nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒03‒30
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Superstars in two-sided markets: exclusives or not? By Carroni, Elias; Madio, Leonardo; Shekhar, Shiva
  2. Information Technology and Returns to Scale By Danial Lashkari; Arthur Bauer; Jocelyn Boussard
  3. Search, Information, and Prices By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  4. Application Period in Reverse Auctions By Sümeyra Atmaca
  5. Price Dynamics of Swedish Pharmaceuticals By Janssen, Aljoscha
  6. The impact of delays on the welfare effects of on-track competition: The case of transfer passengers with operator-tied tickets By Christina; Gernot Sieg
  7. Identifying Consumer-Welfare Changes when Online Search Platforms Change Their List of Search Results By Ryan Martin
  8. Rising Bank Concentration By Dean Corbae; Pablo D'Erasmo
  9. A Theory of Falling Growth and Rising Rents By Philippe Aghion; Antonin Bergeaud; Timo Boppart; Peter J. Klenow; Huiyu Li
  10. Enforcing Competition and Firm Productivity : Evidence from 1,800 Peruvian Municipalities By Schiffbauer,Marc Tobias; Sampi Bravo,James Robert Ezequiel
  11. A Model of Cryptocurrencies By Michael Sockin; Wei Xiong
  12. How Big is the “Lemons” Problem? Historical Evidence from French Wines By Pierre Mérel; Ariel Ortiz-Bobea; Emmanuel Paroissien
  13. Estimating cannibalizing effects of sales promotions: The impact of price cuts and store type By Rod Mccoll; Renaud Macgilchrist; Shuddhasattwa Rafiq
  14. Innovation, Bestsellers and Digitization - Where to Find the Needle in the Haystack? By Georg Goetz; Daniel Herold; Phil-Adrian Klotz; Jan Thomas Schaefer
  15. Platform Competition with Multi-Homing on Both Sides: Subsidize or Not? By Yannis Bakos; Hanna Halaburda
  16. Value creation and value appropriation In innovative coopetition projects By Paul Chiambaretto; Jonathan Maurice; Marc Willinger
  17. CORONAVIRUS AND AIRBNB – Disrupting the Disruptor By Dolnicar, Sara; Zare, Samira
  18. Do preferences for private labels respond to supermarket loyalty programs? By Florez-Acosta, Jorge
  19. The Competitive pricing in marina business: Exploring relative price position and price fluctuation By Dubravka Vlasic; Katarina Poldrugovac; Sandra Jankovic

  1. By: Carroni, Elias; Madio, Leonardo; Shekhar, Shiva
    Abstract: This article studies incentives for a premium provider (Superstar) to offer exclusive contracts to competing platforms mediating the interactions between consumers and firms. When platform competition is intense, more consumers affiliate with the platform favored by Superstar’s exclusive deal. This mechanism is self-reinforcing as more firms follow consumer decisions and some singlehome on the favored platform. Our model shows that the presence of indirect network externalities may overturn the common conclusion in the one-sided literature that exclusivity could be deemed as anti-competitive. Exclusivity can be welfare-enhancing and a vertical merger (platform-Superstar) may make non-exclusivity more likely than if the Superstar was independent.
    Keywords: exclusive contracts; platforms; two-sided markets; marquee player
    JEL: L13 L22 L86 K21
    Date: 2020–03
  2. By: Danial Lashkari; Arthur Bauer; Jocelyn Boussard
    Abstract: This paper investigates the role of IT in shaping recent trends in market concentration, factor income shares, and market competition. Relying on a novel dataset on hardware and software investments in the universe of French firms, we document a robust within-industry correlation between firm size and the intensity of IT demand. To explain this fact, we argue that the relative marginal product of IT inputs may rise with firm scale, since IT specifically helps firms deal with organizational limits to scale. We propose a general equilibrium model of industry dynamics that features firm-level production functions compatible with this mechanism. We estimate the production function and find evidence for the nonhomotheticity of IT demand and for an elasticity of substitution between IT and other inputs that falls below unity. Under the estimated model parameters, the cross-sectional predictions of the model match the observed relationship of firm size with IT intensity (positive) and labor share (negative). In addition, as a response to the fall in the relative price of IT inputs in post-1990 France, the model can explain about half of both the observed rise in market concentration and the observed market reallocation toward low-labor-share-firms.
