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on Industrial Competition |
| By: | Leonardo Madio; Carroni, Elias; Shekhar, Shiva |
| Abstract: | This article studies incentives for a premium provider (Superstar) to offer exclusive contracts to competing platforms mediating the interactions between consumers and firms. When platform competition is intense, more consumers affiliate with the platform favored by Superstar exclusivity. This mechanism is self-reinforcing as firms follow consumer decisions and some join the favored platform only. Exclusivity always benefits firms and might eventually benefit consumers. A vertical merger (platform-Superstar) makes non-exclusivity more likely than if the Superstar was independent. The analysis provides novel insights for managers and policymakers and it is robust to several variations and extensions. |
| JEL: | L13 L22 L86 K21 |
| Date: | 2019–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2019:pma2756&r=all |
| By: | BELLEFLAMME Paul, (CORE, UCLouvain); PEITZ Martin, (Universität Mannheim) |
| Abstract: | We consider two-sided platforms with the feature that some users on one or both sides of the market lack information about the price charged to participants on the other side of the market. With positive cross-group external effects, such lack of pricie information makes demand less elastic. A monopoly platform does not benefit from opaqueness and optimality reveals price information. By contrast, in a two-sided singlehoming duopoly, platforms benefit from opaqueness and, thus, do not have an incentive to disclose price information. In competitive bottleneck markets, results are more nuanced: if one side is fully informed (for exogenous reasons), plaltforms may decide to inform users on the other side either fully, partially or not at all, depending on the strength of cross-group external effects and hte degree of horizontal differentiation. |
| Keywords: | price transparency, two-sided markets, competitive bottleneck, platform competition, price information, strategic disclosure |
| Date: | 2019–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2019011&r=all |
| By: | Dmitry Shapiro; Seung Huh |
| Abstract: | The paper studies incentives of low-quality sellers to disclose negative information about their product. We develop a model where one¡¯s quality can be communicated via cheap-talk messages only. This setting limits ability of high-quality sellers to separate as any communication strategy they pursue can be costlessly imitated by low-quality sellers. Two factors that can incentivize low-quality sellers to communicate their quality are buyers¡¯ risk-attitude and competition. Quality disclosure reduces buyers¡¯ risk thereby increasing their willingness to pay. It also introduces product differentiation softening the competition. We show that equilibria where low-quality sellers separate exist under monopoly and duopoly. Even though low-quality sellers can costlessly imitate high-quality sellers, equilibria where high-quality sellers separate can also exist but under duopoly only. |
| Keywords: | Negative information; product di?erentiation; cheap talk; lemon markets |
| JEL: | D21 L15 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no101&r=all |
| By: | Rudolf Kerschbamer; Daniel Neururer; Matthias Sutter |
| Abstract: | Credence goods markets are characterized by pronounced informational asymmetries between consumers and expert sellers. As a consequence, consumers are often exploited and market efficiency is threatened. However, in the digital age, it has become easy and cheap for consumers to self-diagnose their needs using specialized webpages or to access other consumers’ reviews on social media platforms in search for trustworthy sellers. We present a natural field experiment that examines the causal effect of information acquisition from new media on the level of sellers’ price charges for computer repairs. We find that even a correct self-diagnosis of a consumer about the appropriate repair does not reduce prices, and that an incorrect diagnosis more than doubles them. Internet ratings of repair shops are a good predictor of prices. However, the predictive valued of reviews depends on whether they are judged as reliable or not. For reviews recommended by the platform Yelp we find that good ratings are associated with lower prices and bad ratings with higher prices, while non-recommended reviews have a clearly misleading effect, because non-recommended positive ratings increase the price. |
| Keywords: | credence goods, fraud, information acquisition, internet, field experiment |
| JEL: | C93 D82 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7932&r=all |
| By: | Arthur B. Nelson (Department of Economics, Florida State University) |
