|
on Industrial Competition |
| By: | GAUTIER Axel, (Université de Liège, CORE and CESifo); LAMESCH Joe, (Université de Liège) |
| Abstract: | Over the period 2015-2017, the five giant technologically leading firms, Google, Amazon, Facebook, Amazon and Microsoft (GAFAM) acquired 175 companies, from small start-ups to billion dollar deals. By investigating this intense M&A, this paper ambitions a better understanding of the Big Five’s strategies. To do so, we identify 6 different user groups gravitating around these multi-sided companies along with each company’s most important market segments. We then track their mergers and acquisitions and match them with the segments. This exercise shows that these five firms use M&A activity mostly to strengthen their core market segments but rarely to expand their activities into new ones. Furthermore, most of the acquired products are shut down post acquisition, which suggests that GAFAM mainly acquire firm’s assets (functionality, technology, talent or IP) to integrate them in their ecosystem rather than the products and users themselves. For these tech giants, therefore, acquisition appears to be a substitute for in-house R&D. Finally, from our check for possible «killer acquisitions», it appears that just a single one in our sample could potentially be qualified as such. |
| Keywords: | mergers, GAFAM, platform, digital markets, competition policy, killer acquisition |
| JEL: | D43 K21 L40 L86 G34 |
| Date: | 2020–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2020001&r=all |
| By: | Dertwinkel-Kalt, Markus; Wey, Christian |
| Abstract: | We re-consider the bilateral bargaining problem of a multi-product, manufacturer-retailer trading relationship. O'Brien and Shaffer (Rand JE 35:573-598, 2005) have shown that the unbundling of contracts leads to downward distorted production levels if seller power is strong, while otherwise the joint profit maximizing quantities are contracted (which is also always the case when bundling contracts are feasible). We show that the unbundling of contracts also leads to downward distorted output levels when the buyer firm has sufficient (Nash) bargaining power (i.e., buyer power). Our result is driven by cost substitutability (diseconomies of scope). |
| Keywords: | Vertical Restraints,Bundling,Buyer Power |
| JEL: | L13 L41 K21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:329&r=all |
| By: | Allain, Marie-Laure; Chambolle, Claire; Rey, Patrick; Teyssier, Sabrina |
| Abstract: | In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, partial vertical integration may create hold-up problems for the rival. We develop an experiment to test this theoretical prediction in two setups, in which suppliers can either pre-commit ex ante to appropriating part of the joint profit, or degrade ex post the support they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems in both setups. However, we observe more departures from theory in the second one. Bounded rationality and social preferences provide a rationale for these departures. |
| Keywords: | Vertical Integration; Hold-up; Experimental Economics; Bounded Rationality; Social Preferences. |
| JEL: | C91 D90 L13 L41 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:123940&r=all |
| By: | Ariane Charpin; Joanna Piechuka |
| Abstract: | Many industries are seeing an increase in concentration, leading to a discussion on the effectiveness of horizontal merger enforcement. The policy debate shows that one of the key arguments put forward when supporting potential mergers is the possibility of realization of merger efficiency gains, specifically in the transport industry. Yet, there exists little empirical evidence on the actual effects of realized mergers on cost efficiencies. We exploit a large and highly debated merger that took place in the French transport industry to evaluate whether a merger between two major transport groups may give rise to merger efficiency gains. We exploit the industry setting to employ a difference-in-differences methodology evaluating the effect of the merger on operating costs of merging transport groups. Our results show that the merger did not lead to any merger specific efficiency gains for the merging parties. Our study relies on the use of several control groups and is robust to a great number of robustness checks as well as to the introduction of heterogeneous treatment effects, depending on the identity of the merging party, the contract type in place, as well as the closeness of competition of local operators. Overall, our study contributes to a growing number of case studies undertaken by economists that can help determine whether horizontal merger policy is being properly enforced. |
| Keywords: | Ex-post Evaluation; Mergers; Transport industry; Merger cost efficiencies |
| JEL: | C31 L40 L50 L92 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1843&r=all |