    Keywords: : Information Technology, Labor Share, Competition, Production Function, Nonhomotheticity.
    JEL: E10 E23 E25
    Date: 2019
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: Consider a market with many identical ï¬ rms offering a homogeneous good. A consumer obtains price quotes from a subset of ï¬ rms and buys from the ï¬ rm offering the lowest price. The “price count†is the number of ï¬ rms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we obtain a tight upper bound (under ï¬ rst-order stochastic dominance) on the equilibrium distribution of sale prices. The bound holds across all models of ï¬ rms’ common-prior higher-order beliefs about the price count, including the extreme cases of complete information ( ï¬ rms know the price count exactly) and no information ( ï¬ rms only know the ex ante distribution of the price count). A qualitative implication of our results is that even a small ex ante probability that the price count is one can lead to dramatic increases in the expected price. The bound also applies in a wide class of models where the price count distribution is endogenized, including models of simultaneous and sequential consumer search.
    Keywords: Search, Price Competition, Bertrand Competition, "Law of One Price", Price Count, Price Quote, Information Structure, Bayes Correlated Equilibrium
    JEL: D41 D42 D43 D83
    Date: 2020–03
  4. By: Sümeyra Atmaca (-)
    Abstract: The duration to apply for participation in auctions affects entry costs and eventually the allocation and prices of contracts. The role of the application period is studied using Russian public procurement data on gasoline in 2011-2013. By relying on formal rules on the determination of the application period, I find that longer periods enhance competition and lead to price reductions. Moreover, I show that public buyers avoid long application periods. They shorten the period if they need gasoline immediately but I further argue that it facilitates favoritism. Finally, evidence is provided of collusion sustaining favoritism
    Keywords: public procurement, auction design, corruption, regulation
    JEL: H57 K42
    Date: 2020–03
  5. By: Janssen, Aljoscha (Singapore Management University)
    Abstract: This paper investigates price patterns of off-patent pharmaceuticals in Sweden. I show that price dynamics are dependent on the number of competitors in the market. The price patterns follow predictions from a model of dynamic price competition in which the demand for pharmaceuticals incorporates the known biases of consumers: habit persistence and brand preferences. Using the regulated market of Swedish pharmaceuticals, I show that price may help in identifying possible tacit collusion by manufacturers in markets where consumers experience behavioral frictions.
    Keywords: Pharmaceutical pricing; Dynamic oligopoly; State dependence; Price cycles
    JEL: D43 I11 L13 L40
    Date: 2020–03–18
  6. By: Christina (Institute of Transport Economics, Muenster); Gernot Sieg (Institute of Transport Economics, Muenster)
    Abstract: When connecting trains may be missed due to delays, and passengers are insufficiently flexible due to operator-tied ticketing, on-track competition may reduce effective frequency. We analyze passengers who share α-β-γô °€-preferences for being on time and a price-sensitive demand, but differ in the preferred arrival time. If the probability of missing a connection due to a delay is sufficiently high, both producer and consumer surplus in a duopoly with reduced effective frequency is smaller than in the monopoly case. Apart from reducing unpunctuality, ensuring the transferability of tickets, and switching to competition for the market, may constitute (regulatory) remedies.
    Keywords: Oligopoly model, Open access, Delays, Connecting trains, Operator-tied ticketing, Regulation
    JEL: L92 L98 R48
    Date: 2019–11
  7. By: Ryan Martin
    Abstract: Online shopping is often guided by search platforms. Consumers type keywords into query boxes, and search platforms deliver a list of products. Consumers' attention is limited, and exhaustive searches are often impractical. Thus, the order in which products appear in search results affects the products consumers discover and ultimately purchase. In this setting, I study the identification of consumer-welfare changes in response to exogenous changes in search-result lists. I focus on the case of consumers engaging in costly searches for a single, indivisible (discrete) product among a collection of substitutes. I show that exact consumerwelfare changes—that is, compensating variation and equivalent variation—can be calculated with the use of straightforward integrals of the aggregate demand. I apply my results to shopping data provided by an online travel agency (OTA). I estimate that when the OTA changes search results from random to its proprietary listing structure, welfare improves by an average of $8.84 per user. I estimate an average welfare loss of $20.51 per user when the OTA removes the top five products from all of its search-result lists.
