nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒03‒02
ten papers chosen by
Russell Pittman
United States Department of Justice

  1. Mixed Bundling in Oligopoly Markets By Zhou, Jidong
  2. Pricing and Fees in Auction Platforms with Two-Sided Entry By Marleen Marra
  3. Preemptive competition between two firms with different discount rates By Michi NISHIHARA
  4. Start-up acquisitions and innovation strategies By Igor Letina; Armin Schmutzler; Regina Seibel
  5. Uniform Pricing Versus Third-Degree Price Discrimination By Dirk Bergemann; Francisco Castro; Gabriel Weintraub
  6. Pricing the Pharmaceuticals when the Ability to Pay Differs: Taking Vertical Equity Seriously. By Vesa Kanniainen; Juha Laine; Ismo Linnosmaa
  7. Estimating the Costs of Standardization: Evidence from the Movie Industry By El Hadi Caoui
  8. Bank Mergers in the Financial Crisis – A Competition Policy Perspective By Hellwig, Michael; Laser, Falk Hendrik
  9. "Recurrent Preemption Games" By Hitoshi Matsushima
  10. Prices and Federal Policies in Opioid Markets By Casey B. Mulligan

  1. By: Zhou, Jidong
    Abstract: This paper provides a framework for studying competitive mixed bundling with an arbitrary number of firms. We examine both a firm's incentive to introduce mixed bundling and equilibrium tariffs when all firms adopt the mixed-bundling strategy. We develop a method to derive the equilibrium prices, and also offer a simple approximation of the equilibrium prices when the number of firms is large. In the duopoly case, relative to separate sales, mixed bundling has ambiguous impacts on prices, profit and consumer surplus. While with many firms mixed bundling lowers all prices, harms firms and benefits consumers under a mild condition.
    Keywords: bundling, multiproduct pricing, oligopoly
    JEL: D43 L13 L15
    Date: 2019–11
  2. By: Marleen Marra (Département d'économie)
    Abstract: This paper presents, solves, and estimates the first structural auction model with seller selection. This allows me to quantify network effects arising from endogenous bidder and seller entry into auction platforms, facilitating the estimation of theoretically ambiguous fee impacts by tracing them through the game. Relevant model primitives are identified from variation in second-highest bids and reserve prices. My estimator builds off the discrete choice literature to address the double nested fixed point characterization of the entry equilibrium. Using new wine auction data, I estimate that this platform’s revenues increase up to 60% when introducing a bidder discount and simultaneously increasing seller fees. More bidders enter when the platform is populated with lower-reserve setting sellers, driving up prices. Moreover, I show that meaningful antitrust damages can be estimated in a platform setting despite this two-sidedness.
    Keywords: Auctions with entry; Two-sided markets; Nonparametric identification; Estimation; Nested fixed point
    JEL: D44 C52 C57 L81
    Date: 2019–12
  3. By: Michi NISHIHARA (Graduate School of Economics, Osaka University)
    Abstract: This paper studies a real options duopoly game between two firms with different time discount rates. I derive the order of investments, investment thresholds, and firm values in equilibrium. With no cost disadvantage, the patient firm enters the market earlier and gains more value than does the impatient opponent. When the patient firm has a cost disadvantage, the order of market entry can depend on the market characteristics. With a weaker first-mover advantage, higher market volatility, and lower market growth rate, the impatient firm is more likely to be the first mover. Notably, the patient firm can earn more than the impatient firm, even though the patient firm enters the market later. These results are consistent with empirical findings on market entry timing.
    Keywords: real options,timediscounting,marketentrytiming,preemption
    JEL: C73 G31 L13
  4. By: Igor Letina; Armin Schmutzler; Regina Seibel
    Abstract: This paper provides a theory of strategic innovation project choice by incumbents and start-ups. We apply this theory to identify the effects of prohibiting start-up acquisitions. We differentiate between killer acquisitions (when the incumbent does not commercialize the acquired start-up’s technology) and acquisitions with commercialization. A restrictive acquisition policy reduces the variety of research approaches pursued by the firms and thereby the probability of discovering innovations. Furthermore, it leads to strategic duplication of the entrant’s innovation by the incumbent. These negative innovation effects of restrictive acquisition policy have to be weighed against the pro-competitive effects of preserving potential competition.
    Keywords: innovation, acquisitions, mergers, competition, start-ups.
    JEL: O31 L41 G34
    Date: 2020–02
