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on Industrial Competition |
| By: | Grüb, Jens |
| Abstract: | This paper studies whether mergers may lead to partial tacit collusion, thereby having the potential to induce simultaneous coordinated and non-coordinated effects. We use a Bertrand-Edgeworth model with heterogeneous discount factors to derive conditions for profitable and stable collusion and provide a numerical example. Mergers that change the market structure in a way such that maverick firms are eliminated or colluding firms reach a critical share in total capacity can lead to partial collusion. |
| Keywords: | Partial Collusion,Tacit Collusion,Mergers,Coordinated Effects,Non-coordinated Effects,Umbrella Effects |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hohdps:152019&r=all |
| By: | S. Nageeb Ali; Gregory Lewis; Shoshana Vasserman |
| Abstract: | A concern central to the economics of privacy is that firms may use consumer data to price discriminate. A common response is that consumers should have control over their data and the ability to choose how firms access it. Since firms draw inferences based on both the data seen as well as the consumer’s disclosure choices, the strategic implications of this proposal are unclear. We investigate whether such measures improve consumer welfare in monopolistic and competitive environments. We find that consumer control can guarantee gains for every consumer type relative to both perfect price discrimination and no personalized pricing. This result is driven by two ideas. First, consumers can use disclosure to amplify competition between firms. Second, consumers can share information that induces a seller—even a monopolist—to make price concessions. Furthermore, whether consumer control improves consumer surplus depends on both the technology of disclosure and the competitiveness of the marketplace. In a competitive market, simple disclosure technologies such as “track / do-not-track” suffice for guaranteeing gains in consumer welfare. However, in a monopolistic market, welfare gains require richer forms of disclosure technology whereby consumers can decide how much information they would like to convey. |
| JEL: | D4 D8 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26592&r=all |
| By: | Budzinski, Oliver |
| Abstract: | The International Competition Network (ICN) celebrates its 20th birthday in 2020. It governs global competition by providing a cooperative forum for (mostly national) competition authorities from all around the world. In the absence of binding global competition rules and antitrust laws, it attempts to coordinate national and supranational competition policies by providing best practice recommendations and exercising peer pressure on deviating regimes. While the first twenty years of the ICN have been mostly a success story, the ubiquitous process of digitization poses new challenges to the voluntary and informal coordination of decentralized competition policies governing pro- and anticompetitive arrangements and conduct on international and intercontinental markets. First, the digitization of markets and goods increases the number of cross-border, interjurisdictional cases regarding cartels, mergers and acquisitions, as well as anticompetitive market behavior. Second, digital platforms and data-based business models increase the probability of dominant companies on intercontinental scales as well as problems of economic dependency on few global player companies. Third, the economics of digital platforms and data-based competition strategies partly differ from traditional standard economics and are still being developed in the academic world. Consequently, the previous convergence of competition policy practices across jurisdictions tends to shift towards a process of divergence with respect of how to deal with innovative pro- and anticompetitive conduct in the digital world. This essay discusses the influence of the effects from digitization on the problems of (only soft-coordinated) national competition policies in international markets like cross-border externalities, costs and burden of multiple procedures, loopholes in the protection of global competition, and the diversity of societies and competition regimes. It concludes by outlining the challenges that the ICN will face in its third decade. |
| Keywords: | international competition policy,international antitrust,International Competition Network,global governance,digitization,industrial economics,law and economics,international economics,international organizations,international business |
| JEL: | F02 F53 F55 K21 L40 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:135&r=all |
| By: | R. Andrew Butters; Thomas N. Hubbard |
| Abstract: | This paper investigates how increases in concentration can be interrupted or reversed by changes in how firms compete on quality. We examine the U.S. hotel industry during the past half century. We document that starting in the early 1980s, quality competition came more in the form of costs that vary with hotel size, and less in the form of costs that are fixed with hotel size, particularly for business travelers. We then show that, consistent with Sutton (1991), industry structure has evolved differently since then in areas that are business travel versus personal travel destinations. Demand increases have been associated with more, but smaller, hotels in business travel destinations. In contrast, the growth in the number of hotels is much smaller, and the growth in average hotel size is much greater, in personal travel destinations. We provide evidence that this change reflects the emergence of two new classes of hotels – limited service and all-suites hotels – that did not exist before the early 1980s. These entrants – many of which had high quality rooms but which had limited out-of-room amenities – had a narrower competitive impact on other hotels than did the entrants of the 1960s and 1970s, which competed more on out-of-the-room amenities, and this led the industry structure to evolve differently. |
| JEL: | L1 L22 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26579&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:2731&r=all |
