nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒03‒23
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Intertemporal Price Discrimination in Sequential Quantity-Price Games By James D. Dana Jr.; Kevin R. Williams
  2. Behavior-Based Price Discrimination and Product Choice By Chongwoo Choe; Noriaki Matsushima
  3. International Trade, Differentiated Goods and Strategic Asymmetry By John Gilbert; Onur A. Koska; Reza Oladi
  4. Product Quality and Strategic Asymmetry in International Trade By John Gilbert; Onur A. Koska; Reza Oladi
  5. A Note on Democracy and Competition: The Role of Ownership Structure in a General Equilibrium Model with Vertical Preferences By Hend Ghazzai; Wided Hemissi; Rim Lahmandi-Ayed; Sana Kefi
  6. Rising Bank Concentration By Dean Corbae; Pablo D'Erasmo
  7. On Outsourced Abatement Services: Market Power and Efficient Regulation By Damien Sans; Sonia Schwartz; Hubert Stahn
  8. Learning from Developing Country Power Market Experiences : The Case of the Philippines By Rudnick,Hugh; Velasquez,Constantin
  9. Competition Issues in the United States Beef Industry By Bolotova, Yuliya
  10. Identifying Service Market Reform Priorities in Italy By Nazim Belhocine; Daniel Garcia-Macia
  11. Prices and Federal Policies in Opioid Markets By Casey B. Mulligan
  12. Endogenous Productivity Dynamics in a Two-Sector Business Cycle Model By Fabio Massimo Piersanti; Patrizio Tirelli
  13. Intellectual property rights, imitation, and development. The effect on cross-border mergers and acquisitions By Campi, Mercedes; Dueñas, Marco; Barigozzi, Matteo; Fagiolo, Giorgio
  14. Effects of cluster policies on regional innovation networks: Evidence from France By Konan Alain N'ghauran; Corinne Autant-Bernard
  15. The International Market for Corporate Control By Anusha Chari
  16. The Substitutability between Brick-and-Mortar Stores and e-Commerce - The Case of Books By Georg Goetz; Daniel Herold; Phil-Adrian Klotz; Jan Thomas Schaefer
  17. On the long-term efficiency of market splitting in Germany By Fraunholz, Christoph; Hladik, Dirk; Keles, Dogan; Möst, Dominik; Fichtner, Wolf
  18. Optimal Advertising for Information Products By Shuran Zheng; Yiling Chen
  19. Misallocation and Intersectoral Linkages By Sophie Osotimehin; Latchezar Popov
  20. The impacts of Chinese retaliatory tariffs on U.S. cotton industry By Yuan, Hongyi; Liu, Yangxuan; Escalante, Cesar; Liu, Jing
  21. The Effects of Prize Structures on Innovative Performance By Graff Zivin, Joshua; Lyons, Elizabeth

  1. By: James D. Dana Jr.; Kevin R. Williams
    Abstract: This paper develops an oligopoly model in which firms first choose capacity and then compete in prices in a series of advance-purchase markets. We show that when the elasticity of demand falls across periods, strong competitive forces prevent firms from utilizing intertemporal price discrimination. We then enrich the model by allowing firms to use inventory controls, or sales limits assigned to individual prices. We show that competing firms can profitably use inventory controls. Thus, although typically viewed as a tool to manage demand uncertainty, we show that inventory controls can also facilitate price discrimination in oligopoly.
    JEL: D21 D43 L0 L13
    Date: 2020–02
  2. By: Chongwoo Choe; Noriaki Matsushima
    Abstract: We study a two-period model of behavior-based price discrimination in Fudenberg and Tirole (2000) but allow firms to make product choice in the first period. We show that the only possible equilibrium involves maximal differentiation. This is in contrast to Choe et al. (2018) where equilibrium features less than maximal differentiation when competition is in personalized pricing. Thus, our result highlights an important interplay between the type of price competition and product choice.
