nep-com New Economics Papers
on Industrial Competition
Issue of 2019‒12‒02
ten papers chosen by
Russell Pittman
United States Department of Justice

  1. Output and Welfare Implications of Oligopolistic Third-Degree Price Discrimination By Takanori Adachi; Michal Fabinger
  2. Market Power and Labor Share By Arthur Bauer; Jocelyn Boussard
  3. Does dynamic market competition with technological innovation leave no one behind? By Xu, Yongsheng; Yoshihara, Naoki
  4. Cards on the table: efficiency and welfare effects of the no-surcharge rule By Henriques, David
  5. Market Structure and Organizational Form By Zhou, Haiwen
  6. Spatial Differentiation and Market Power in Input Procurement: Evidence from the Corn Market By Jung, Jinho; Sasmero, Juan; Siebert, Ralph
  7. A profit elasticity approach to measure banking competition in Italian credit markets By Michele Benvenuti; Silvia Del Prete
  8. Antitrust and Economic History: The Historic Failure of the Chicago School of Antitrust By Mark Glick
  9. OPEC's crude game By Even Comfort Hvinden
  10. The Rise of the People’s Republic of China and its Competition Effects on Innovation in Japan By Yamashita, Nobuaki; Yamauchi, Isamu

  1. By: Takanori Adachi; Michal Fabinger
    Abstract: Using estimable concepts, this paper provides sufficient conditions for third-degree price discrimination to raise or lower aggregate output, social welfare, and consumer surplus under differentiated oligopoly when all discriminatory markets are open even without price discrimination. Specifically, we permit general demand functions and cost differences across separate markets, and show that our sufficient conditions entail a cross-market comparison of multiplications of two or three of the following key endogenous variables with economic interpretation:pass-through value,market power index, and markup value. Notably, our results based on these "sufficient statistics" can readily be extended to allow heterogeneous firms, suggesting that they would be used as a building block for empirical study of third-degree price discrimination and welfare.
    Date: 2019–10
  2. By: Arthur Bauer (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Jocelyn Boussard (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, Directorate General for Economic and Financial Affairs (DG ECFIN) - European Commission)
    Abstract: This paper leverages a novel and comprehensive database on French firms from 1966 to 2016 to document important facts about secular trends in market power and labor shares, especially the role of market power in explaining variations of the aggregate labor share, as opposed to other technological factors. To do so, we follow the literature and rely on measures of industry concentration and firm level markups as proxies of market power. We find first that concentration has increased since the beginning of the 1980s in France, that the distribution of labor shares shifted upwards and that those two facts are correlated at the industry level. Second, aggregate markups increased slightly, but firm level markups decreased markedly. We find that the rise of concentration is correlated with a downward shift of the markup distribution, suggesting that the two measures might imperfectly capture different dimensions of market power. Third, larger firms have higher markups and lower labor shares. To sum up, larger firms with lower labor shares and higher markups gained market shares, even more so in industries where firm level labor shares increased and markups decreased most. From a macro point of view, the relative stability of the aggregate labor share in France can be decomposed into a small negative contribution of the aggregate markup, and a small positive contribution of aggregate technology, but from a micro point of view, reallocation contributed negatively, firm level markups contributed positively, and the contribution of technology was negligible.
    Date: 2019–11–07
  3. By: Xu, Yongsheng; Yoshihara, Naoki
    Abstract: In this paper, we examine the performance of the market mechanism by focusing on whether no one, in the `long-run', can be left behind with technological 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 efficiency, individual rationality
    JEL: D30 D51 D60 O33 P10 P20
    Date: 2019–10
  4. By: Henriques, David
    Abstract: In Electronic Payment Networks (EPNs), the No-Surcharge Rule (NSR) requires that merchants charge at most the same amount for a payment card transaction as for cash. In this paper, I use a three-party model (consumers, local monopolistic merchants, and a proprietary EPN) with endogenous transaction volumes, heterogeneous card use benefits for merchants and network externalities of card-accepting merchants on cardholders to assess the efficiency and welfare effects of the NSR. I show that the NSR: (i) promotes retail price efficiency for cardholders, and (ii) inefficiently reduces card acceptance among merchants. The NSR can enhance social welfare and improve payment efficiency by shifting output from cash payers to cardholders. However, if network externalities are sufficiently strong, the reduction of card payment acceptance affects cardholders negatively and, with the exception of the EPN, all agents will be worse off under the NSR. This paper also suggests that the NSR may be an instrument to decrease cash usage, but the social optimal policy on the NSR may depend on the competitive conditions in each market.
    Keywords: competition; electronic payment networks; market power; net-work externalities; no-surcharge rule; regulation; two-sided markets
    JEL: G21 L14 L42
    Date: 2018–11–01
  5. By: Zhou, Haiwen
    Abstract: This paper studies the determinants of a firm’s organizational form in the context of an imperfectly competitive industry. There are two kinds of organizational forms: the multi-divisional form (M-form) and the unitary form (U-form). An M-form firm suffers from ignorance of demand externalities among different products and double marginalization is eliminated. In contrast, in a U-form firm, demand externalities are taken into consideration and double marginalization exists. A firm’s optimal choice of organizational form depends on the market structure.
    Keywords: Organizational form, market structure, oligopoly, multi-divisional form, unitary form
    JEL: D43 L13 L23
    Date: 2019–11–08
  6. By: Jung, Jinho; Sasmero, Juan; Siebert, Ralph
