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on Industrial Competition |
| By: | Donja Darai; Catherine Roux; Frédéric Schneider (Cambridge Judge Business School, University of Cambridge) |
| Abstract: | We study whether firms' collusive ability influences their incentives to merge: when tacit collusion is unsuccessful, firms may merge to reduce competitive pressure. We run a series of Bertrand oligopoly experiments where the participants decide whether, when, and to whom they send merger bids. Our experimental design allows us to observe (i) when and to whom mergers are proposed, (ii) when and by whom merger offers are accepted, and (iii) the effect on prices when mergers occur in this way. Our findings suggest that firms send more merger offers when prices are closer to marginal costs. Maverick firms that cut prices and thereby fuel competition are the predominant (but reluctant) receivers of these offers. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:jbs:wpaper:201902&r=all |
| By: | Meng-Yu Liang (Institute of Economics, Academia Sinica, Taipei, Taiwan) |
| Abstract: | Deneckere and Liang (2008) show that Swanís independent result fails when the monopolist cannot commit to a price schedule. The ratio between the rate of depreciation and the discount rate affects monopolist's market power when there is a frictionless secondhand market. This paper analyzes the same underlying model, except that resale is not allowed, and the existence of a second-hand market enlarges the range of parameters for the monopolist equilibrium. The presence of substitutes from the second-hand market after selling to the low valuation consumers may make the freshly release price less competitive in the first place. |
| Keywords: | : durability, market power, second-hand market, Coase Conjecture |
| JEL: | L12 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:sin:wpaper:19-a003&r=all |
| By: | Alfaro, Martin (University of Alberta, Department of Economics) |
| Abstract: | This paper studies a mechanism which arises through the strategic use of demand-enhancing investments by domestic leaders. To accomplish this, I develop a parsimonious framework that allows for firm heterogeneity, strategic interactions, multiple choices, and extensive margin adjustments. The mechanism is such that, relative to a non-strategic benchmark, domestic leaders follow an overinvestment strategy which preempts the entry of importers and increases their domestic sales. This generates greater concentration and home-bias patterns at both the firm and aggregate level. The results are robust to the type of competition (i.e., prices or quantities) and whether investments trigger increases or decreases in prices. Estimating the model for Danish manufacturing industries, I show that, in industries with lower substitutability, the strategic effect on concentration and domestic intensity is greater for consumer goods, and lower regarding concentration for producer goods. |
| Keywords: | domestic leaders; demand-enhancing investments; preemption; concentration; home bias |
| JEL: | F12 F14 L13 L60 |
| Date: | 2019–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2019_013&r=all |
| By: | Thomas Demuynck; Jean-Jacques Herings; Riccardo Saulle; Christian Seel |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/295316&r=all |
| By: | Béatrice Boulu-Reshef (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); Constance Monnier-Schlumberger (PRISM-Sorbonne - PRISM - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Panthéon-Sorbonne) |
| Abstract: | Cet article propose une approche expérimentale qui rend possible l'identification des individus les plus susceptibles de former un cartel : les « têtes brûlées ». Les expériences testent l'efficacité dissuasive des différents dispositifs de lutte contre les cartels en comparant les propensions à s'entendre des individus dans différents types de dispositifs de sanctions-amende, clémence, conformité, et exclusion-et de détection-détection avec probabilité exogène ou par dénonciation dans le cas de la clémence. La conformité et l'exclusion s'avèrent particulièrement dissuasive, la clémence ne l'est pas. L'effet dissuasif des amendes élevées est limité pour les « têtes brûlées », qui sont davantage influencés par l'ampleur du risque de détection. Les différences de genre et d'aversion pour le risque impactent le comportement chez les autres participants mais pas chez les individus qualifiés de « têtes brûlées ». |
| Keywords: | Expérience,cartel,sanctions,têtes brûlées |
| Date: | 2019–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02123622&r=all |
| By: | Mark Glick (University of Utah); Catherine Ruetschlin (University of Utah) |
