper, we find that mergers from four to three mobile operators tend to decrease data unitary price and increase voice unitary price |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205161&r=all |
| By: | Sahebali, M. W. W.; Sadowski, Bert M.; Nomaler, O.; Brennenraedts, R. |
| Abstract: | Within the growing literature on next generation network (NGN), much research has focused on infrastructure competition and spatial effects driving investment incentives in NGN provision. However, less attention has been paid to the dynamic factors explaining NGN rollout. The purpose of this paper is to examine the geographical effects of NGN rollout by utilizing basic data mining techniques in conjunction with exploratory spatial data analysis. In explaining NGN rollout, the paper derives a dynamic geographical model on NGN provision and examines it empirically by focusing on the spatial and temporal effects driving NGN development in the Netherlands. The paper confirms previous research on market uncertainty and the techno-economics of NGN development, but shows, in addition, that more specific factors related to local effects and demand uncertainty are vital in explaining NGN rollout. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205210&r=all |
| By: | Kantola, Raimo |
| Abstract: | EU has adopted a law on Net Neutrality (NN) ruling that Internet access providers should treat all traffic equally irrespective of sender, receiver, content, service, application or device in use. The 5G community is developing a network that can be tailored to a use case, meaning that it intends to treat traffic differently for each use case. Tailoring can be at least in terms of traffic management, allocated types and amount of resources, redundancy, particular forms of security etc. Moreover, 5G network uses network function virtualization, i.e. cloud technology is applied to run the network itself while the law on NN does not mention the concept of the cloud. The interpretation is that if a cloud platform is owned by the Internet access provider, the cloud is just a part of the network and under the NN regulation. At the same time if a cloud-based computer is owned by a cloud or content provider, it is a terminal and thus not regulated. 5G introduces the idea of edge computing (EC) that can use virtualization and allows special treatment for some applications or services. This paper explores how significant is this controversy between the new concepts of networking in 5G and the EU regulation and what is its possible impact on the network providers. The paper studies to what extent and how the 5G ideas can be applied under the EU law and whether something should be done about the law and in particular the Guidelines that have been published by the Body of European Regulators for Electronic Communications (BEREC) to clarify the implementation of the law. Finally, we discuss the possible impact of the law on industry structure. |
| Keywords: | Net neutrality,5G,slicing,traffic treatment,traffic management,security,specialized service |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205187&r=all |
| By: | Lefouili, Yassine; Toh, Ying Lei (Federal Reserve Bank of Kansas City) |
| Abstract: | This paper analyzes whether a privacy regulation that restricts a dominant firm’s data disclosure level harms the firm’s incentives to invest in service quality and thereby harms social welfare. We study how the regulation affects the privacy and quality choices of a monopoly service provider, who derives revenues solely from disclosing user data to third parties, as well as how those choices in turn affect consumers’ participation and information-sharing decisions. We show that the regulation does not always harm investment incentives; moreover, even when it does, it may still improve social welfare. |
| Keywords: | Privacy Regulation; Data Disclosure; Investment; Quality |
| JEL: | D83 L15 L51 |
| Date: | 2019–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp19-05&r=all |
| By: | Fujisawa, Chieko; Kasuga, Norihiro |
| Abstract: | Expansion of the cloud computing market, a major reform in information and communication technology (ICT), has attracted wide attention. From the perspective of companies that need cloud services, if access to cloud spreads is available on rent instead of sales, initial investment cost will decline and the number of companies currently adopting the cloud system in the form of renting servers will increase. From the supply side perspective, what are the advantages of renting cloud services? To analyze this question, we consider a duopoly cloud market under licensing and examine the optimal strategy for providers. We find that in a two-part licensing contract, which includes high royalty and fixed fee charged upfront, when the cost-saving effect is high, both firms prefer renting to increase their revenue, but when the effect is low, each firm makes a different choice. |
| Keywords: | Durable goods,Licensing contract,Selling,Renting,Cloud market |
| JEL: | D43 L13 L68 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205177&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Rexon T. Nting (London, UK); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | Purpose- In this study, we test the so-called ‘Quiet Life Hypothesis’ (QLH) which postulates that banks with market power are less efficient. Design/methodology/approach- We employ instrumental variable Ordinary Least Squares, Fixed Effects, Tobit and Logistic regressions. The empirical evidence is based on a panel of 162 banks consisting of 42 African countries for the period 2001-2011. There is a two-step analytical procedure. First, we estimate Lerner indices and cost efficiency scores. Then, we regress cost efficiency scores on Lerner indices contingent on bank characteristics, market features and the unobserved heterogeneity. Findings- The empirical evidence does not support the QLH because market power is positively associated with cost efficiency. Originality/value- Owing to data availability constraints, this is one of the few studies to test the QLH in African banking. |
| Keywords: | Finance; Savings banks; Competition; Efficiency; Quiet life hypothesis |
| JEL: | E42 E52 E58 G21 G28 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/080&r=all |
| By: | Attanasio, Orazio (University College London); Pastorino, Elena (Federal Reserve Bank of Minneapolis) |