    Abstract: We estimate the degree of spatial differentiation among downstream firms that buy corn from upstream farmers and examine whether such differentiation confers market power upon buyers, defined as the ability to pay a price for corn that is below its marginal value product. We estimate a structural model of spatial competition using corn procurement data from the U.S. State of Indiana over 2004-2014. We adopt a strategy that allows us to estimate firmlevel structural parameters while using aggregate data. Our results return a transportation cost of 0.12 cents per bushel per mile (5% of the corn price under average distance traveled), which provides evidence of spatial differentiation among buyers. The estimated average markdown is $0.80 per bushel (16% of average corn price in the sample), of which $0.35 is explained by spatial differentiation and the rest by the fact that firms operated under binding capacity constraints. We also find that corn prices paid to farmers at the mill gate are independent of distance between the plant and the farm, indicating that firms do not engage spatial price discrimination. Finally, we evaluate the effect of a hypothetical merger on input markets and farm surplus. A merger between nearby ethanol producers eases competition and increases markdowns by $0.14 or 20% and triggers a sizable reduction in farm surplus. In contrast, a merger between distant procurers has little effect on competition and markdowns.
    Keywords: Industrial Organization
    Date: 2019
  7. By: Michele Benvenuti (Bank of Italy); Silvia Del Prete (Bank of Italy)
    Abstract: As in other industries, competition in banking is potentially beneficial to efficiency and social welfare. Unfortunately, the task of measuring such competition is not straightforward: according to the empirical literature, traditional metrics to measure competition may fail because they do not correctly account for entry barriers, product substitutability, or the concentration and reallocation of market shares among banks. In this study we explore new measurements of competition, based on the Profit Elasticity, which can limit previous drawbacks, in order to assess the significant changes in the Italian banking market over the last two decades (1994-2013), when the most serious crisis occurred. We focus on competition dynamics over time, across bank clusters and geographical areas. Our main findings suggest that deregulation and M&A activity increased the extent of competition, while the financial turmoil reduced it, in line with other international evidence. Moreover, mutual banks faced relatively less competitive local markets, mostly owing to the informational barriers that they can impose on non-local intermediaries, and banking competition is heterogeneous across Italian macro-regions.
    Keywords: banking competition, financial crisis, local credit markets
    JEL: G21 L16 R11
    Date: 2019–10
  8. By: Mark Glick (University of Utah)
    Abstract: This paper presents an historical analysis of the antitrust laws. Its central contention is that the history of antitrust can only be understood in light of U.S. economic history and the succession of dominant economic policy regimes that punctuated that history. The antitrust laws and a subset of other related policies have historically focused on the negative consequences resulting from the rise, expansion, and dominance of big business. Antitrust specifically uses competition as its tool to address these problems. The paper traces the evolution of the emergence, growth and expansion of big business over six economic eras: the Gilded Age, the Progressive Era, the New Deal, the post-World War II Era, the 1970s, and the era of neoliberalism. It considers three policy regimes: laissez-faire during the Gilded Age and the Progressive Era, the New Deal, policy regime from the Depression through the early 1970s, and the neoliberal policy regime that dominates today and includes the Chicago School of antitrust. The principal conclusion of the paper is that the activist antitrust policies associated with the New Deal that existed from the late 1930s to the 1960s resulted in far stronger economic performance than have the policies of the Chicago School that have dominated antitrust policy since the 1980s.
    Keywords: New Brandeis School, Antitrust economics, Antitrust law, Neoliberal Economic Theory, Chicago School Economics, History of Antitrust law
    Date: 2019–04
  9. By: Even Comfort Hvinden
    Abstract: The market behavior nationalized oil companies in the Organization of Petroleum Exporting Countries (OPEC) is starkly time-varying. I rationalize OPEC's behavior in an infinitely repeated game of Cournot competition with imperfect monitoring, capacity constraints to output, and demand evolving as a Markov chain. I adapt the methodology of Abreu, Pearce, and Stacchetti (1990) to derive optimal symmetric equilibria. High powered incentives are created by the threat of output wars, the severity of which is endogenously determined by current and future expected market conditions. Implied price elasticities of supply increase in magnitude and may change sign under constrained incentive creation. The key empirical implication is that unanticipated changes to OPEC's strategic environment will persistently alter their behavior and create breaks in the joint stochastic distribution of equilibrium prices and quantities.
    Date: 2019–11
  10. By: Yamashita, Nobuaki (Asian Development Bank Institute); Yamauchi, Isamu (Asian Development Bank Institute)
    Abstract: This paper empirically examines the “defensive innovation” hypothesis that firms with higher exposure to low-wage economy import competition intensively undertake more innovative activity by using a high quality Japanese firm-level panel dataset over the period 1994–2005. The novel feature of the analysis is the relation of firm-level variations of patent usage to import competition. The results suggest that intensified import competition from the People’s Republic of China has resulted in greater innovative activity by Japanese firms, consistent with the findings of European firms in Bloom et al. (2016). Moreover, such competition has also led to an increase in non-used patents.
    Keywords: defensive innovation; import competition; innovative activity
    JEL: F10 O00
    Date: 2019–03–28

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