  3. By: John Gilbert; Onur A. Koska (University of Canterbury); Reza Oladi
    Abstract: We scrutinize international trade arising from oligopolistic rivalry (reciprocal dumping) in a model where the goods are horizontally differentiated and where otherwise symmetric firms located in different regions adopt asymmetric strategies – one competing in prices and the other competing in quantities. Uni-directional and intra-industry trade appear endogenously in our framework. We show that as trade costs decline the equilibrium outcome will transition from autarky through a region of uni-directional trade, before intra-industry trade ultimately arises. In the uni-directional trade region, potential market entry by the rival has an impact on firm behavior even though the rival is not exporting. The gains from trade are asymmetric in general, due to firms' asymmetric strategies, and sufficient product differentiation is required for trade to welfare dominate autarky especially with one of the trade partners adopting aggressive strategic behavior even when trade is costless.
    Keywords: Intra-industry trade, product differentiation, gains from trade, asymmetric strategies
    JEL: F01
    Date: 2020–03–01
  4. By: John Gilbert; Onur A. Koska (University of Canterbury); Reza Oladi
    Abstract: In a duopoly trade model with both horizontal and vertical product differentiation, we examine the endogenous choice of quantities and prices as strategic variables. We show that strategic asymmetry (such that a potential exporter commits to a quantity contract, while a local rival commits to a price contract) can be an equilibrium outcome when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low. A lower degree of horizontal product differentiation can make strategic asymmetry more likely. By endogenizing the quality choice, we also establish the conditions under which product quality choice gives rise to strategic asymmetry.
    Keywords: International trade; product quality; horizontal product differentiation; Cournot- Bertrand-Nash equilibrium
    JEL: D43 F12
    Date: 2020–03–01
  5. By: Hend Ghazzai (UR MASE - Modélisation et Analyse Statistique et Economique - ESSAIT - Ecole Supérieure de la Statistique et de l'Analyse de l'Information - Université de Carthage - University of Carthage); Wided Hemissi; Rim Lahmandi-Ayed (LEGI - Laboratoire d'Économie et de Gestion Industrielle [Tunis] - Ecole Polytechnique de Tunisie); Sana Kefi
    Abstract: This note extends the results already obtained by Khaloul et al. (2017) on the majority vote between monopoly and duopoly by a heterogeneous population composed of individuals who are potentially consumers, workers, and shareholders to the general case where firms are owned by a given proportion of the population. Results show that duopoly is preferred when non-shareholders constitute a majority of the population. Otherwise, the majority vote depends on the relative dispersion of the individuals with respect to their intensity of preference for quality and their sensitivity to effort.
    Keywords: Imperfect Competition,Democracy,Vertical Differentiation,Gen- eral Equilibrium,Ownership Structure * hendghazzai@msbtn † widedhemissi@msbtn
    Date: 2020–02–15
  6. By: Dean Corbae (University of Wisconsin-Madison; University of Pittsburgh; University of Iowa; National Bureau of Economic Research; University of Texas); Pablo D'Erasmo
    Abstract: Concentration of insured deposit funding among the top four commercial banks in the U.S. has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's funding base. In this paper, we build an industry equilibrium model in which banks endogenously climb a funding base ladder. Rising concentration occurs along a transition path between two steady states after branching costs decline.
