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on Industrial Competition |
| By: | Jinho Jung; Juan Sesmero; Ralph Siebert |
| Abstract: | We estimate the cost of transporting corn and the resulting degree of spatial differentiation among downstream firms that buy corn from upstream farmers and examine whether such differentiation softens competition enabling buyers to exert market power (defined as the ability to pay a price for corn that is below its marginal value product net of processing cost). We estimate a structural model of spatial competition using corn procurement data from the U.S. state of Indiana from 2004 to 2014. We adopt a strategy that allows us to estimate firm-level structural parameters while using aggregate data. Our results return a transportation cost of $0.12 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 the average corn price in the sample), of which $0.34 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, providing evidence that firms do not engage in spatial price discrimination. Finally, we evaluate the effect of hypothetical mergers on input markets and farm surplus. A merger between nearby ethanol producers eases competition, increases markdowns by 20%, and triggers a sizable reduction in farm surplus. In contrast, a merger between distant buyers has little effect on competition and markdowns. |
| Keywords: | corn procurement, transportation costs, spatial differentiation, buyer power, spatial price discrimination, merger |
| JEL: | D43 L11 L13 L43 Q11 Q13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8088&r=all |
| By: | Charles Angelucci (Columbia Business School); Julia Cage (Département d'économie); Michael Sinkinson (Yale School of Management) |
| Abstract: | News media operate in two-sided markets, offering bundles of content to readers as well as selling readers' attention to advertisers. Technological innovations in content delivery, such as the advent of broadcast television or of the Internet, affect both sides of the market, threatening the basic economic model of print news operations. We examine how the entry of television affected local newspapers as well as consumer media diets in the United States. We develop a model of print media and show that entry of national television news could adversely affect the provision of local news. We construct a novel dataset of U.S. newspapers' economic performance and content choices from 1944 to 1964. Our empirical strategy exploits quasi-random variation in the timing of the entry of television in different markets. We show that the entry of television was a negative shock for newspapers, particularly evening newspapers, in both the readership and advertising markets. Further, we find a drop in the total quantity of news printed, in particular original reporting, raising concerns about the provision of local news. |
| JEL: | D4 L11 L15 M37 N72 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4ec86lkes59hv9tfv77ld1p5fr&r=all |
| By: | de Cornière, Alexandre; Taylor, Greg |
| Abstract: | What role does data play in competition? This question has been at the center of a fierce debate around competition policy in the digital economy. We use a competition-in-utilities approach to provide a general framework for studying the competitive effects of data, encompassing a wide range of markets where data has many different uses. We identify conditions for data to be unilaterally proor anti-competitive (UPC or UAC). The conditions are simple and often require no information about market demand. We apply our framework to study various applications of data, including training algorithms, targeting advertisements, and personalizing prices. We also show that whether data is UPC or UAC has important implications for policy issues such as data-driven mergers, market structure, and privacy policy. |
| JEL: | L1 L4 L5 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124102&r=all |
| By: | Benedikt Heid; Frank Stähler |
| Abstract: | We extend structural gravity models of bilateral trade flows to oligopolistic competition. We show that conventional gravity estimates do not only reflect trade costs but also market power. Our simple estimation procedure generalizes the standard gravity model and disentangles exogenous trade frictions and endogenous market power distortions. We use our estimated model to counterfactually increase trade costs by abolishing the European Single Market. We find that domestic firms’ markups in EU member countries increase by 2 to 6 percent. Importantly, welfare effects of trade liberalization are much more pronounced due to the change in competition among domestic and foreign firms. |
| Keywords: | trade, structural gravity, imperfect competition, market power |
| JEL: | F10 F12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8121&r=all |
| By: | Andrei Dubovik (CPB Netherlands Bureau for Economic Policy Analysis); Natasha Kalara (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | We discuss existing measures of banking competition along with their advantages and disadvantages. For the Panzar and Rosse H-statistic,we further investigate the robustness of its estimates. Specifically, we consider how the estimates vary with respect to modelling and data choices along the following dimensions: 1) bank types 2)consolidation codes 3)time periods 4) outliers 5)econometric models We construct a robust H-statistic estimate following a modified DerSimonian and Laird procedure. We find that no robust conclusions can be drawn regarding the relative competitiveness of the banking industries in European countries, nor regarding the development of the aggregate level of competition in Europe over the past twenty years. This finding illustrates why there is little consensus about the H-statistic estimates despite numerous publications on the topic. Additionally, we check which dimensions are most important in driving the differences between the estimates and find that the choice of model speci cation plays the largest role. |