  5. By: Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Anderson School of Management, UCLA); Gabriel Weintraub (Graduate School of Business, Stanford University)
    Abstract: We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one-half of the optimal monopoly proï¬ ts. This revenue bound holds for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons.
    Keywords: First Degree Price Discrimination, Third Degree Price Discrimination, Uniform Price, Approximation, Concave Demand Function, Market Segmentation
    JEL: C72 D82 D83
    Date: 2019–12
  6. By: Vesa Kanniainen; Juha Laine; Ismo Linnosmaa
    Abstract: A non-trivial fraction of people cannot afford to buy pharmaceutical products at unregulated market prices. Therefore, the paper analyzes the public insurance of the pharmaceutical products in terms of price controls and the socially optimal third-degree price discrimination. It characterizes first the Ramsey pricing rule in the absence of insurance and in the case where the producer price has to cover the R&D sunk cost of the firm. Subsequently, conditions for a welfare increasing departure from Ramsey pricing are stated in terms of price regulation and insurance coverage. The resulting outcome is second best. Unlike the earlier views expressed, increased consumption of pharmaceutical products is shown to be welfare increasing in the second best world. As the optimal means-tested insurance, two alternative criteria for vertical equity are examined in the spirit of the Rawlsian view. In the first scheme, the regulator chooses a higher insurance coverage for individuals with their income below a threshold. In the second scheme, the society imputes a social value to low-income patients in terms of the value-added they produce after the treatment. Under both schemes, the threshold is determined endogenously.
    Keywords: pharmaceutical products, price regulation, public health insurance, third-degree price discrimination, equity criterion
    JEL: L10 L50
    Date: 2019
  7. By: El Hadi Caoui
    Abstract: This paper studies the decentralized adoption of a technology standard when network effects are present. If the new standard is incompatible with the current installed base, adoption may be inefficiently delayed. I quantify the magnitude of “excess inertia” in the switch of the movie distribution and exhibition industries from 35mm film to digital. I specify and estimate a dynamic game of digital hardware adoption by theaters and digital movies supply by distributors. Counterfactual simulations establish that excess inertia reduces surplus by 19% relative to the first-best adoption path; network externalities explain 29% of the surplus loss.
    Keywords: technology adoption, network effects, movie industry
    JEL: L82 L86 O33
    Date: 2019
  8. By: Hellwig, Michael; Laser, Falk Hendrik
    Date: 2019–10–24
  9. By: Hitoshi Matsushima (Faculty of Economics, The University of Tokyo)
    Abstract: I consider a new model of an infinitely repeated preemption game with random matching, termed the recurrent preemption game, wherein each player's discount factor depends on whether she wins the current game. This model describes sequential strategic technology adoptions in which a company becomes outdated by failing to maintain a position at the forefront of innovation. Assuming incomplete information about the presence of a rival, I clarify how the prominence of the innovator’s dilemma influences the degree of excessive competition in preemption. I also reveal interesting properties demonstrated by the unique symmetric Nash equilibrium of the recurrent preemption game.
  10. By: Casey B. Mulligan (University of Chicago; National Bureau of Economic Research (NBER))
    Abstract: More than a dozen Federal policy changes since the year 2000 have affected incentives to prescribe, manufacture, and purchase both prescription and illicitly-manufactured opioids. To the extent that one of the policies, the 2013 ÒHolder memo,Ó had a meaningful effect on the cost structure of suppliers of heroin and illicit fentanyl, standard consumer theory predicts that the trend for opioid-involved fatalities would proceed in distinct phases. Prior to 2013, subsidies to, and conveniences for, prescribers and consumers would increase total opioid consumption by reducing the full price of Rx. More surprising is that, with heroin relatively cheap of late, any Rx opioid policy could Ð and likely does Ð have the opposite total-consumption effect after 2013 than it would before, especially when the more expensive Rx opioid products are most affected. Subsidies to benzodiazepines (an opioid complement) increase opioid consumption in both phases. While policy changes at first reduced the full price of Rx, and then later increased it, technological change in illicit markets is also a relevant factor over the longer term.
    Date: 2020

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