| By: | José Renato Haas Ornelas; Marcos Soares da Silva; Bernardus Ferdinandus Nazar Van Doornik |
| Abstract: | This paper studies the links between competition in the lending market and spreads of bank loans in Brazil. Evidence from a dataset of more than 13 million loan-level observations from private banks shows a positive relationship between market power, measured by the Lerner Index, and the cost of finance, measured by spreads over the treasury curve. Furthermore, there is evidence of the holdup problem, originated from informational switching costs faced by firms. Private banks engage in a strategy of first competing fiercely for clients by offering a lower loan interest rate and later increasing interest rates as the bank-firm relationship duration increases. Both results are stronger for micro and small firms than for medium and large firms. |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:512&r=all |
| By: | André Stenzel; Christoph Wolf; Peter Schmidt |
| Abstract: | We study dynamic pricing in the presence of product ratings. A monopolist sells a good of unknown quality to short-lived heterogeneous consumers who observe aggregate ratings reflecting past reviews. Long-run outcomes depend on the sensitivity of the rating system to incoming reviews and the degree to which reviews internalize the purchase price. When internalization is high, low prices induce good reviews. For low internalization, good reviews obtain with high prices via selection on consumer tastes. Sensitivity benefits the seller due to easier ratings management, but may harm consumers by exacerbating upward pricing pressure when internalization is low. |
| Keywords: | Rating Systems, Dynamic Pricing, Asymmetric Information |
| JEL: | D21 D82 L15 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_143&r=all |
| By: | Cooper, Zack; Gibbons, Stephen; Skellern, Matthew |
| Abstract: | This paper examines the impact of a government programme which facilitated the entry of for-profit surgical centres to compete against incumbent National Health Service hospitals in England. We examine the impact of competition from these surgical centres on the efficiency – measured by pre-surgery length of stay for hip and knee replacement patients – and case mix of incumbent public hospitals. We exploit the fact that the government chose the broad locations where these surgical centres (Independent Sector Treatment Centres or ISTCs) would be built based on local patient waiting times – not length of stay or clinical quality – to construct treatment and control groups that are comparable with respect to key outcome variables of interest. Using a difference-in-difference estimation strategy, we find that the entry of surgical centres led to shorter pre-surgery length of stay at nearby public hospitals. However, these new entrants took on healthier patients and left incumbent hospitals treating patients who were sicker. This paper highlights a potential trade-off that policymakers face when they promote competition from private, for-profit firms in markets for the provision of public services. |
| Keywords: | hospital competition; public-private competition; market entry; market structure; outsourcing; hospital efficiency; risk selection; cream skimming; public services; ES/M010341/1 |
| JEL: | C23 H57 I11 L1 L32 L33 R12 |
| Date: | 2018–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:90094&r=all |
| By: | Asseyer, Andreas |
| Abstract: | This paper studies the welfare effects of wholesale price discrimination between downstream firms operating under different regulatory systems. I model a monopolistic intermediate good market in which production cost differences between downstream firms may be due to regulatory or technological asymmetries. Price discrimination reduces regulatory distortions but may lower productive efficiency. Therefore, price discrimination increases welfare if regulation is the dominant source of cost differences. This provides a novel welfare rationale for exempting wholesale markets from the recent ban on geo-blocking in the EU. |
| Keywords: | Price discrimination,Intermediate good markets,International price discrimination,Geo-blocking |
| JEL: | D43 L11 L42 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20201&r=all |
| By: | Bronson Argyle; Taylor D. Nadauld; Christopher Palmer |
| Abstract: | We establish two underappreciated facts about costly search. First, unless demand is perfectly inelastic, search frictions can result in significant deadweight loss by decreasing consumption. Second, whenever cross-price elasticities are non-zero, costly search in one market also affects quantities in other markets. As predicted by our model of search for credit under elastic demand, we show that search frictions in credit markets contribute to price dispersion, affect loan sizes, and decrease final-goods consumption. Using microdata from millions of auto-loan applications and originations not intermediated by car dealers, we isolate plausibly exogenous variation in interest rates due to institution-specific pricing rules that price risk with step functions. These within-lender discontinuities lead to substantial variation in the benefits of search across lenders and distort extensive- and intensive-margin loan and car choices differentially in high- versus low-search-cost areas. Our results demonstrate real effects of the costliness of shopping for credit and the continued importance of local bank branches for borrower outcomes even in the mobile-banking era. More broadly, we conclude that costly search affects consumption in both primary and complementary markets. |
| JEL: | D12 D83 E43 G21 L11 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26645&r=all |
| By: | Hajivassiliou, Vassilis |