| By: | Budzinski, Oliver; Grebel, Thomas; Wolling, Jens; Zhang, Xijie |
| Abstract: | Large publishing companies have been dominating scientific publishing for long, which leads to high subscription fees and inhibited access to scientific knowledge. At digital era, the opportunity of an unrestricted access appears feasible, because the cost of publishing should be low. It is no longer the readers and libraries to pay subscription fees, but scientific organizations and authors themselves who pay for the cost of having their article published. As the data shows, there is a tremendous variance of article processing charges (APC) across journals, which obviously cannot be explained by the costs. One of the explanatory variables could be reputation, but it only contributes less than 5% to the variance in APC. This study is meant to shed light on the various determinants of APC. Based on data from the OpenAPC Initiative, the Directory of Open Access Journals, the Journal Impact Factor and the Essential Science Indicators of Web of Science, we employ ANOVA and multivariate regressions. The results show that market power plays an important role to explain APCs, inter alia, through market concentration, market position of individual publishers (publisher size), and the choice of hybrid publishing model. |
| Keywords: | open access,article processing charges,market power,market concentration |
| JEL: | D22 D40 D43 L11 L13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:133&r=all |
| By: | Pittman, Russell; Jandova, Monika; Krol, Marcin; Nekrasenko, Larysa; Paleta, Tomas |
| Abstract: | The European Commission years ago adopted a policy of encouraging the substitution of motor carrier haulage of freight with rail and water carrier haulage, as part of its “green” agenda of reducing fuel consumption, emission of pollutants, carbon intensity, and road congestion. Regarding railway freight in particular, one policy tool that the Commission has emphasized for this purpose is the restructuring of the rail sectors of member countries through the creation of competition for the incumbents by new train-operating companies (TOC’s) – on its face a less obvious policy choice than alternatives such as Pigouvian pricing measures or infrastructure subsidies. This paper focuses on one important commodity group – grain – in three EC member states and one non-member state – Poland, the Czech Republic, Slovakia, and Ukraine – to examine the degree to which increased rail competition has been associated with increases in rail’s modal share, and more broadly to learn what appear to be the binding constraints to increases in rail’s share. Such constraints seem more closely related to shortages in infrastructure capacity than to a lack of competition among TOC’s. This suggests that other “models” of railway restructuring may be more effective in easing this constraint. |
| Keywords: | European Commission, railways competition, environmental protection, open access, motor carriers, intermodal competition |
| JEL: | L92 Q58 R11 R41 R42 R48 |
| Date: | 2019–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97571&r=all |
| By: | Brown, David P. (University of Alberta, Department of Economics); Zarnikau, Jay (University of Texas at Austin); Woo, Chi-Keung (Education University of Hong Kong) |
| Abstract: | Using data from Texas’s wholesale electricity market, we investigate if there is a relationship between nodal prices and investment location decisions of utility scale generation. We find some evidence that new investment arises in areas with recently elevated nodal prices. However, we find no evidence that new generation resources receive a nodal price premium post-entry as projected by the expectation of higher nodal prices. Further, we employ a regression analysis to test the relationship between expected nodal prices and the probability of entry at a given node. While this analysis finds a positive relationship between expected nodal prices and investment for natural-gas-fueled peaking assets, this relationship is sensitive to model specification. Our findings suggest that factors other than nodal prices are more likely drivers of utility scale generation capacity investment location decisions in Texas. |
| Keywords: | Electricity; Regulation; Entry; Locational Marginal Pricing |
| JEL: | L11 L51 L94 Q41 Q48 |
| Date: | 2020–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2020_001&r=all |
| By: | Burkhardt, Brett (Oregon State University) |