| Abstract: | Many contests are sequential, with leaders making decisions rst, and followers observing those decisions and responding to them. The theory predicts that, unlike in standard Stackelberg duopoly settings, in two-player sequential contests the leader has no strategic advantage. However, this is no longer the case for sequential contests with multiple leaders. Applications include political competition with two established parties and a possibility for a third party entry, or R&D competition with multiple incumbents and a new entrant. We conduct a lab experiment testing the equilibrium predictions for two- and three-player sequential contests, with the corresponding simultaneous contests as controls. Consistent with theory, we find evidence of entry deterrence by leaders in the three-player sequential contest, but not in the two-player version. |
| Keywords: | contest, sequential move, Stackelberg, deterrence, experiment |
| JEL: | C92 D72 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2019_11_02&r=all |
| By: | Syngjoo Choi; Jos¢¥e-Alberto Guerra; Jinwoo Kim |
| Abstract: | We develop a model of interdependent value auctions in which two types of bidders compete: insiders, who are perfectly informed about their value, and outsiders, who are informed only about the private component of their value. Because of the mismatch of bidding strategies between insiders and outsiders, the second-price auc- tion is inefficient. The English auction has an equilibrium in which the information outsiders infer from the history of drop-out prices enables them to bid toward attaining ecffiency. The presence of insiders has positive impacts on the seller¡¯s revenue. A laboratory experiment confirms key theoretical predictions, despite evidence of naive bidding. |
| Keywords: | Interdependent value auctions; asymmetric information structure; second- price auction; English auction, experiment |
| JEL: | C92 D44 D82 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no114&r=all |
| By: | Choo, Lawrence; Zhou, Xiaoyu |
| Abstract: | We use an experiment to study whether market competition can reduce anomalous behaviour in games. In different treatments, we employ two alternative mechanisms, the random mechanism and the auction mechanism, to allocate the participation rights to the red hat puzzle game, a well-known logical reasoning problem. Compared to the random mechanism, the auction mechanism significantly reduces deviations from the equilibrium play in the red hat puzzle game. Our findings show that under careful conditions, market competition can indeed reduce anomalous behaviour in games. |
| Keywords: | market competition,market selection hypothesis,auctions,bounded-rationality,red hat puzzle |
| JEL: | C70 C90 D44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwqwdp:082019&r=all |
| By: | Youngsheng Xu (Georgia State University); Naoki Yoshihara (School of Management, Kochi University of Technology) |
| Abstract: | In this paper, we examine the performance of the market mechanismby focusing on whether no one, in the `long-run', can be left behind withtechnological innovation in the economy. We show that the market mechanism with technological innovation unavoidably leaves some individuals behind. We extend this negative result to a broader class of resource allocation mechanisms. |
| Keywords: | dynamic market competition with technological innovation, Hicksian Optimism, the Walrasian allocation rule, Pareto eciency, individual rationality |
| JEL: | D30 D51 D60 O33 P10 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:kch:wpaper:sdes-2019-11&r=all |
| By: | Choi, Jay Pil (Michigan State University, Department of Economics); Mukherjee, Arijit (Michigan State University, Department of Economics) |
| Abstract: | We explore the optimal disclosure policy of a certification intermediary in an environment where (i) the seller's decision on entry and investment in product quality are endogenous and (ii) the buyers observe an additional public signal on quality. The intermediary mutes the seller's entry incentives but enhances investment incentives following entry, and the optimal policy maximizes rent extraction from the seller in the face of this trade-off. We identify conditions under which full, partial or no disclosure can be optimal. The intermediary's report becomes noisier as the public signal gets more precise, but if the public signal becomes too precise, the intermediary resorts to full disclosure. In the presence of an intermediary, a more precise public signal may also lead to lower social welfare. |
| Keywords: | Certification intermediaries; optimal disclosure policy; investment and entry incentives; public signal |
| JEL: | D04 L12 L40 L43 L51 L52 |
| Date: | 2019–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:ris:msuecw:2019_006&r=all |
| By: | Merino Troncoso, Carlos |
| Abstract: | I estimate welfare loss of market power using consumer loss variation. I estimate demand elasticity of certain goods known to suffer monopolistic power. Based in Urzúa's study I employ data from household expenditure survey of Spain and Deaton ́s methodology to estimate elasticities of demand using expenditure of households. We finally obtain distributive effects of market power in selected sectors. |
| Keywords: | welfare loss, inequality, demand elasticity |
| JEL: | D63 L4 |
| Date: | 2019–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96902&r=all |
| By: | Bruno Pellegrino |