| Abstract: | This paper examines the price of basic staples in rural Mexico. We document that nonlinear pricing in the form of quantity discounts is common, that quantity discounts are sizable for typical staples, and that the well-known conditional cash transfer program Progresa has significantly increased quantity discounts, although the program, as documented in previous studies, has not affected on average unit prices. To account for these patterns, we propose a model of price discrimination that nests those of Maskin and Riley (1984) and Jullien (2000), in which consumers differ in their tastes and, because of subsistence constraints, in their ability to pay for a good. We show that under mild conditions, a model in which consumers face heterogeneous subsistence or budget constraints is equivalent to one in which consumers have access to heterogeneous outside options. We rely on known results (Jullien (2000)) to characterize the equilibrium price schedule, which is nonlinear in quantity. We analyze the effect of nonlinear pricing on market participation as well as the impact of a market-wide transfer, analogous to the Progresa one, when consumers are differentially constrained. We show that the model is structurally identified from data on prices and quantities from a single market under common assumptions. We estimate the model using data from municipalities and localities in Mexico on three commonly consumed commodities. Interestingly, we find that nonlinear pricing is beneficial to a large number of households, including those consuming small quantities, relative to linear pricing mostly because of the higher degree of market participation that nonlinear pricing induces. We also show that the Progresa transfer has affected the slopes of the price schedules of the three commodities we study, which have become steeper as consistent with our model, leading to an increase in the intensity of price discrimination. Finally, we show that a reduced form of our model, in which the size of quantity discounts depends on the hazard rate of the distribution of quantities purchased in a village, accounts for the shift in price schedules induced by the program. |
| Keywords: | Nonlinear pricing; Budget constraints; Cash transfers; Structural estimation |
| JEL: | D42 D43 D82 I38 O12 O13 O22 |
| Date: | 2019–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:0023&r=all |
| By: | de Streel, Alexandre; Jacques, Florian |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205221&r=all |
| By: | Julli, Kenneth |
| Abstract: | The digital world operates differently from the old world of print media. Notably, online advertising and purchasing are performed in a fast paced and interactive process. When purchasing online, the first screen a consumer sees is similar to the print advertisements of old. However, unlike print advertising, the first digital screen gives way to an interactive process as the consumer clicks through pages to complete their online transaction. The Organisation for Economic Co-operation and Development (OECD) has observed that "trust is essential in situations where uncertainty and interdependence exist." Existing laws that govern misleading and deceptive advertising must be adapted to the new digital world. Consumers need to have trust that the prices they see online are the prices they will actually pay as they click through to complete their transaction. In recognition of the importance of digital platforms, and the high levels of trust consumers place in the digital world, governments are beginning to develop regulations specific to the digital world. Additionally, and more than ever, regulators such as the Canadian Competition Bureau are responding to evolving challenges in the digital economy. In particular, the Bureau's Deceptive Marketing Practices Directorate has committed to investigating misleading representations made online to foster a transparent digital economy in line with consumer protection... |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse19:205185&r=all |
| By: | Ohki, Kazuyoshi |
| Abstract: | In this paper, we construct a tractable endogenous growth model to examine heterogeneous incumbents' current technology-switching behavior. Then, we examine the effects of policies such as a subsidy for innovation by incumbents, a subsidy for innovation by entrants, and the extension of patent length. Our setting suggests interesting and counterintuitive results. High quality incumbents tend to be less likely to conduct innovation, which is inconsistent with Schumpeter's hypothesis. A subsidy for innovation by entrants decreases the average quality of differentiated goods. Moreover, it may decrease the growth rate of the economy if the positive spillover of innovation from average quality production is adequately large. Aggregate innovation can be small even when the population size is large if the barriers to entry are extremely high. |
| Keywords: | Economic Growth, R&D, Firm-Heterogeneity, Innovation by Incumbents, IPR Policy |
| JEL: | O31 O32 O33 O34 O41 |
| Date: | 2019–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96771&r=all |
| By: | Heise, Sebastian (Federal Reserve Bank of New York) |
| Abstract: | Economists have long suspected that firm-to-firm relationships might lower the responsiveness of prices to shocks due to the use of fixed-price contracts. Using transaction-level U.S. import data, I show that the pass-through of exchange rate shocks in fact rises as a relationship grows older. Based on novel stylized facts about a relationship’s life cycle, I develop a model of relationship dynamics in which a buyer-seller pair accumulates relationship capital to lower production costs under limited commitment. The structurally estimated model generates countercyclical markups and countercyclical pass-through of shocks through variation in the economy’s rate of relationship creation, which falls in recessions. |
| Keywords: | prices; exchange rate; supply chain; trade relationships |
| JEL: | E30 E32 F14 L14 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:896&r=all |
| By: | Mariko Sakakibara; Natarajan Balasubramanian |
| Abstract: | We study how spinout founders’ human capital and parent size relate to founders’ propensity to stay in the same industry as their parents or to go outside the industry. Individuals with high human capital face a higher performance penalty if they form spinouts outside the parent industry, but they also face greater deterrence from large parents if they stay in that industry. Using matched employer employee data on spinout founders and their coworkers, we find that individuals with higher human capital are less likely to form spinouts in distant industries than in the parent’s industry. Further, we find that as parent size increases, such individuals are less likely to form spinouts in the parent’s industry and more likely to form spinouts in distant industries. |
| Keywords: | Entrepreneurship, spinout, human capital, competition, industry-specific knowledge |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:19-30&r=all |
| By: | Kahn, Matthew E. (Johns Hopkins University); Tracy, Joseph (Federal Reserve Bank of Dallas) |
| Abstract: | An emerging labor economics literature studies the consequences of firms exercising market power in local labor markets. These monopsony models have implications for trends in earnings inequality. The extent of this market power is likely to vary across local labor markets. In choosing what market to live and work in, workers trade off wages, rents and local amenities. Building on the Rosen/Roback spatial equilibrium model, we investigate how the existence of local monopsony power affects the cross-sectional spatial distribution of wages and rents across cities. We find an employment-weighted elasticity of land prices to concentration of –0.034—similar to Rinz (2018)’s reported elasticity of compensation to concentration. This finding has implications for who bears the economic incidence of labor market power. We present two extensions of the model focusing on the role of migration costs and worker skill heterogeneity. |
| Keywords: | monopsony; wages; housing costs |
| JEL: | J3 R23 |
| Date: | 2019–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1912&r=all |