    Keywords: Banking industry dynamics; Imperfect competition; Bank concentration
    JEL: E44 G21 L11 L13
    Date: 2020–03–02
  7. By: Damien Sans (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Sonia Schwartz (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Hubert Stahn (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we consider competitive polluting firms that outsource their abatement activity to an upstream imperfect competitive eco-industry to comply with environmental regulation. In this case, we show that an usual environmental policy based on a Pigouvian tax or a pollution permit market reaches the first-best outcome. The main intuition is based on the idea that purchasing pollution reduction services instead of pollution abatement inputs modifies for each potential tax rate (or out of the equilibrium permit price) the nature of the arbitrage between pollution and abatement. This induces a demand for abatement services which is, at least partially, strongly elastic and therefore strongly reduces upstream market power. This argument is first illustrated with an upstream monopoly selling eco-services to a representative polluting firm under a usual Pigouvian tax. We then progressively extend the result to permit markets, heterogeneous downstream polluters and heterogeneous upstream Cournot competitors. JEL Codes: Q58, D43
    Keywords: Environmental regulation,Eco-industry,Imperfect Competition,Abatement Outsourcing
    Date: 2019–12
  8. By: Rudnick,Hugh; Velasquez,Constantin
    Abstract: Deep reforms of the Philippine power sector began in 2001, aiming at competitive wholesale and retail markets. This case study analyzes the Philippine experience with wholesale electricity markets at the generation level, including design, implementation, and outcomes. The spot market began operation in 2006, amidst adequate generation capacity albeit highly concentrated among few players. The reforms have successfully introduced market-driven forces to system operation and spot price signals for investments. Investment in new generation has recently been commissioned; generation concentration has plunged since the market?s inception (mainly due to privatization of generation assets); and generation supply has been generally secure (barring natural disasters). However, serious conflicts due to market power abuse occurred in the past; the market remains concentrated in four major players; and new competitors have slowly entered through the opaque and largely regulated market of bilateral contracts. Moreover, following aggressive capacity additions, baseload coal generation soared over the past decade, reaching 50 percent of total output in 2017, thus raising concerns about environmental sustainability, the optimal capacity mix (due to lack of investments in flexible mid-merit and peaking power plants), and long-term supply security of the Philippine power sector (since coal is imported). The case of the Philippines'power market highlights the importance of adequate ownership structure supportive of competition, the need of effective monitoring and oversight, especially during initial phases of the market, and the benefits and challenges that open and competitive wholesale markets can provide over time, especially in interaction with vertical integration (whether through cross-ownership or through bilateral contracts).
    Keywords: Energy Policies&Economics,Energy Demand,Energy and Mining,Energy and Environment,Power&Energy Conversion,Oil Refining&Gas Industry,Energy Sector Regulation
    Date: 2019–01–29
  9. By: Bolotova, Yuliya
    Keywords: Agribusiness, Marketing, Industrial Organization, Farm Management
  10. By: Nazim Belhocine; Daniel Garcia-Macia
    Abstract: Italy’s labor productivity in market services has declined since 2000, underperforming manufacturing and peer European countries, especially in strongly regulated sectors. A model of monopolistic competition is used to identify which service sectors would benefit more from removing entry and/or exit barriers. Using Italian firm-level data, the paper finds that sectors with high markups, such as professional services, would primarily benefit from removing entry barriers. Sectors with a large mass of unproductive firms, such as retail, would instead benefit from removing exit barriers. Policy recommendations to improve efficiency are outlined in relation to the sectoral priorities identified in the data.
    Date: 2020–02–21
  11. By: Casey B. Mulligan
    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 “Holder memo,” 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 – and likely does – 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.
    JEL: H22 I18 K42 L51
    Date: 2020–02
  12. By: Fabio Massimo Piersanti; Patrizio Tirelli
    Abstract: We develop a stylized two-sector business cycle model with endogenous firm dynamics in the investment goods sector. The positive correlation between firms profitability and the relative price of investment goods generates an endogenous persistence mechanism in productivity dynamics which drives the model response to shocks. A white noise permanent shock to the productivity of new entrants causes endogenous exit and subsequent rounds of productivity increases, due to the competitive pressure generated by falling relative prices of investment goods. The model internal propagation mechanism generates persistent dynamics and a large "multiplier effect" on the initial shock. Neutral productivity shocks affect long run firms productivity in the Investment-goods sector through their effect on relative prices. Firms productivity is also endogenous to shocks to the marginal efficiency of investment. The DSGE version of the model apparently survives the Barro-King curse.