| Abstract: | Industry concentration and profit rates have increased significantly in the United States over the past two decades. There is growing concern that oligopolies are coming to dominate the American economy. I investigate the welfare implications of the consolidation in U.S. industries, introducing a general equilibrium model with oligopolistic competition, differentiated products, and hedonic demand. I take the model to the data for every year between 1997 and 2017, using a data set of bilateral measures of product similarity that covers all publicly traded firms in the United States. The model yields a new metric of concentrationâbased on network centralityâthat varies by firm. This measure strongly predicts markups, even after narrow industry controls are applied. I estimate that oligopolistic behavior causes a deadweight loss of about 13% of the surplus produced by publicly traded corporations. This loss has increased by over one-third since 1997, as has the share of surplus that accrues to producers. I also show that these trends can be accounted for by the secular decline of IPOs and the dramatic rise in the number of takeovers of venture-capital-backed startups. My findings provide empirical support for the hypothesis that increased consolidation in U.S. industries, particularly in innovative sectors, has resulted in sizable welfare losses to the consumer. |
| JEL: | D2 D4 D6 E2 L1 O4 |
| Date: | 2019–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2019:ppe860&r=all |
| By: | Philippe Aghion; Antonin Bergeaud; Timo Boppart; Peter J. Klenow; Huiyu Li |
| Abstract: | Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor’s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firm-level costs of spanning multiple markets, perhaps due to accelerating IT advances. In response, the most efficient firms (with higher markups) spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find markets more difficult to enter profitably and therefore innovate less. Eventually, due to greater competition from efficient firms, within-firm markups actually fall. Despite the increase in the aggregate markup and rents, firm incentives to innovate decline—lowering the long run growth rate. |
| JEL: | O31 O47 O51 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26448&r=all |
| By: | Germán Gutiérrez; Callum Jones; Thomas Philippon |
| Abstract: | We combine a structural model with cross-sectional micro data to identify the causes and consequences of rising concentration in the US economy. Using asset prices and industry data, we estimate realized and anticipated shocks that drive entry and concentration. We validate our approach by showing that the model-implied entry shocks correlate with independently constructed measures of entry regulations and M&As. We conclude that entry costs have risen in the U.S. over the past 20 years and have depressed capital and consumption by about seven percent. |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/233&r=all |
| By: | Juan Carlos CUESTAS; Yannick LUCOTTE; Nicolas REIGL |
| Keywords: | , Bank competition, Banking sector concentration, Market power, Lerner Index, Financial stability, Bank risk-taking, Baltic countries |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:leo:wpaper:2711&r=all |
| By: | Katsafados, Apostolos G.; Androutsopoulos, Ion; Chalkidis, Ilias; Fergadiotis, Emmanouel; Leledakis, George N.; Pyrgiotakis, Emmanouil G. |
| Abstract: | In this paper, we use the sentiment of annual reports to gauge the likelihood of a bank to participate in a merger transaction. We conduct our analysis on a sample of annual reports of listed U.S. banks over the period 1997 to 2015, using the Loughran and McDonald’s lists of positive and negative words for our textual analysis. We find that a higher frequency of positive (negative) words in a bank’s annual report relates to a higher probability of becoming a bidder (target). Our results remain robust to the inclusion of bank-specific control variables in our logistic regressions. |
| Keywords: | Textual analysis; text sentiment; bank mergers and acquisitions; acquisition likelihood |
| JEL: | G00 G17 G21 G34 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96893&r=all |
| By: | Yoshiaki Ogura; Ryo Okui; Yukiko Umeno Saito |
| Abstract: | We demonstrate theoretically and empirically the presence of forbearance lending by profit maximizing banks to influential buyers in a supply network. If the financial market is concentrated, then banks can internalize the negative externality of an influential firm¡¯s exit. As a result, they may keep refinancing for a loss-making influential firm at an interest rate lower than the prime rate. This mechanism sheds new light on the discussion about bailouts offered to zombie firms. Our empirical study, with a unique dataset containing information about interfirm relationships and main banks, provides evidence for such network-motivated lending decisions. |
| Keywords: | supply network; influence coefficient; forbearance; bailout; zombie |
| JEL: | C55 D57 G21 G32 L13 L14 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no127&r=all |