| Abstract: | The Big Tech companies, including Google, Facebook, Amazon, Microsoft and Apple, have individually and collectively engaged in an unprecedented number of acquisitions. When a dominant firm purchases a start-up that could be a future entrant and thereby increase competitive rivalry, it raises a potential competition issue. Unfortunately, the antitrust law of potential competition mergers is ill-equipped to address tech mergers. We contend that the Chicago School`s assumptions and policy prescriptions hobbled antitrust law and policy on potential competition mergers. We illustrate this problem with the example of Facebook. Facebook has engaged in 90 completed acquisitions in its short history (documented in the Appendix to this paper). Many antitrust commentators have focused on the Instagram and WhatsApp acquisitions as cases of mergers that have reduced potential competition. We show the impotence of the potential competition doctrine applied to these two acquisitions. We suggest that the remedy for Chicago School damage to the potential competition doctrine is a return to an empirically tractable structural approach to potential competition mergers. |
| Keywords: | Antitrust Law, Big Tech Companies, Digital Markets, Mergers, Potential Competition Big Tech Acquisitions and the Potential Competition Doctrine: The Case of Facebook |
| JEL: | K21 L40 L86 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:104&r=all |
| By: | Hellwig, Michael; Laser, Falk Hendrik |
| Abstract: | We analyze a large merger in the Dutch banking market during the financial crisis using disaggregated data. Based on a merger simulation model, we evaluate merger-induced changes in the interest rates for savings accounts. We find that the merging banks decreased interest rates by 3 to 5 percent and competitors by up to 1 percent. These anti-competitive effects translate into a loss of consumer welfare by roughly 69 million euros in 2010. We identify heterogeneous effects indicating that less educated consumers with lower savings are most affected. Our findings highlight the important role of competition policy during financial crisis mitigation. |
| Keywords: | antitrust,competition policy,merger analysis,state aid,retail banking,random-coefficients logit models,differentiated products |
| JEL: | D22 G21 G34 L11 L25 L40 L41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:19047&r=all |
| By: | Maria Karadima (Athens University of Economics and Business); Helen Louri (Athens University of Economics and Business and London School of Economics HO/EI) |
| Abstract: | As consolidation in the banking sector has increased impressively in the wake of the global financial crisis, the question of the impact of market power on bank risk has become topical again. In this study we investigate empirically the impact of market power as evidenced by concentration (CR5 and HHI) and (lack of) competition (Lerner indices) on the change in NPL ratios (ÄNPL). We use an unbalanced panel dataset of 646 euro area banks over the period 2005-2017. Since the distribution of ÄNPL is found not to be normal but positively skewed, we employ a penalized quantile regression model for dynamic panel data. We find conflicting results which are in line with the argument that more concentration does not always imply less competition. The results suggest that competition supports stability when NPLs increase but concentration enhances faster NPL reduction. In addition, we find that the effect of bank concentration is stronger in periphery euro area countries while the effect of competition is enhanced in banking sectors with higher foreign bank presence. Finally, bank competition is more beneficial for commercial banks in reducing NPLs than for savings and mortgage banks, while commercial banks are more prone to creating NPLs than the other two bank types. A tentative conclusion of our study could be that post-crisis consolidation facilitates the faster reduction of NPLs, while as the situation normalizes competition discourages the growth of new NPLs. Policy makers should take such findings into account by encouraging consolidation especially in periphery countries but also inserting competition in the banking sector through either regulating anti-competitive behavior or inviting new and/or foreign entrants. |
| Keywords: | Non-performing loans; Competition; Lerner index; Concentration; Quantile regression; PQRFE estimator; PIVQRFE estimator |
| JEL: | C23 C51 G21 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:271&r=all |
| By: | Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics) |