| JEL: | G21 L13 L80 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:386.rdf&r=all |
| By: | Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun |
| Abstract: | A firm’s decision to invest in R&D depends on a number of factors like availability of funds, extent of R&D spillovers, market structure, and success probability. However, probability of success depends, to a large extent, on factors endogenous to a firm. This means, success probability can be known to the firm undertaking R&D investment, not to the rivals, hence there is incomplete information about probability of success in R&D. There are also uncertainties about rival’s R&D decision and R&D status. In a duopoly we show that there is a non-monotone relation between R&D incentives and the level of information. |
| Keywords: | R&D incentives, Duopoly, Incomplete information, Type distribution |
| JEL: | D43 D82 L13 O31 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98474&r=all |
| By: | Gunardi, Hery; Primiana, Ina; Effendi, Nury; Herwany, Aldrin; Satyakti, Yayan |
| Abstract: | This paper tests the interrelationships among risk, competition, and efficiency in the Indonesian private banking industry between 2014 and 2018. We examines asymmetric rivalry within and between strategic groups defined according to the size of their members. We hypothesize that, owing to several forms of group-level effects, including price difference and efficiency, strategic groups comprising large firms expect to experience a large amount of retaliation from firms within their group and accommodation from the group comprising smaller firms. The competition of private banking is dominated by incumbent firm. The risk and efficiency evolved over time enjoyed by incumbent with fat cat taxonomy and quiet life hypothesis. The entrant play lean and hungry strategy in different market segment within strategic group, whereas foreign bank deter incumbent with higher prices to enter between strategic group. The competition of private banking in Indonesia dominated by risk appetite and fragmented market |
| Keywords: | Market Structure, Risk, Efficiency, Indonesian Private Banking |
| JEL: | G24 G32 |
| Date: | 2020–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98451&r=all |
| By: | André Stenzel; Christoph Wolf; Peter Schmidt |
| Abstract: | Maintaining good ratings increases the profits of sellers on online platforms. We analyze the role of strategic pricing for ratings management in a setting where a monopolist sells a good of unknown quality. Higher prices reduce the value for money, which on average worsens reviews. However, they also induce only consumers with a strong taste for the product to purchase, which on average improves reviews. We provide conditions under which the latter effect dominates so that ratings management leads to upward pressure on prices. This upward pressure increases in the sensitivity of the aggregate rating to incoming reviews. As a consequence, recent changes to rating systems may have harmed consumers by increasing long-run price levels. |
| Keywords: | Rating Systems, Dynamic Pricing, Asymmetric Information |
| JEL: | D21 D82 L15 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_143v2&r=all |
| By: | Tobias Salz; Emanuel Vespa |
| Abstract: | We evaluate dynamic oligopoly estimators with laboratory data. Using a stylized en-try/exit game, we estimate structural parameters under the assumption that the data are generated by a Markov-perfect equilibrium (MPE) and use the estimates to predict counterfactual behavior. The concern is that if the Markov assumption was violated one would mispredict counterfactual outcomes. The experimental method allows us to compare predicted behavior for counterfactuals to true counterfactuals implemented as treatments. Our main finding is that counterfactual prediction errors due to collusion are in most cases only modest in size. |
| JEL: | L10 L13 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26765&r=all |
| By: | Sergey G. Kokovin; Shamil Sharapudinov; Alexander Tarasov; Philip Ushchev |
| Abstract: | Our novel approach to modeling monopolistic competition with heterogeneous consumers involves a space of characteristics of a differentiated good (consumers’ ideal points), alike Hotelling (1929). Firms have heterogeneous costs à la Melitz (2003). In addition to price setting, each firm also chooses its optimal location/niche in this space. We formulate conditions for positive sorting: more efficient firms serve larger market segments and face tougher competition in the equilibrium. Our framework entails rich equilibrium patterns displaying non-monotonic markups, high in the most and least populated niches, and the unequal gains from trade across different consumers. |
| Keywords: | firm heterogeneity, product space, positive sorting, product niches |
| JEL: | F10 L11 L13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8082&r=all |
| By: | Pehr-Johan Norbäck; Charlotta Olofsson; Lars Persson |
| Abstract: | Within the policy debate, there is a fear that large incumbent firms buy small firms’ inventions to ensure that they are not used in the market. We show that such “acquisitions for sleep” can occur if and only if the quality of a process invention is small; otherwise, the entry profit will be higher than the entry-deterring value. We then show that the incentive for acquiring for the purpose of putting a patent to sleep decreases when the intellectual property law is stricter because the profit for the entrant then increases more than the entry-deterring value does. |