| Abstract: | This paper discusses switching regressions econometric modelling with imperfect regime classification information. The econometric novelty is that misclassification probabilities are allowed to vary endogenously over time. Standard maximum likelihood estimation is infeasible in this case because each likelihood contribution requires the evaluation of 2 T terms (where T is the number of observations available). We develop an algorithm that allows efficient estimation when such imperfect information is available, by evaluating the exact likelihood through simply T matrix multiplications (each of a 2 2 matrix times a 2 1 vector.) Our methods are shown to be widely applicable to various areas of economic analysis such as to Hamilton's work on Markov-Switching models in Macroeconomics; to external financing problems faced by firms in Corporate Finance; and to game-theoretic models of price collusion in Industrial Organization. We proceed to apply our methods to analyze price fixing by the Joint Executive Committee railroad cartel from 1880 to 1886 and develop tests of two prototypical game-theoretic models of tacit collusion. The first model, due to Abreu, Pearce and Stacchetti (1986), predicts that price will switch across regimes according to a Markov process. The second model, by Rotemberg and Saloner (1986), concludes that price wars are more likely in periods of high industry demand. Switching regressions are used to model the firm's shifting between collusive and punishment behaviour. The JEC data set is expanded to include measures of grain production to be shipped and availability of substitute transportation services. Our findings cast doubt on the applicability of the Rotemberg and Saloner model to the JEC railroad cartel, while they conÖrm the Markovian prediction of the Abreu et al. model. |
| Keywords: | switching regressions models; measurement errors; trigger-price mechanisms; price-fixing |
| JEL: | C72 L12 C51 C52 C15 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:103119&r=all |
| By: | Morrow, John; Dhingra, Swati |
| Abstract: | Empirical work has drawn attention to the high degree of productivity differences within industries and their role in resource allocation. This paper examines the allocational efficiency of such markets. Productivity differences introduce two new margins of potential inefficiency: selection of the right distribution of firms and allocation of the right quantities across firms. We show that these considerations affect welfare and policy analysis, and market power across firms leads to distortions in resource allocation. Demand-side elasticities determine how resources are misallocated and when increased competition from market expansion provides welfare gains. |
| Keywords: | efficiency; productivity; social welfare; demand elasticity; markups |
| JEL: | J1 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:59226&r=all |
| By: | Serguey Braguinsky (University of Maryland - Department of Management & Organization; National Bureau of Economic Research (NBER); Osaka University - Institute of Social and Economic Research); Atsushi Ohyama (Hitotsubashi University); Tetsuji Okazaki (University of Tokyo); Chad Syverson (University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)) |
| Abstract: | We explore how firms grow by adding products. In contrast to most earlier work on the topic, our conceptual and empirical framework allows for separate treatment of product innovation (vertical differentiation) and diversification (horizontal differentiation). The market context is Japan’s cotton spinning industry at the turn of the last century. We find that introducing innovative products outside of the previously feasible set involves removing the “supply-side constraint” by investing in new types of machines and technologies. This process involves a high degree of uncertainty, however, so firms that take steps in this direction tend to first introduce innovative products on experimental basis. We show that conducting such experiments is a key to firm growth. It not only provides opportunities to capture the market in high-end vertically differentiated products when successful, but also facilitates horizontal differentiation of the firm’s products within its previous technical capabilities. In long-term outcomes over 20 years, the right tail of the firm size distribution becomes dominated by firms that were able to expand in both directions: moving first into technologically challenging vertically differentiated products, and then later applying their newly acquired high-end technical competence to horizontal expansion of their product portfolios. |
| Keywords: | Innovation, Growth |
| JEL: | D2 L1 N6 N8 O3 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-03&r=all |
| By: | Chiara Farronato; Andrey Fradkin; Bradley Larsen; Erik Brynjolfsson |
| Abstract: | We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for residential home services. We exploit exogenous variation in the time at which licenses are displayed on the platform to identify the causal effects of licensing information on consumer choices. We find that the platform-verified licensing status of a professional is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. We also use variation in regulation stringency across states and occupations to measure the effects of licensing on aggregate market outcomes on the platform. Our results show that more stringent licensing regulations are associated with less competition and higher prices but not with any improvement in customer satisfaction as measured by review ratings or the propensity to use the platform again. |
| JEL: | J2 J44 K2 L15 L51 L88 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26601&r=all |
| By: | Valmari, Nelli |
| Abstract: | Abstract A new law on public transport came into effect in Finland in December 2009. According to the new law, regulators are not allowed to restrict competition between bus companies, unless it is necessary for ensuring adequate quantity and quality of transport services. Until 2009 bus companies had to apply for and be granted a licence for operating any given connection, which restricted competition between bus companies. In this brief I look at how the Finnish long-distance bus market has changed from 2006 to 2017. The changes indicate that deregulating entry into the long-distance bus market has benefitted consumers. The supply of long-distance bus connections has increased and, on average, bus ticket fares have ceased to increase. These changes are to a large extent due to the deregulation of the long-distance bus market. Along with the new law, bus companies have become able to enter new routes and increase the number of connections where demand is high. As a result, the number of passengers has increased substantially. |