    Keywords: Econometric and statistical methods; Market structure and pricing
    JEL: C14 D83 L40
    Date: 2020–03
  8. By: Dean Corbae; 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.
    JEL: E44 G21 L11 L13
    Date: 2020–03
  9. By: Philippe Aghion; Antonin Bergeaud; Timo Boppart; Peter J. Klenow; Huiyu Li
    Abstract: Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor’s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firmlevel costs of spanning multiple markets, perhaps due to accelerating IT advances. In response, the most efficient firms (with higher markups) spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find markets more difficult to enter profitably and therefore innovate less. Eventually, due to greater competition from efficient firms, within-firm markups actually fall. Despite the increase in the aggregate markup and rents, firm incentives to innovate decline—lowering the long run growth rate.
    Keywords: : Labor Income Share, Concentration, Growth, Markups.
    JEL: O31 O47 O51
    Date: 2019
  10. By: Schiffbauer,Marc Tobias; Sampi Bravo,James Robert Ezequiel
    Abstract: This paper uses a unique data set that captures the elimination of subnational regulatory barriers to firm entry and competition across 1,800 municipalities and matches it with establishment census panel data to estimate the impact on establishment productivity and markups. The elimination of local barriers that were inconsistent with national legislation was the result of legal reforms that strengthened the mandate of Peru's competition authority. Legislative changes in 2013/14 empowered the competition authority to enforce the elimination of illegal, sector-specific subnational regulatory barriers to firm entry and competition, conditional on the existence of a precedence. The changes provide a unique quasi-experimental setting to identify the impact of enforcing competition within the controlled institutional environment of a single country. The paper finds that the elimination of subnational barriers to entry boosted the (revenue) productivity of establishments operating in reform municipalities and sectors relative to establishments in nonreform municipalities/sectors. But it did not raise the establishments'markups, which, if anything, declined, suggesting that physical productivity improved. The paper provides a wide range of evidence supporting a causal interpretation of this finding. The results suggest that strengthening the mandate of institutions enforcing competition is critical to raise productivity.
    Keywords: Transport Services,International Trade and Trade Rules,Employment and Unemployment,Food&Beverage Industry,Common Carriers Industry,Construction Industry,Business Cycles and Stabilization Policies,General Manufacturing,Plastics&Rubber Industry,Textiles, Apparel&Leather Industry,Pulp&Paper Industry,Competition Policy,Competitiveness and Competition Policy
    Date: 2019–01–22
  11. By: Michael Sockin; Wei Xiong
    Abstract: We model a cryptocurrency as membership in a decentralized digital platform developed to facilitate transactions between users of certain goods or services. The rigidity induced by the cryptocurrency price having to clear membership demand with supply of token by speculators, especially with strong complementarity in membership demand, can lead to market breakdown. While user optimism mitigates the market fragility by increasing user participation, speculator sentiment exacerbates it by crowding users out. Informational frictions attenuate the risk of breakdown by dampening price volatility and platform performance. Furthermore, the users' anticipation of losses from strategic attacks by miners exacerbates the market fragility.
    JEL: G19
    Date: 2020–03
  12. By: Pierre Mérel (UC Davis - University of California [Davis] - University of California); Ariel Ortiz-Bobea (Cornell University); Emmanuel Paroissien (SMART - Structures et Marché Agricoles, Ressources et Territoires - AGROCAMPUS OUEST - INRA - Institut National de la Recherche Agronomique)
    Abstract: This paper provides empirical evidence of large welfare losses associated with asymmetric in- formation about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses represent up to 13% of total market value, suggesting an important role for credible certification schemes.