| Abstract: | Using data from Alberta's wholesale electricity market, we demonstrate the empirical challenges that can arise when employing empirical methodologies to characterize a firm's unilateral profit-maximizing offer curve. We illustrate that such residual demand analyses can result in non-monotonic, downward sloping, optimal best response offer curves violating restrictions imposed on bidding behaviour. We show that this arises because of the highly non-linear nature of residual demand functions firms can face in practice. We find that firms could have achieved the vast majority of expected profits by employing an offer curve that represents a monotonically smoothed version of the often non-monotonic optimal offer curves. Our findings shine light onto empirical challenges associated with commonly employed equilibrium models to analyze firm behaviour in restructured electricity markets. Further, our analysis illustrates that the failure to account for these empirical challenges may lead researchers to incorrect conclusions regarding observed firm behaviour. These findings stress the importance of accounting for regulatory and practical constraints firms face when modeling bidding behaviour in these multi-unit, uniform priced, procurement auctions. |
| Keywords: | Electricity; Market Power; Regulation |
| JEL: | D43 L40 L51 L94 Q48 |
| Date: | 2019–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2019_015&r=all |
| By: | Chezhia, Giorgi |
| Abstract: | The Kazakh grain producing and processing sectors are prominent components of the Kazakh agriculture. Production and export of grain, especially of wheat and wheat flour, has demonstrated significant annual growth after the 1990's crisis. However, the grain market is highly regulated by the government and some of the implemented policy instruments cause local grain market distortions. For example, the wheat export ban imposed by the government in 2008 triggered local wheat price fluctuations, followed by the price spikes after the ban elimination. In addition to the government interventions, the Kazakh grain sector is seriously challenged by production inefficiency, outdated production technology, low yields, limited access to financial recourses, landlocked position of the country and underdeveloped infrastructure. Furthermore, a non-competitive market structure, such as asymmetric price developments and antitrust law violations, is observed within the Kazakh grain supply chain. Evidence suggests that the grain processing sector, procuring roughly a third of the grain produced in the country, might be influencing the grain prices in Kazakhstan. Moreover, the grain sector became highly concentrated in recent years. Many processing companies exit the sector, enabling the remaining players to control the large share of the market. Therefore, the focus of this study is to analyze the structure of the grain supply chain in Kazakhstan, followed by the examination of the competitiveness of the Kazakh grain processing sector using econometric analyses. The econometric analyses are conducted within the framework of the New Empirical Industrial Organizations (NEIO). The three approaches being applied for the market power analysis are Hall's approach, General Identification Method (GIM) and Production Theoretical Approach (PTA). The results are examined and reported in combination with the analysis of the grain supply chain. [...] |
| Keywords: | Crop Production/Industries |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iamost:296499&r=all |
| By: | Alfaro, Martin (University of Alberta, Department of Economics); Lander, David (Peking University) |
| Abstract: | This paper reconciles for the first time the wide range of outcomes arising in studies of trade liberalizations. We define an imperfect-competition model encompassing the major variants of monopolistic competition (Krugman, Melitz, and Chaney) and Cournot (with free and restricted entry). This model reveals that seemingly disparate outcomes are not due to market structure, as usually conjectured, but differences in marginal entrants' features. Thus, once we reconcile these differences, the same outcomes emerge across all models. By identifying assumptions on marginal entrants that generate pro-competitive, anti-competitive, or null effects, we also explain why puzzling outcomes arise in some standard frameworks. |
| Keywords: | imperfect competition; unilateral liberalization; import competition; export opportunities |
| JEL: | D43 F10 F12 L13 |
| Date: | 2019–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2019_016&r=all |
| By: | Juan Pablo Atal (University of Pennsylvania) |