| Keywords: | Market entry, Regulation, Deregulation, Competition, Long-distance bus service |
| JEL: | L52 L92 R40 |
| Date: | 2019–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:rif:briefs:82&r=all |
| By: | Diego Aparicio; Roberto Rigobon |
| Abstract: | This paper studies pricing in the fashion retail industry. Online data was collected for approximately 350,000 distinct products from over 65 retailers in the U.S. and the U.K. We present evidence that a fair fraction of retailers implement an extreme form of price stickiness that we describe as quantum prices: a large number of different products are priced using just a small number of sparse prices, with price changes occurring rarely and in large increments. Normalized price clustering measures are used to show that retailers use quantum prices within- and across- categories, and this clustering is not explained by popular prices, ranges of prices, assortment size, or digit endings. This pricing strategy is consistent with a behavioral model where fewer prices makes price advertising more effective. An implication of this model is that advertising is increasingly effective when the same prices are used across product lines, i.e. for new products. Finally, quantum prices affect product introductions and price adjustment strategies at the firm level, while it creates larger deviations of the law of one price and hinders the computation of inflation at the macro level. |
| JEL: | D2 D22 D83 E31 L81 M3 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26646&r=all |
| By: | Blake Dunkle (Caldwell and Kerr Advertising); R. Mark Isaac (Department of Economics, Florida State University); Philip C. Solimine (Department of Economics and Department of Scientific Computing, Florida State University) |
| Abstract: | In this paper we conduct a market experiment with the opportunity for sellers to send a nonbinding advertisement of their product quality, and examine the effects of including a reputation aggregation system for sellers in these markets. In order to closely match the setting of real life markets, we simulate a high-frequency online trading environment in which sellers are given unique identi ers. Ideally, a fi xed identity for the sellers should allow them to build a reputation for delivering high-quality goods to the market, increasing the efficiency of market outcomes. In some sessions, we prompt buyers to respond to their purchases with a canonical "five-star" rating. We demonstrate the robustness of classic experimental results to a more technologically advanced market environment; using a design which both remains true to the spirit of these original experimental tests and reflects more of the features which are present in newly-ubiquitous online markets. Additionally, we fi nd substantial efficiency gains from the addition of the ratings system. Even with the ratings, however, the gains were not enough to obtain perfectly efficient market outcomes. Furthermore, we examine the formation of reputations by the sellers (with and without ratings) and the effect of these reputations on the decisions of buyers and sellers in the market. |
| Keywords: | Product Quality, Seller Reputation, Ratings, Experimental Market Design |
| JEL: | D4 D9 L1 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2020_01_02&r=all |
| By: | Julia Cage (Département d'économie); Nicolas Hervé (Institut national de l'audiovisuel); Marie-Luce Viaud (Institut national de l'audiovisuel) |
| Abstract: | News production requires investment, and competitors’ ability to appropriate a story may reduce a media’s incentives to provide original content. Yet, there is little legal protection of intellectual property rights in online news production, which raises the issue of the extent of copying online and the incentives to provide original content. In this article, we build a unique dataset combining all the online content produced by French news media during the year 2013 with new micro audience data. We develop a topic detection algorithm that identifies each news event, trace the timeline of each story, and study news propagation. We provide new evidence on online news production. First, we document high reactivity of online media: one quarter of the news stories are reproduced online in under 4 min. We show that this is accompanied by substantial copying, both at the extensive and at the intensive margins, which may constitute a severe threat to the commercial viability of the news media. Next, we estimate the returns to originality in online news production. Using article-level variations and media-level daily audience combined with article-level social media statistics, we find that original content producers tend to receive more viewers, thereby mitigating the newsgathering incentive problem raised by copying. |
| Keywords: | Internet; Information Sharing; Copyright; Social Media; Reputation |
| JEL: | L11 L15 L82 L86 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/52cps7rdns8iv8fr3f1kqm7iuv&r=all |
| By: | Panayotis Mertikopoulos; Heinrich H. Nax; Bary S. R. Pradelski |
| Abstract: | We examine two-sided markets where players arrive stochastically over time and are drawn from a continuum of types. The cost of matching a client and provider varies, so a social planner is faced with two contending objectives: a) to reduce players' waiting time before getting matched; and b) to form efficient pairs in order to reduce matching costs. We show that such markets are characterized by a quick or cheap dilemma: Under a large class of distributional assumptions, there is no `free lunch', i.e., there exists no clearing schedule that is simultaneously optimal along both objectives. We further identify a unique breaking point signifying a stark reduction in matching cost contrasted by an increase in waiting time. Generalizing this model, we identify two regimes: one, where no free lunch exists; the other, where a window of opportunity opens to achieve a free lunch. Remarkably, greedy scheduling is never optimal in this setting. |
| Keywords: | Dynamic matching, online markets, market design |
| JEL: | D47 C78 C60 D80 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:338&r=all |