nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒02‒10
eleven papers chosen by
Russell Pittman
United States Department of Justice

  1. Big Tech Mergers By Massimo Motta; Martin Peitz
  2. Antitrust and Restrictions on Privacy in the Digital Economy By Nicholas Economides; Ioannis Lianos
  3. Two-sided markets : the role of technological uncertainty By Hamed Ghoddusi; Alexander Rodivilov; Baran Siyahhan
  4. Event Studies in Merger Analysis: Review and an Application Using U.S. TNIC Data By Timo Klein
  5. Germany's market transparency unit for fuels: Fostering collusion or competition? By Horvath, Marco
  6. Learning by supplying and Competition Threat By Yi Fan Chen; Alireza Naghavi; Shin-Kun Peng
  7. Economists’ Tunney Act Reply Comments on the DOJ’s Proposed Remedy in the Sprint/T-Mobile Merger Proceeding By Nicholas Economides; John Kwoka; Thomas Philippon; Robert Seamans; Hal Singer; Marshall Steinbaum; Lawrence J. White
  8. European gasoline markets: price transmission asymmetries in mean and variance By Escribano, Álvaro; Torrado, María
  9. Exit, voice and loyalty : Strategic behavior in standards development organizations By Delimatsis, Panagiotis; Kanevskaia, Olia; Verghese, Zuno George
  10. Worker compensation schemes and product market competition By Stadler, Manfred
  11. Does Import Competition Reduce Domestic Innovation? Evidence from the 'China Stock' and Firm-Level Data on Canadian Manufacturing By Myeongwan Kim

  1. By: Massimo Motta; Martin Peitz
    Abstract: Big tech mergers are frequently occurring events. What are the competitive effects of these mergers? With the help of a simple model we identify the acquisition of potential competitors as a pressing issue for merger control in digital industries. We also sketch a few novel theories of harm of horizontal and conglomerate mergers that are potentially relevant in digital industries. Finally, we draw some policy recommendations on how to deal with mergers in such industries.
    Keywords: merger policy, digital markets, potential competition, conglomerate mergers
    JEL: L41 L13 K21
    Date: 2020–01
  2. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (President, Hellenic Competition Commission and Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London)
    Abstract: We present a model of a market failure based on a requirement provision by digital platforms in the acquisition of personal information from users of other products/services. We establish the economic harm from the market failure and the requirement using traditional antitrust methodology. Eliminating the requirement and the market failure by creating a functioning market for the sale of personal information would create a functioning market for personal information that would benefit users. Even though market harm is established under the assumption that consumers are perfectly informed about the value of their privacy, we show that when users are not well informed, there can be additional harms to this market failure.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2020–01
  3. By: Hamed Ghoddusi (Stevens Institute of Technology [Hoboken]); Alexander Rodivilov (Stevens Institute of Technology [Hoboken]); Baran Siyahhan (LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School, DEFI - Département Droit, Economie et Finances - TEM - Télécom Ecole de Management - IMT - Institut Mines-Télécom [Paris] - IMT-BS - Institut Mines-Télécom Business School)
    Abstract: This paper examines the effect of technological uncertainty on the optimal pricing and investment decisions in a two-sided market. A platform offers a basic good and a developer offers a complementary good. The performance of the complementary good is stochastic and is endogenously determined by the pricing policy the platform adopts. Heterogeneous consumers join the platform either before uncertainty is resolved or after. In the former case, consumers obtain the basic good and an option to benefit from the complementary good in the future. The platform trades off building an earlier mass of consumer base and extracting profits from late adopters. Consumers are divided into three groups: early adopters, late adopters, and those who never join the platform. A platform's pricing policy depends on the value of the complementary good and the cost of its development. If the cost is small, a price skimming policy is optimal. When the cost is higher, price skimming remains optimal if the value of the complementary good is either small or relatively high. For intermediate values, the platform adopts a price penetration policy. We discuss some examples from the empirical literature in light of the model.
    Keywords: Dynamic pricing,Two-sided markets,Real options
    Date: 2019–11
  4. By: Timo Klein (University of Amsterdam)
    Abstract: There is a growing concern that U.S. merger control may have been too lenient, but empirical evidence remains limited. Event studies have been used as one method to acquire empirical insights into the competitive effects of mergers. However, existing work suffers from strong identifying assumptions, unreliable competitor identification or small samples. After reviewing the use and challenges of event studies in merger analysis, I use a novel application of Hoberg-Phillips (2010, 2016) Text-Based Network Industry Classification (TNIC) data to readily proxy a ranking of competitors to 1,751 of the largest U.S. mergers between 1997 and 2017. I document that following a merger announcement, the most likely competitors experience on average an abnormal return of around one percent. These abnormal returns are also associated with concerns of market power, which suggests that results are at least in part driven by an anticipation of anti-competitive effects, and hence insufficient merger control.