    Keywords: Productivity shocks, Investment shocks, relative price of investment, DSGE model, Firms entry, Firms exit
    JEL: E13 E21 E22 E30 E32
    Date: 2020–02
  13. By: Campi, Mercedes; Dueñas, Marco; Barigozzi, Matteo; Fagiolo, Giorgio
    Abstract: In this paper, we analyze whether the recent global process of strengthening and harmonization of intellectual property rights (IPRs) affects decisions of cross-border mergers and acquisitions (M&As). We investigate if IPRs have a differential effect across sectors of different technology content and for countries of different development level. Also, we study how imitation abilities of target countries interact with the tightening of IPRs. Using data for the post-TRIPS period (1995-2010), we estimate an extended gravity model to study the bilateral number of M&As, including a measure of the strength of IPRs systems on target countries and a set of control variables usually considered as determinants of M&As. The estimation results verify the gravity structure for M&As and show that IPRs -and enforcement- influence decisions of cross-border M&As in all sectors regardless of their technological content. However, IPRs are more important in countries with high imitation abilities and in sectors of high-technology content. Furthermore, a strengthening of IPRs leads to a larger increase of M&As in developing countries than in developed countries. These results call the attention on the possible implications for least developed economies and challenge the adequacy of a globally harmonized IPRs systems.
    Keywords: intellectual property rights; mergers and acquisitions; gravity model; technological intensity; imitation; international comparison
    JEL: G34 O13 O14 O34
    Date: 2018–09–12
  14. By: Konan Alain N'ghauran (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Corinne Autant-Bernard (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Despite the growing body of literature evaluating cluster policies, it still remains difficult to establish conclusively their structural effects on regional innovation networks. Focusing on the French cluster policy during the period 2005-2010, this study aims at evaluating how cluster policies influence the structure of local innovation networks following network topologies that may be beneficial for regional innovation. Based on a panel data of four periods and 94 NUTS3 French regions, we estimate spatial Durbin models, allowing us to identify direct, indirect and total effects of cluster policies. The results suggest that cluster policies can result in both positive and negative total effects on the structure of local innovation networks depending on regions' technological specialisation. Beyond the heterogeneous effects, the results also highlight that cluster policies may lead to a regional competition for the strengthening of innovation networks. This finding echoed previous research pointing out the possible 'beggar-thy-neighbour' effects of cluster policies.
    Keywords: Cluster,Regional innovation,Innovation network,Policy evaluation
    Date: 2020
  15. By: Anusha Chari
    Abstract: This paper documents a set of stylized facts about recent trends in cross-border M&A (CBMA) activity around the world. The facts focus on key features of CBMA such as (i) the magnitude; (ii) how it varies across industries and locations; (iii) how it compares to levels of greenfield FDI over time; (iv) horizontal (market access) versus vertical (integrating supply chains) transactions; (v) the mode of financing; (vi) diversifying transactions versus those in the same industry; (vii) patterns of control acquisition; and (viii) strategic versus financially motivated transactions. The paper also examines whether the nature of cross-border M&A activity differs across developed and emerging markets. Next, it considers the incentives for firms to buy firms in other countries and to sell divisions to foreign buyers and examines the evidence about post-acquisition outcomes. The paper concludes with a discussion of policy challenges that confront governments as they weigh the balance of national security concerns against a desire to increase foreign investment in their economies.
    JEL: F2 F23 F3 G34
    Date: 2020–03
  16. By: Georg Goetz (Justus Liebig University Giessen); Daniel Herold (Justus Liebig University Giessen); Phil-Adrian Klotz (Justus Liebig University Giessen); Jan Thomas Schaefer (Justus Liebig University Giessen)
    Abstract: We analyze the substitutability between brick-and-mortar stores and e-Commerce. Using a novel data set on the German book market we find that between 26 and 55% of the decrease in book sales from 2014-2017 can be explained by the decrease in the number of bookstores. This indicates that brick-and-mortar stores and e-Commerce are imperfect substitutes. One explanation could be that some consumers prefer to purchase books offine because of the service provision in brick-and-mortar stores (e.g., advice, atmosphere, presentation, sales-effort, etc.). We also find that the degree of substitutability differs between different types of books. When a bookshop closes the decrease in sales of fiction titles is more than 2 times larger than the decrease in sales of non-fiction titles. Our findings indicate that regulatory measures and vertical restraints that increase the number of bookstores can have a positive effect on the demand for books even in the presence of e-Commerce.