| Keywords: | acquisitions, innovation, sleeping patents, IP law, ownership |
| JEL: | G24 L10 L20 M13 O30 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8095&r=all |
| By: | Gaurab Aryal; Federico Ciliberto; Benjamin T. Leyden |
| Abstract: | We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. To this end, we first use text analytics to build a novel dataset on communication among airlines about their capacity choices. Estimates from our preferred specification show that when all legacy airlines in a market discuss the concept of “capacity discipline,” they reduce offered seats by 1.79%. We verify that this reduction materializes only when airlines communicate concurrently, and that it cannot be explained by other possibilities, including that airlines are simply announcing to investors their unilateral intentions to reduce capacity, and then following through on those announcements. Additional results from conditional-exogeneity tests and control function estimates confirm our interpretation. |
| Keywords: | airlines, communication, capacity discipline, text data |
| JEL: | D22 L13 L41 L93 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8115&r=all |
| By: | Rudy Douven (CPB Netherlands Bureau for Economic Policy Analysis); Monique Burger; Erik Schut |
| Abstract: | In the Dutch health care system health insurers negotiate with hospitals about the pricing of hospital products in a managed competition framework. In this paper, we study these contract prices that became for the first time publicly available in 2016. |
| JEL: | I00 I11 L11 L51 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:378.rdf&r=all |
| By: | Rosa-Branca Esteves; Qihong Liu; Qihong Liu |
| Abstract: | This paper provides useful implications for managers and marketing practitioners using data on consumersípurchase history for price discrimination purposes. It is also useful for competition policy agencies and consumer advocates. It highlights that the shape of preferences plays an important role to the understanding of the proÖt and welfare e§ects of this business practice. We depart from the existing literature, by assuming that the distribution of consumer preferences is non-uniform. We show that new proÖt and welfare results arise. In contrast to what happens under uniform preferences, we show that if consumer preferences are clustered at the centre of the market (e.g. triangle distribution), in comparison to uniform pricing, BBPD boosts industry proÖts at the expense of consumer welfare. We show that if consumer preferences approach a non-uniform reverse triangle, the standard results prevail. |
| Keywords: | Price discrimination based on purchase history, proÖt and welfare e§ects, competition policy, distribution of consumer preferences |
| JEL: | D43 L13 M31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:18/2019&r=all |
| By: | Jian Sun; Chenye Wu |
| Abstract: | The start up costs in many kinds of generators lead to complex cost structures, which in turn yield severe market loopholes in the locational marginal price (LMP) scheme. Convex hull pricing (a.k.a. extended LMP) is proposed to improve the market efficiency by providing the minimal uplift payment to the generators. In this letter, we consider a stylized model where all generators share the same generation capacity. We analyze the generators' possible strategic behaviors in such a setting, and then propose an index for market power quantification in the convex hull pricing schemes. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.07595&r=all |
| By: | Frédéric Marty (Université Côte d'Azur, GREDEG, CNRS OFCE, Sciences Po, Paris, France); Julien Pillot (Université Paris Saclay) |
| Abstract: | Ce travail porte sur la décision de la Commission européenne du 18 juillet 2018 dans l’affaire Google Android. Il ne traite pas des effets incitatifs de l’amende mais s’interroge sur la théorie du dommage sous-jacente et sur les effets potentiels des injonctions qui en découlent, notamment au regard de la structure biface d’Android. C’est en effet sur cette dernière que se fonde le modèle économique de de Google, mais également l’interface technique d’Android. Il s’agit donc de lire la stratégie de la firme, en termes de pré-installation d’applications et de clauses antifragmentation, selon ce double prisme qui introduit des spécificités en termes de création de valeur et d’interdépendance entre acteurs. |
| Keywords: | Two sided markets, exclusionary abuses, tying, anticompetitive foreclosure, mobile operation systems |
| JEL: | L12 L41 L86 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1901&r=all |
| By: | Reda Cherif; Sandesh Dhungana; Xiangming Fang; Jesus R Gonzalez-Garcia; Yuanchen Yang; Mustafa Yenice; Jung Eun Yoon |
| Abstract: | Does greater product market competition improve external competitiveness and growth? This paper examines this question by using country-and firm-level data for a sample of 39 sub-Saharan African countries over 2000–17, as well as other emerging market economies and developing countries, and finds that an improvement in domestic competition is associated with a signficant increase in real GDP per capita growth rate, achieved mainly through an improvement in export competitiveness and productivity growth. Price levels, including of essential items, are also generally lowered with an increase in competition. Moreover, at the firm-level, evidence shows that greater competition—proxied through a decline in corporate market power—is associated with an increase in firm’s investment and the labor’s share in output. These effects are more pronounced in the manufacturing sector and among domestic firms compared to foreign firms. |
| Date: | 2020–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:20/30&r=all |