    Keywords: Mergers, Antitrust, Event Studies, Text-Based Network Industry Classification
    JEL: G14 G34 L13 L40
    Date: 2020–01–27
  5. By: Horvath, Marco
    Abstract: To increase competition in the retail market for gasoline, Germany's Federal Cartel Office established the so-called Market Transparency Unit for Fuels (MTU). Drawing on a panel data set covering 6,834 stations in Germany and employing both fixed effect methods and a difference-in-difference approach, this study investigates the impact of the MTU on the price margins of gas stations. We find that the MTU fostered a more intense competition, with a reduction in price margins of 1-2 cents per liter.
    Keywords: retail gasoline,market transparency,price margin,competition
    JEL: Q41 D43 D83 L13
    Date: 2019
  6. By: Yi Fan Chen (Singapore Management University); Alireza Naghavi (University of Bologna); Shin-Kun Peng (National Taiwan University)
    Abstract: This study proposes a model of learning by supplying in an international outsourcing framework, where the supplier of a relationship-specific input can reverse engineer and become a competitor to its partner in the final goods market. Transmitting knowledge to a more capable supplier therefore creates competitive threat despite the benefits it brings within an outsourcing relationship. In particular, in markets with less differentiated products and for standard inputs that require less knowledge to be shared, choosing an intermediate capability level supplier prompts a strategic expansion of output to deter supplier entry in the final goods market, resulting in higher profits and welfare. A highly capable supplier is instead accommodated as a rival and is a source of royalty income when the relationship specific input embeds more knowledge about the final product and when the competing varieties are differentiated.
    Keywords: International outsourcing; Supplier heterogeneity; Competitive threat; Reverse engineering; Strategic predation; Technological capability; Learning by supplying; Royalty payment; Knowledge intensity
    JEL: F12 F23 L13 L22 L24 D23 O34
    Date: 2019–12–20
  7. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); John Kwoka (Neal F. Finnegan Distinguished Professor of Economics, College of Social Sciences and Humanities, Northeastern University); Thomas Philippon (Max L. Heine Professor of Finance, NYU Stern School of Business, New York, New York 10012); Robert Seamans (Associate Professor of Management and Organizations, NYU Stern School of Business, New York, New York 10012); Hal Singer (Managing Director at Econ One, Adjunct Professor at Georgetown McDonough School of Business); Marshall Steinbaum (Assistant Professor, Economics Department, University of Utah); Lawrence J. White (Robert Kavesh Professor of Economics, NYU Stern School of Business, New York, New York 10012)
    Abstract: Following up on our initial comments at the Tunney Act proceeding of the proposed merger between Sprint and T-Mobile, we discuss DOJ’s criticisms of these comments, explaining why these criticisms are baseless. Moreover, using evidence from the NY v. Deutsche Telecom trial, we provide new arguments showing that the DOJ proposed remedy will fail to restore the ex ante competitive conditions in the affected antitrust product markets to the detriment of users of mobile phones in the United States.
    Keywords: Telecommunications; Merger; Tunney Act; Sprint; T-Mobile; Dish; DOJ
    JEL: L1 L4 L5 L9
    Date: 2020–01
  8. By: Escribano, Álvaro; Torrado, María
    Abstract: The main objective of this paper is to analyse the different sources of asymmetric price transmissions in the fuel market for France, Germany and Spain. During the last decades,the EU has carried out several common energy policies to achieve more efficient and competitive markets. However, given the specific characteristics of each country, the question we want to address is if fuel prices across EU members behave differently in response to different market structures. Oil operators have been targeted by competition authorities for conducting non-competitive practices. To figure out whether the common complaint that gasoline prices adjust differently to positive or negative input price changes, dynamic asymmetric models for the mean and variance are developed for each country. Several asymmetric specifications for the mean and variance are considered and the best specification combines double threshold error correction models (DT-ECM) for the mean with asymmetric EGARCH plus dummy variables for the conditional variance. We show that French gasoline prices behave more competitively, adjusting quicker to the long-run equilibrium and with higher price volatility. This outcome is consistent with the strong presence of hypermarkets following low-cost pricing strategies in France.
