nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒04‒06
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Collusive Market Allocations By Iossa, Elisabetta; Loertscher, Simon; Marx, Leslie; Rey, Patrick
  2. Market structure, common ownership and coordinated manager compensation By Neus, Werner; Stadler, Manfred; Unsorg, Maximiliane
  3. Recall and Response: Relationship Adjustments to Adverse Information Shocks By Emek Basker; Fariha Kamal
  4. Recurrent Preemption Games By Hitoshi Matsushima
  5. Is the Consumer Welfare Obsolete? A European Union Competition Law Perspective By Frédéric Marty
  6. The 2018 edition of the OECD PMR indicators and database: Methodological improvements and policy insights By Cristiana Vitale; Rosamaria Bitetti; Isabelle Wanner; Eszter Danitz; Carlotta Moiso
  7. Controlling Monopoly Power in a Double-Auction Market Experiment By Giuseppe Attanasi; Kene Boun My; Andrea Guido; Mathieu Lefebvre
  8. The Unintended Consequences of Anti-Piracy Laws on Markets with Asymmetric Piracy: The Case of the French Movie Industry By Christophe BELLEGO; Romain DE NIJS
  9. Welfare Analysis of Equilibria With and Without Early Termination Fees in the US Wireless Industry By Joseph Cullen; Nicolas Schutz; Oleksandr Shcherbakov
  10. Rebates in the Pharmaceutical Industry: Evidence from Medicines Sold in Retail Pharmacies in the U.S. By Pragya Kakani; Michael Chernew; Amitabh Chandra
  11. How Big is the “Lemons” Problem? Historical Evidence from French Wines By Pierre Mérel; Ariel Ortiz-Bobea; Emmanuel Paroissien
  12. A Hedonic Metric Approach to Estimating the Demand for Differentiated Products: An Application to Retail Milk Demand By Osman Gulseven; Michael Wohlgenant
  13. Scandals, Media Competition and Political Accountability By Giovanni Andreottola; Antoni-Italo de Moragas

  1. By: Iossa, Elisabetta; Loertscher, Simon; Marx, Leslie; Rey, Patrick
    Abstract: Collusive schemes by suppliers often take the form of allocating customers or markets among cartel members. We analyze incentives for suppliers to initiate and sustain such a collusive schemes in a repeated procurement setting. We show that, contrary to some prevailing beliefs, staggered (versus synchronized) purchasing does not make collusion more difficult to sustain or initiate. Buyer defensive measures include synchronized rather than staggered purchasing, first-price rather than second-price auctions, more aggressive or secrete reserve prices, longer contract lengths, withholding information, and avoiding observable registration procedures. Inefficiency induced by defensive measures is an often unrecognized social cost of collusive conduct.
    Keywords: synchronized vs staggered purchasing; sustainability and initiation of collusion; coordinated effects
    JEL: D44 D82 L41
    Date: 2020–03
  2. By: Neus, Werner; Stadler, Manfred; Unsorg, Maximiliane
    Abstract: We study oligopolistic competition in product markets where the firms' quantity decisions are delegated to managers. Some firms are commonly owned by shareholders such as index funds whereas the other firms are owned by independent shareholders. Under such an asymmetric ownership structure, the common owners have an incentive to coordinate when designing the manager compensation schemes. This implicit collusion induces a less aggressive output behavior by the coordinated firms and a more aggressive behavior by the noncoordinated firms. The profits of the noncoordinated firms are increasing in the number of coordinated firms. The profits of the coordinated firms exceed the profits without coordination if at least 80 % of the firms are commonly owned - an astonishing resemblance to the merger literature.
    Keywords: Common ownership,index funds,shareholder coordination,manager com-pensation
    JEL: G32 L22 M52
    Date: 2020
  3. By: Emek Basker; Fariha Kamal
    Abstract: How resilient are buyer-supplier relationships to new information about product defects? We construct a novel dataset of U.S. consumer product recalls sourced from foreign suppliers between 1995 and 2013. Using an event-study approach, we find that, compared to control relationships, buyers that experience recalls temporarily reduce their probability of trading with the suppliers of the recalled products by 25%. A milder decrease persists, accompanied by increased reliance on other foreign suppliers. Buyers that are affiliated with their suppliers decrease trade several quarters earlier than unaffiliated buyers, consistent with decisionmaking and information flowing faster within than across firm boundaries.