    Abstract: Cet article donne des preuves empiriques de pertes importantes de bien-être causées par l'asymétrie d'information sur la qualité des produits dans un marché concurrentiel. Lorsque les conso- mateurs ne peuvent pas observer les caractéristiques du produit au moment de l'achat, les pro- ducteurs atomistiques n'ont aucune incitation à fournir de biens de meilleure qualité s'ils sont plus coûteux à produire. Nous comparons les prix du vin dans les différentes circonscriptions administratives autour de la mise en place d'une réglementation historique visant à certifier la qualité de plus de 250 vins français d'appellation d'origine, de manière à identifier les pertes de bien-être dues à l'asymétrie d'information avant la réforme. Nous estimons que ces pertes représentent jusqu'à 13% de la valeur totale du marché, ce qui suggère un rôle important pour des systèmes de certification crédibles.
    Keywords: asymmetric information,adverse selection,quality uncertainty,welfare,wine appellation,information asymétrique,sélection adverse,qualité incertaine,bien-être,appellation des vin
    Date: 2020
  13. By: Rod Mccoll (Rennes School of Business); Renaud Macgilchrist (Rennes School of Business); Shuddhasattwa Rafiq (Deakin University [Burwood])
    Abstract: To evaluate the financial impact of supermarket sales promotions, managers must estimate how much new demand comes from cannibalizing the base product compared with other sources. However, investigations into cannibalization are scant. Using vector autoregression analytical framework applied to three years of supermarket scanner data, and sales promotions for pound cake, we estimate cannibalization effects for two common price reductions (10% and 15%), across large, medium and small supermarkets. The sales bumps varied across supermarkets for each price cut while cannibalization effects were substantial only in large supermarkets, with moderate effects in medium stores and no effects in small supermarkets.
    Keywords: SVARMAX,Sales promotion,Price discounting,Cannibalization,Dynamic structural equations
    Date: 2020–03
  14. 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 empirically analyze the role of e-Commerce and brick-and-mortar retailers in discovering new bestsellers in the book market, using the German market as an example. Using an AR(1)-Process, we find that when a title becomes a bestseller sales increase in e-Commerce and decrease in brick-and-mortar stores relative to a title that is not on the bestseller-list. This finding implies that consumers in the online channel respond by increasing sales upon receiving a quality signal (i.e., a title becoming a bestseller). Consumers in the offline channel seem to already know that title so that, compared to a title that is not on the bestseller-lists, sales are decreasing. This might imply that consumers in the offline channel are more likely to read future bestsellers.
    Date: 2020
  15. By: Yannis Bakos; Hanna Halaburda
    Abstract: A major result in the study of two-sided platforms is the strategic interdependence between the two sides of the same platform, leading to the implication that a platform can maximize its total profits by subsidizing one of its sides. We show that this result largely depends on assuming that at least one side of the market single-homes. As technology makes joining multiple platforms easier, we increasingly observe that participants on both sides of two-sided platforms multi-home. The case of multi-homing on both sides is mostly ignored in the literature on competition between two-sided platforms. We help fill this gap by developing a model for platform competition in a differentiated setting (a Hoteling line), which is similar to other models in the literature but focuses on the case where at least some agents on each side multi-home. We show that when both sides in a platform market multi-home, the strategic interdependence between the two sides of the same platform will diminish or even disappear. Our analysis suggests that the common strategic advice to subsidize one side in order to maximize total profits may be limited or even incorrect when both sides multi-home, which is an important caveat given the increasing prevalence of multi-homing in platform markets.