    Keywords: Log-GARCH; GJR-GARCH; EGARCH; GARCH; Nonlinear error correction; Rockets and feathers; Gasoline price asymmetries; Competition
    JEL: L71 L13 D43 C52 C24 B23
    Date: 2020–01–30
  9. By: Delimatsis, Panagiotis (Tilburg University, TILEC); Kanevskaia, Olia (Tilburg University, TILEC); Verghese, Zuno George (Tilburg University, TILEC)
    Abstract: The protection of intellectual property rights and its limits has spurred controversy in the standardization ecosystem in recent times. While conflicting interests in standard-setting abound over a wide range of pertinent aspects, considerations regarding the inclusion and subsequent treatment of proprietary elements in a technical standard hold the lion’s share of concerns that Standards Development Organizations (SDOs) have to deal with. These concerns revolve around the balance between the interests of innovators and implementers of new technologies. In this respect, SDOs adopt patent policies, which members have to observe in order to participate in SDOs’ activities. Similarly to other rules governing the work of SDOs, patent policies may be modified following the prescribed procedures. However, any subsequent changes to an organization’s operational framework, including its intellectual property rules, may distort prior expectations and lock in members to rules that they never intended to abide by. Against this backdrop, this Article seeks to explore how SDOs’ members respond to the amendments of intellectual property rules by offering a taxonomy of strategies that may be adopted by members opposing modifications based on the exit and voice theory by Hirschman (1970). Drawing upon the example of the Institute of Electrical and Electronics Engineers (IEEE) revised Patent Policy, which took effect in 2015, the Article explores how SDO members respond to instances of organizational distress such as an update of intellectual property policies within an SDO, using as proxies stakeholders’ willingness to commit to the new licensing rules and previous examples of strategies when misunderstandings around intellectual property arose. At a normative level, this Article further studies the effect that such changes may have on the nature and structure of a given industry and offers a novel classification of reactions to turning points in the standards development realm, thereby contributing to the currently underdeveloped body of literature on strategic behavior in technological standardization.
    Keywords: standards development organizations (SDOs)); patent policy; strategic behavior; technical standards; organizational distress; intellectual property rights; exit and voice strategies
    Date: 2019
  10. By: Stadler, Manfred
    Abstract: We analyze product market competition between firm owners where the risk-neutral workers decide on their efforts and, thereby, on the output levels. Various worker compensation schemes are compared: a piece-rate compensation scheme as a benchmark when workers' output performance is verifiable, and a contest-based as well as a tournament-based compensation scheme when it is only verifiable who the best performing worker is. According to optimal designs, all the considered compensation contracts lead to an equal market outcome. Therefore, it depends decisively on the relative costs of organizing a monitoring device, a contest, or a tournament whether the one or the other compensation scheme should be implemented.
    Keywords: worker compensation schemes,piece rates,contests,tournaments,product market competition
    JEL: C72 L22 M52
    Date: 2020
  11. By: Myeongwan Kim
    Abstract: A key economic issue in Canada is the declining Business Enterprise Research and Development in manufacturing since the early 2000s. Accompanying this, the total factor productivity (TFP) growth in manufacturing slowed after 2000. However, there has not been a definitive explanation for these trends. To deepen our understanding of this phenomenon, we focus on the increasing Chinese import share in the total domestic absorption in Canadian manufacturing since the early 2000s, which appears to be driven by positive supply shocks within Chinese manufacturing. Based on a firm-level database covering all incorporated firms in Canadian manufacturing, we find that rising Chinese import competition led to declines in R&D expenditure and TFP growth within firms but reallocated employment towards more productive firms and induced less productive firms to exit. The negative within-effects were pronounced for firms that were initially smaller, less profitable, and less productive. These firms also experienced declines in their profit margins due to rising Chinese import competition while larger and better-performing firms did not. Our estimates imply that rising Chinese import competition can explain about 7 per cent of the total decline of $1.36 billion (2007 CAD) in R&D expenditure in Canadian manufacturing between 2005 and 2010. Although it led to declines in TFP within firms, the positive reallocation effects more than offset the negative within-effect. Had there been no increase in Chinese import competition between 2005 and 2010, TFP in Canadian manufacturing would have declined by 1.26 per cent per year instead of the actual 1.09 per cent per year over this period.
    Keywords: China Shock, Canada, Imports, Productivity, Innovation
    JEL: F62 O32 O51 O53 L60
    Date: 2019–08

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