    Keywords: Buyer-supplier relationships; information flows; firm boundary; recalls
    JEL: L14 L15 F14 F23
    Date: 2020–03
  4. By: Hitoshi Matsushima
    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.
    Date: 2020–02
  5. By: Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: In 2005, the European Commission advocated for a more economic approach for enforcing competition laws. The sole criterion for assessing the lawfulness of a market practice should be the appraisal of its net effects on consumer welfare. The Court of Justice was reluctant to adopt such an approach until its 2017 Intel Judgment. Its endorsement - which is debatable insofar as the judgment may give rise to different interpretations - may appear paradoxical in that it is concomitant with a sharp challenge to the consumer welfare criterion in the United States. The purpose of this article is to retrace the history of this criterion, particularly with regard to its adoption in the context of E.U. competition law. Our aim is to show that the criticisms of the effects-based approach can be addressed not by moving away from the consumer welfare criterion but by integrating it into a broader perspective, that also takes into account the protection of the competition process itself.
    Keywords: anticompetitive practices, effects-based approach, consumer welfare, ordoliberalism, E.U. competition law
    JEL: K21 L41
    Date: 2020–03
  6. By: Cristiana Vitale; Rosamaria Bitetti; Isabelle Wanner; Eszter Danitz; Carlotta Moiso
    Abstract: This paper presents the latest edition of the OECD indicators of product market regulation (PMR), which measure regulatory stance in 35 OECD and 11 non-OECD countries. This update is based on a new methodology, which has been implemented to ensure that the PMR indicators maintain their relevance in the context of evolving insights from economic theory, modifications in the economic and business environment, and changes in the practice of regulation. The results show that most OECD countries have a regulatory stance that is reasonably competition-friendly, while the 11 non-OECD countries lag behind, though there is considerable variety across them.
    Keywords: product market regulation
    JEL: D4 K23 L1 L2 L3 L5 L8 L9
    Date: 2020–03–23
  7. By: Giuseppe Attanasi (Université Côte d'Azur, CNRS, GREDEG, France); Kene Boun My (BETA, Université de Strasbourg); Andrea Guido (Institute for Futures Studies; Laboratory for Agent-Based Social Simulations (LABSS)); Mathieu Lefebvre (BETA, Université de Strasbourg)
    Abstract: There is robust evidence in the experimental economics literature showing that monopoly power is affected by trading institutions. In this paper we study whether trading institutions themselves can shape agents' market behaviour through the formation of anchors and reference points. We recreate experimentally five different double-auction market structures (perfect competition, perfect competition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within-subject design, varying the order of markets implementation. We investigate whether monopoly power endures the formation of reference prices emerged in previously implemented market structures. Results from our classroom experiments suggest that double-auction trading institutions succeed in preventing monopolists to exploit their market power. Furthermore, the formation of reference points in previously implemented markets negatively impacts on monopolists' power in later market structures.
    Keywords: Double Auctions, Perfect Competition, Monopoly, Market Imperfection, Spillovers, Classroom Experiments
    JEL: C90 D41 D42 D43 D44
    Date: 2020–03
  8. By: Christophe BELLEGO (CREST-ENSAE); Romain DE NIJS (CREST-ENSAE and Ecole polytechnique)
    Abstract: Using the French anti-piracy law known as HADOPI as a natural experiment,we study the asymmetric effects of online piracy on cinema admissions. Applying four estimation strategies at different levels of observation (town, movie, country, and consumer), we find that the introduction of the law is associated with a 9% increase in the market share of American movies.This increase occurs at the expense of other movies. Although we find an increase in overall admissions, this effect is not statistically significant. These findings primarily originate from a high initial level of asymmetric piracy between American and other movies, which was attenuated by the anti-piracy law, resulting in a fiercer competition between movies. The results can also be explained by the behavior of younger consumers, and might be caused by consumers' budget or time constraints. We exclude positive shocks on the relative quality of American movies, the advent of 3D movies, supply side reactions by firms, and word of mouth effects of illegal downloads as explanations for this redistributive effect.