    Keywords: multi-homing, platforms, two-sided platforms, network effects, platform subsidies
    JEL: O33 L11
    Date: 2020
  16. By: Paul Chiambaretto (MRM - Montpellier Research in Management - UM1 - Université Montpellier 1 - UM3 - Université Paul-Valéry - Montpellier 3 - UM2 - Université Montpellier 2 - Sciences et Techniques - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier); Jonathan Maurice (TSM - Toulouse School of Management Research - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT1 - Université Toulouse 1 Capitole - UT1 - Université Toulouse 1 Capitole); Marc Willinger (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This article provides a formal model of the value creation-appropriation dilemma in the coopetition for innovation, i.e., alliances among competing firms. The model determines the levels of cooperation that maximize the profit of each firm in an innovative coopetition agreement regardless of the number of firms and their respective budget endowments dedicated to the coopetitive project. We answer the following questions. Within an innovative coopetition agreement, will the partners cooperate more or less when their budget endowments change? What is the impact on profit? When is it profitable to accept a new partner into the agreement? What happens to the remaining firms when a partner withdraws from the agreement? We show that when the coopetitive budget of the focal firm increases, the focal firm allocates a larger part of this budget to value creation activities and increases its profit. In contrast, when a partnering firm increases its coopetitive budget, the focal firm reduces its budget for value creation activities to maintain a sufficient budget for value appropriation activities. We also show that the addition of a competitor with a large coopetitive budget to the innovative coopetition agreement decreases the cooperation of the focal firm but increases the profit of the initial partnering firms. In contrast, the exit of a partnering firm with a large coopetitive budget from the agreement intensifies the cooperation among the remaining firms but reduces their profit
    Keywords: coopetition,value creation,value appropriation,innovative coopetition projects,game theory
    Date: 2020
  17. By: Dolnicar, Sara (The University of Queensland); Zare, Samira
    Abstract: Has coronavirus disrupted the disruptor? We argue that this is indeed the case, and that this disruption will affect the growth of Airbnb on the long term. The first premise of our prediction is that coronavirus is representative of any kind of major shock that has the potential to affect the tourism industry. The second premise is that the consequences of this super-shock are asymmetric. Different types of hosts will face different types of challenges as a consequence of the sudden and unexpected drop in demand. Investors who are in the business of short term rental to make commercial profits will find themselves in a situation where they still have expenses, but no more income. Some of these investors will re-assess the risk of short-term rental and never return to Airbnb. As a consequence, the supply of Airbnb properties will limit Airbnb growth in future.
    Date: 2020–03–17
  18. By: Florez-Acosta, Jorge
    Abstract: This paper examines the effects of supermarket loyalty programs on the demand for private labels (PLs). Using transaction level data on grocery purchases and individual level information on the membership of loyalty programs, I estimate a model of demand in which membership may affect the consumers' valuation for PLs, their sensitivity to price changes and have spillover effects on both named brands (NBs) and rivals' PLs. My identification strategy of the membership effect exploits observed variation in shopping patterns at the consumer level over time and across customer types (i.e., members and non-members) in each period to control for as much exogenous variation as possible, and includes a control function using characteristics of loyalty programs as instrumental variables to account for a potential selection bias related to unobserved factors of the membership decision. I find a significant effect of loyalty programs on consumer preferences for PLs. Compared to non-members, membership reduces consumers' price sensitivity for the products sold by the supermarket they are members of, but increases it for products sold by supermarkets they are not members of. These effects are weaker for households that are members of the loyalty programs of multiple supermarkets. Counterfactual simulations show that when a supermarket modifies its loyalty program while competitors keep their own unchanged, it loses about 19% of customers to its rivals, on average. Furthermore, if loyalty programs were changed altogether, the demand for PLs would considerably decrease, while the demand for NBs would increase.
    Keywords: Supermarket chains; Loyalty programs; Private labels; Discrete choice models; Random coefficients; Control function approach
    JEL: D12 L13 L66
    Date: 2020–03
  19. By: Dubravka Vlasic (University of Rijeka); Katarina Poldrugovac (University of Rijeka); Sandra Jankovic (University of Rijeka)
    Abstract: Competitive pricing is considered to be a very important part of revenue management, a management instrument that enables selling right products and services to the customers at the prices that will produce highest revenues. Marina business is supposed to be a business whose products or services are perishable (similar to hotels, airlines, campsites, hostels etc.) and tracking prices of competitors is very important part of managing its business. The purpose of this paper is to address the problem of relative price position and relative price fluctuation performance in marina business and seeks to complement existing research in the domain of strategic price positioning. The research results reveal that marinas who set their prices higher than their competition achieve lower level of berth occupancy and at the same time succeed higher RevPAB. Marinas with lower prices than their competitors achieve higher level of berth occupancy and lower RevPAB.
    Keywords: marina performance,revenue management,RevPAB,competitive pricing,tourism
    Date: 2019–04–15

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