| Abstract: | The competition thesis states that the introduction of competition from private sector service providers will spur performance improvements in previously monopolistic public sector service providers, who fear (further) delegation of their responsibilities to the private sector. This article examines the competition thesis in the context of incarceration. Using data on U.S. adult correctional facilities in 2000 and 2005, it employs a difference-in-difference strategy to compare over-time performance changes among newly competitive facilities relative to non-competitive facilities. Prison performance is measured along four dimensions (safety, order, activity, and conditions), using survey responses from prisons. The results do not show a beneficial competition effect; prisons in newly competitive states experienced performance change in ways that were statistically indistinguishable from prisons in non-competitive states. Supplemental analyses reveal this finding to be robust to most modifications to the sample and the model. A discussion considers four reasons—constitutional safeguards, professional standards, labor opposition, and non-credible threats—incarceration may be resistant to a competition effect and the implications for public policy. |
| Date: | 2018–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:zmy8s&r=all |
| By: | Edquist, Charles (CIRCLE, Lund University); Zabala-Iturriagagoitia, Jon Mikel (University of Deusto) |
| Abstract: | Public procurement represents a very large share of most economies worldwide. Besides its direct purchasing power, public procurement has an enormous potential to become one of the most important mission-oriented policy instruments in the context of the Sustainable Development Goals. The paper argues that the key to achieve more innovations when pursuing public procurement is to describe problems to be solved or functions to be fulfilled (functional procurement) instead of describing the products to be bought (product procurement). We contend that if products can be described in the procurement documents, it is because they exist, and hence, they cannot be regarded as innovations. Innovations cannot be described ex ante, simply because they do not exist. It is thus not accurate to talk about ‘innovation procurement’. Accordingly, the only way to achieve an innovation by means of procurement is by describing the functions it shall fulfill or the problems it shall solve. For public procurement to become an effective policy instrument supporting innovation, product procurement should thus be transformed into functional procurement. Hence, contracting authorities need to identify the problems to be addressed by policy. The new products (innovations) solving the problems are to be designed by the potential innovators/suppliers, not by public procurers. Hence, the societal needs and problems must be translated and transformed into functional requirements. Functional procurement is allowed in EU regulations, and hence, there are no legal obstacles to use it for innovation policy purposes. Above and beyond, the European directives recommend using functional requirements “as widely as possible”. Besides, it leads to increased competition, not only among potential suppliers of similar products, but also among different products that solve the same problem. Functional procurement thus not only supports innovation but also serves as a powerful instrument of competition policy. |
| Keywords: | innovation policy; public procurement; product procurement; functional procurement; functional requirements; competition policy |
| JEL: | L50 O32 O33 O39 |
| Date: | 2020–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lucirc:2020_001&r=all |
| By: | Carrier, Michael A.; Library, Cornell |
| Abstract: | 103 Cornell L. Rev. 1 (2017) Rising drug prices are in the news. By increasing price, drug companies have placed vital, even life-saving, medicines out of the reach of consumers. In a recent development, brand firms have prevented generics even from entering the market. The ruse for this strategy involves risk-management programs known as Risk Evaluation and Mitigation Strategies (“REMS”). Pursuant to legislation enacted in 2007, the FDA requires REMS when a drug’s risks (such as death or injury) outweigh its rewards. Brands have used this regime, intended to bring drugs to the market, to block generic competition. Regulations such as the federal Hatch-Waxman Act and state substitution laws foster widespread generic competition. But these regimes can only be effectuated through generic entry. And that entry can take place only if a generic can use a brand’s sample to show that its product is equivalent. More than 100 generic firms have complained that they have not been able to access needed samples. One study of 40 drugs subject to restricted access programs found that generics’ inability to enter cost more than $5 billion a year. Brand firms have contended that antitrust law does not compel them to deal with their competitors and have highlighted concerns related to safety and product liability in justifying their refusals. This Article rebuts these claims. It highlights the importance of samples in the regulatory regime and the FDA’s inability to address the issue. It