    Keywords: Internet; Online piracy; Redistributive effects; Natural Experiments; Movies.
    Date: 2020–03–07
  9. By: Joseph Cullen; Nicolas Schutz; Oleksandr Shcherbakov
    Abstract: We study the social welfare implications of early termination fees in the US wireless industry. It is hypothesized that the elimination of long-term contracts at the end of 2015 was a transition from one market equilibrium to another. We use a theoretical model to illustrate that the endogenous choice of consumer switching costs by service providers does not necessarily raise firms' profits or hurt consumers. The forward-looking behavior of consumers facing switching costs results in significant downward pressure on prices. Service fees may be so low that consumers are better off and firms are worse off in an equilibrium with switching costs. Empirically, we find that without early termination fees, firms would increase prices by 2 to 5 percent, on average, resulting in an unambiguous increase in consumer surplus. Firms' profits derived from monthly service fees also increase. However, if we consider additional revenues from contract termination payments, the cost of processing these payments should be large enough for producer profits to be higher in the new equilibrium.
    Keywords: Econometric and statistical methods; Firm dynamics; market structure and pricing
    JEL: D22 L96
    Date: 2020–03
  10. By: Pragya Kakani; Michael Chernew; Amitabh Chandra
    Abstract: Rising list prices are often used to illustrate the burden of prescription drug spending, but payers routinely negotiate rebates from manufacturers that generate differences between list and net prices. List prices are easily available and affect patient cost-sharing, but net prices are confidential and affect innovation incentives. We use novel data on medicines sold in a retail setting to quantify rebate growth, the sensitivity of pharmaceutical price indices to list versus net prices, and contribution of net price growth to revenue growth. From 2012 to 2017, we find average rebates increased from 32% to 48%, owing entirely to growth in rebate-levels over a product lifetime rather than shifts towards high rebate products. Annual inflation of list prices was 12% while that of net prices was 3%, implying that financial rewards to manufacturers per unit sold have not grown proportionally to list prices. This pattern is mirrored in 19 of the 20 top drug classes by revenue including insulins, where list and net price inflation were 16% and 2% annually respectively. Finally, we find price growth explains 76% of revenue growth when measured by list prices but 31% of revenue growth when measured by net prices. Moreover, new product entry is the most important factor affecting pharmaceutical revenue growth. These findings provide a cautionary note on using list prices for policy analysis.
    JEL: I11
    Date: 2020–03
  11. By: Pierre Mérel; Ariel Ortiz-Bobea; Emmanuel Paroissien
    Abstract: This paper provides empirical evidence of large welfare losses associated with asymmetric information 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.
    Keywords: asymmetric information, adverse selection, quality uncertainty, welfare, wine appellation
    JEL: D82 N54 Q18
    Date: 2020
  12. By: Osman Gulseven; Michael Wohlgenant
    Abstract: This article introduces the Hedonic Metric (HM) approach as an original method to model the demand for differentiated products. Using this approach, initially, we create an n-dimensional hedonic space based on the characteristic information available to consumers. Next, we allocate products into this space and estimate the elasticities using distances. Our model makes it possible to estimate a large number of differentiated products in a single demand system. We applied our model to estimate the retail demand for fluid milk products.
    Date: 2020–03
  13. By: Giovanni Andreottola (Università di Napoli Federico II and CSEF); Antoni-Italo de Moragas (Colegio Universitario de Estudios Financieros (CUNEF))
    Abstract: We present a model of a media market in which a set of news outlets compete to break news. In our model, each media receives some information on whether a politician in office is corrupt. Media outlets can decide whether to break the story immediately or wait and fact-check, taking into account that if another media breaks the news, the profit opportunity disappears. We show that as the number of competitors increases, each outlet becomes more likely to break the news without fact-checking. Therefore, as the number of media increases, the incumbent politician is more likely to be accused of corruption by the media: this makes the re-election of incumbents more difficult and increases political turnover. In particular, we show that if voters consult with higher priority the media outlets that report about a scandal, increasing the number of competitors decreases the probability of having an honest politician in office.
    Date: 2020–03–10

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