| Abstract: | Long-term health insurance contracts have the potential to efficiently insure against reclassification risk, but at the expense of other limitations like provider lock-in. This paper empirically investigates the workings of long-term contracts which are subject to this trade-off. Individuals are shielded against premium increases and coverage denial as long as they stay with their initial contract, but those that become higher risk are subject to premium increases or coverage denials upon switching, potentially leaving them locked-in with their original network of providers. I provide the first empirical evidence on the importance of this phenomenon using administrative panel data from the universe of the private health insurance market in Chile, where competing insurers o?er long term contracts. I fit a structural model to yearly plan choices, and am able to jointly estimate evolving preferences for different insurance companies and supply-side underwriting in the form of premium risk-rating and coverage denial. To quantify the welfare effects of lock-in, I compare simulated choices under the current rules to those in a counterfactual scenario with no underwriting. The results show that consumers would be willing to pay around 13 percent more in yearly premiums to avoid lock-in. Finally, I study a counterfactual scenario where long-term contracts are replaced with community-rated spot contracts, and I find only minor general-equilibrium effects on premiums and on the allocation of individuals across insurers. I argue that these small effects are the result of large levels of preference heterogeneity uncorrelated to risk. |
| Keywords: | Health Insurance, Guaranteed-Renewability, Lock-in |
| JEL: | D82 G22 I11 |
| Date: | 2019–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:19-020&r=all |
| By: | Mark Schneider (The University of Alabama, Culverhouse College of Business); Daniel Graydon Stephenson (Virginia Commonwealth University and Economic Science Institute, Chapman University) |
| Abstract: | Classical studies of asymmetric information focus on situations where only one side of a market is informed. This study experimentally investigates a more general case where some sellers are informed and some buyers are informed. We establish the existence of semiseparating perfect Bayesian equilibria where prices serve as informative signals of quality to uninformed buyers, while informed buyers can often leverage their informational advantage by purchasing high quality items from uninformed sellers at bargain prices. These models providearationalfoundationfortheco-existenceofbargains, pricesignaling, and Pareto e?ciency in markets with asymmetric information. We test these theoretical predictions in a controlled laboratory experiment where agents repeatedly participate in markets with asymmetric information. Weobservelongrunbehaviorconsistentwithequilibrium predictions of price signaling, bargains, and partial-pooling behavior. |
| JEL: | C9 C7 D4 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:19-27&r=all |
| By: | Knotek, Edward S. (Federal Reserve Bank of Cleveland); Sayag, Doron (Israel Central Bureau of Statistics); Snir, Avichai (Netanya Academic College) |
| Abstract: | We document a causal role for price endings in generating micro and macro price rigidity. Based on micro price data underlying the consumer price index in Israel, we document that most stores have a favored price ending—a final digit, usually a zero or nine, used by a majority of prices in that store—and that these favored price endings are utilized extensively. Using changes to the VAT rate as exogenous cost shocks that affect prices regardless of ending, we find that the frequency of price adjustment for nonfavored endings increases by twice as much as the frequency of adjustment for favored endings in months when the VAT rate changes. In the aggregate, sluggish pass-through of VAT rate changes is due to favored endings; changes in the VAT rate are passed through fully and immediately to nonfavored endings. |
| Keywords: | sticky prices; favored price endings; zero-ending prices; nine-ending prices; pass-through; |
| JEL: | E3 L11 |
| Date: | 2019–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:192400&r=all |
| By: | Pujol, Ferran Espuny; Hancock, Ruth; Hviid, Morten; Morciano, Marcello; Pudney, Stephen |
| Abstract: | We investigate the impact of exogenous local conditions which favour high market concentration on supply, price and quality in local markets for care homes for older people in England. We extend the existing literature in: (i) considering supply capacity as a market outcome alongside price and quality; (ii) taking account of the chain structure of care home supply and differences between the nursing home and residential care home sectors; (iii) introducing a new econometric approach based on reduced form relationships that treats market concentration as a jointly-determined outcome of a complex contested market. We find that areas susceptible to a high degree of market concentration tend to have greatly restricted supply of care home places and (to a lesser extent) a higher average public cost, than areas susceptible to low degree of market concentration. There is no significant evidence that conditions favouring high market concentration affect average care home quality. |
| Date: | 2019–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:ese:iserwp:2019-10&r=all |