    Keywords: Experience goods, Retailing, e-Commerce
    Date: 2020
  17. By: Fraunholz, Christoph; Hladik, Dirk; Keles, Dogan; Möst, Dominik; Fichtner, Wolf
    Abstract: In Europe, the ongoing renewable expansion and delays in the planned grid extension have intensified the discussion about an adequate electricity market design. Against this background, we jointly apply an agent-based electricity market model and an optimal power flow model to investigate the long-term impacts of splitting the German market area into two price zone. Our approach allows capturing long-term investment and short-term market behavior under imperfect information. We find strong impacts of a German market splitting on electricity prices, expansion planning of generators and required congestion management. While the congestion volumes decrease significantly under a market split in the short term, the optimal zonal configuration for 2020 becomes outdated over time due to dynamic effects like grid extension, renewable expansion and new power plant investments. Policymakers and regulators should therefore regularly re-assess bidding zone configurations. Yet, this stands in contrast to the major objective of price zones to create stable locational investment incentives.
    Date: 2020
  18. By: Shuran Zheng; Yiling Chen
    Abstract: When selling information, sometimes the seller can increase the revenue by giving away some partial information to change the buyer's belief about the information product, so the buyer may be more willing to purchase. This work studies the general problem of advertising information products by revealing some partial information. We consider a buyer who needs to make a decision, the outcome of which depends on the state of the world that is unknown to the buyer. There is an information seller who has access to information about the state of the world. The seller can advertise the information by revealing some partial information. We consider a seller who chooses an advertising strategy and then commits to it. The buyer decides whether to purchase the full information product after seeing the partial information. The seller's goal is to maximize the expected revenue. We prove that finding the optimal advertising strategy is hard, even in the simple case that the buyer type is known. Nevertheless, we show that when the buyer type is known, the problem is equivalent to finding the concave closure of a function. Based on this observation, we prove some properties of the optimal mechanism, which allow us to solve the optimal mechanism by a convex program (with exponential size in general, polynomial size for special cases). We also prove some interesting characterizations of the optimal mechanisms based on these properties. For the general problem when the seller only knows the type distribution of the buyer, it is NP-hard to find a constant factor approximation. We thus look at special cases and provide an approximation algorithm that finds an $\varepsilon$-suboptimal mechanism when it is not too hard to predict the possible type of buyer who will make the purchase.
    Date: 2020–02
  19. By: Sophie Osotimehin (University of Quebec at Montreal); Latchezar Popov (Texas Tech University)
    Abstract: We analytically characterize the aggregate productivity loss from allocative distortions in a setting that accounts for the sectoral linkages of production. We show that the effects of distortions and the role of sectoral linkages depend crucially on how substitutable inputs are. We find that the productivity loss is smaller if input substitutability is low. Moreover, with low input substitutability, sectoral linkages do not systematically amplify the effects of distortions. In addition, the impact of the sectors that supply intermediate inputs becomes smaller. We quantify these effects in the context of the distortions caused by market power, using industry-level data for 35 countries. With our benchmark calibration, which accounts for low input substitutability, the median aggregate productivity loss from industry-level markups is 1.3%. To assume instead unit elasticities of substitution (i.e., to use a Cobb-Douglas production function) would lead to overestimating the productivity loss by a factor of 1.8. Sectoral linkages do amplify the cost of markups, but the amplification factor is considerably weaker than with unit elasticities.
    Keywords: Aggregate productivity; Input-output; Production network; Misallocation; CES production function; Market power
    JEL: D57 D61 O41 O47
    Date: 2020–02–18
  20. By: Yuan, Hongyi; Liu, Yangxuan; Escalante, Cesar; Liu, Jing
    Keywords: International Relations/Trade
  21. By: Graff Zivin, Joshua; Lyons, Elizabeth
    Date: 2020–02–01

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