shows how a sharing requirement in this setting is consistent with Supreme Court caselaw. And it demonstrates that the brands’ behavior fails the defendant-friendly “no economic sense” test because the conduct literally makes no sense other than by harming generics. Brands’ denial of samples offers a textbook case of monopolization. In the universe of pharmaceutical antitrust behavior, other conduct—such as “pay for delay” settlements between brands and generics and “product hopping” from one drug to a slightly modified version—has received the lion’s share of attention. But sample denials are overdue for antitrust scrutiny. This Article fills this gap. Given the failure of Congress and the FDA to remedy the issue, antitrust can play a crucial role in ensuring generic access to samples, affirming a linchpin of the pharmaceutical regime. |
| Date: | 2018–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:osf:lawarx:qrp36&r=all |
| By: | Herkenhoff, Kyle (University of Minnesota); Raveendranathan, Gajendran (McMaster University) |
| Abstract: | How are the welfare costs from monopoly distributed across U.S. households? We answer this question for the U.S. credit card industry, which is highly concentrated, charges interest rates that are 3.4 to 8.8 percentage points above perfectly competitive pricing, and has repeatedly lost antitrust lawsuits. We depart from existing competitive models by integrating oligopolistic lenders into a heterogeneous agent, defaultable debt framework. Our model accounts for 20 to 50 percent of the spreads observed in the data. Welfare gains from competitive reforms in the 1970s are equivalent to a one-time transfer worth between 0.24 and 1.66 percent of GDP. Along the transition path, 93 percent of individuals are better off. Poor households benefit from increased consumption smoothing, while rich households benefit from higher general equilibrium interest rates on savings. Transitioning from 1970 to 2016 levels of competition yields welfare gains equivalent to a one-time transfer worth between 1.87 and 3.20 percent of GDP. Lastly, homogeneous interest rate caps in 2016 deliver limited welfare gains. |
| Keywords: | welfare costs of monopoly, consumer credit, competition, welfare |
| JEL: | D14 D43 D60 E21 E44 G21 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12836&r=all |
| By: | Riccardo Camboni (DSEA, University of Padova); Paola Valbonesi (DSEA, University of Padova and HSE-NRU, Moscow) |
| Abstract: | We empirically investigate incumbents' and entrants' bids on an original dataset of 192 scoring rule auctions for canteen services in Italy. Our findings show that winning rebates are lower (i.e., prices paid by the public buyer are higher) when the contract is awarded to the incumbent supplier. This result is not explained by the observable characteristics of the auction and service awarded. We then develop a simple theoretical model that shows that such a result is consistent with a setting in which the buyer distorts the scoring function to increase the probability that the incumbent wins the auction at the cost of a higher purchasing price. |
| Keywords: | Scoring Rule Auctions, Procurement, Incumbent and Entrant, Auction design |
| JEL: | D44 D47 H57 L88 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0242&r=all |
| By: | Li, W.; Fok, D.; Franses, Ph.H.B.F. |
| Abstract: | This study aims to investigate how much value is added to traditional sales forecast- ing models in marketing by using modern techniques like factor models, Lasso, elastic net, random forest and boosting methods. A benchmark model uses only the focal brand's own information, while the other models include competitive sales and market- ing activities in various ways. An Average Competitor Model (ACM) summarises all competitive information by averages. Factor-augmented models incorporate all or some competitive information by means of common factors. Lasso and elastic net models shrink the coecient estimates of specic competing brands towards zero by adding a shrinkage penalty to the sum of squared residuals. Random forest averages many tree models obtained from bootstrapped samples. Boosting trees grow many small trees sequentially and then average over all the tree models to deliver forecasts. We use these methods to forecast sales of packaged goods one week ahead and compare their pre- dictive performance. Our empirical results for 169 brands across 31 product categories show that the Lasso and elastic net are the safest methods to employ as they are better than the benchmark for most of the brands. The random forest method has better improvement for some of the brands. |
| Keywords: | Sales forecasting, high-dimensional data, principal components, factor model, Lasso, Elastic Net, random forest, boosting, data mining |
| Date: | 2019–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:123417&r=all |