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on Industrial Competition |
| By: | Eric Barrette; Gautam Gowrisankaran; Robert Town |
| Abstract: | While economic theories indicate that monopsony power by downstream firms can potentially counteract market power upstream, antitrust policy is opaque about whether to incorporate countervailing market power in merger analyses. We use detailed national claims data from the healthcare sector to evaluate whether insurer monopsony power does indeed limit hospitals' exercise of market power. We estimate willingness-to-pay models to evaluate hospital market power across analysis areas. We find that countervailing market power is important: a typical hospital merger would raise hospital prices 4.3% at the 25th percentile of insurer concentration but only 0.97% at the 75th percentile of insurer concentration. |
| JEL: | I11 I18 L11 L13 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27005&r=all |
| By: | Gastón Illanes; Sarah Moshary |
| Abstract: | We examine how market structure, measured as the number of firms, affects prices, quantities, product assortment, and consumer surplus. Our analysis exploits Washington’s deregulation of spirit sales, which generated exogenous variation in market structure across the state. Consistent with the uniform pricing literature, we find no effect of increased competition on prices. Rather, we document an expansion of product assortment, which in turn increases purchasing. Using a discrete-choice demand model, we estimate that wider assortments increase consumer surplus by $3.20/month when moving from monopoly to duopoly. However, the likelihood that a household engages in heavy drinking, as defined by the CDC, increases by 5.6 percentage points, raising concerns about social welfare. |
| JEL: | D43 D62 L43 L66 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27016&r=all |
| By: | Pauline Affeldt; Tomaso Duso; Florian Szücs |
| Abstract: | We study the evolution of EC merger decisions over the first 25 years of common European merger policy. Using a novel dataset at the level of the relevant antitrust markets and containing all merger cases scrutinized by the Commission over the 1990-2014 period, we evaluate how consistently arguments related to structural market parameters – dominance, concentration, barriers to entry, and foreclosure – were applied over time and across different dimensions such as the geographic market definition and the complexity of the merger. Simple, linear probability models as usually applied in the literature overestimate on average the effects of the structural indicators. Using non-parametric machine learning techniques, we find that dominance is positively correlated with competitive concerns, especially in concentrated markets and in complex mergers. Yet, its importance has decreased over time and significantly following the 2004 merger policy reform. The Commission’s competitive concerns are also correlated with concentration and the more so, the higher the entry barriers and the risks of foreclosure. These patterns are not changing over time. The role of the structural indicators in explaining competitive concerns does not change depending on the geographic market definition. |
| Keywords: | merger policy, EU Commission, dominance, concentration, entry barriers, foreclosure, causal forests |
| JEL: | K21 L40 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8213&r=all |
| By: | Matthias Hunold; Johannes Muthers |
| Abstract: | We provide a theory of how RPM facilitate upstream cartels absent any information asymmetries using a model with manufacturer and retailer competition. Because retailers have an effective outside option to each manufacturer’s contract, the manufacturers can only ensure contract acceptance by leaving a sufficient margin to the retailers. This restricts the wholesale price level even when manufacturers collude. In this context, resale price maintenance may only be profitable for the manufacturers if they collude. We thus provide a novel theory of harm for resale price maintenance when manufacturers collude and illustrate the fit of this theory in various competition policy cases. |
| Keywords: | resale price maintenance, collusion, retailing. |
| JEL: | L41 L42 L81 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2020-06&r=all |
| By: | Dertwinkel-Kalt, Markus; Köster, Mats |
| Abstract: | We provide a novel intuition for why manufacturers restrict their retailers' ability to resell brandproducts online. Our approach builds on models of limited attention according to which pricedisparities across distribution channels guide a consumer's attention toward prices and lower herappreciation for quality. Thus, absent vertical restraints, one out of two distortions - a quality ora participation distortion - can arise in equilibrium. We show that, by ruling out both distortions,vertical restraints can be socially desirable, but can also hurt consumers through higher retail prices.Thereby, we identify a novel trade-off between efficiency and consumer surplus. |
| Keywords: | Limited Attention,Online Sales,Antitrust,Vertical Restraints |
| JEL: | D21 K21 L42 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:335&r=all |
| By: | Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie; Malavolti, Estelle |
| Abstract: | This paper considers an e-commerce market wherein a vertically integrated marketplace competes downstream with a single retailer and upstream with an independent parcel delivery operator. Because of the information collected by the marketplace on customersíhabits and preferences, the integrated parcel delivery operator has lower delivery costs than its competitor. Products are di§erentiated according to the retailer and the parcel operator who delivers them. The representation of product di§erentiation is inspired by the Anderson, De Palma and Thisse (2002) discrete choice model. We study several scenarios each representing a speciÖc policy implemented to regulate the marketplace. The Örst one is a data sharing policy. The integrated marketplace has to share its information with the other delivery operator which in turn will lower this operatorís cost of delivering the marketplaceís product. The second one is vertical separation under which the parcel delivery operator previously owned and managed by the marketplace becomes independent. Finally we consider a full dismantlement scenario under which there is both vertical and horizontal separation. We show that the optimal policy is either complete dismantlement or data sharing. The relative impacts on consumer surplus and total welfare of these two options involve a tradeo§ between the increased competition implied by complete dismantling and the data related delivery cost advantage achieved under data sharing. When this cost advantage is small, completely dismantling dominates, while data sharing is the best policy when the cost advantage is large. |
| Keywords: | E-commerce, delivery operators, vertical integration, platform regulation, data sharing, dismantling |
| JEL: | L42 L81 L87 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124217&r=all |
| By: | Kaganovich, Michael (Indiana University); Sarpca, Sinan (Koc University); Su, Xuejuan (University of Alberta, Department of Economics) |
| Abstract: | The structure and functioning of the market of higher education in the United States possess distinctive if not puzzling features such as the wide spectrum of institutional arrangements and sources of funding, stark segmentation in levels of selectivity and instructional resources, and high variance in tuition pricing across and within institutions, including price discrimination based on merit and ability to pay. At the same time, many fundamental questions, including what defines the quality of higher education and explains its (growing) cost continue to be debated. The Chapter surveys theoretical analyses addressing this range of issues. |
| Keywords: | Higher Education; Competition; Theories |
| JEL: | D40 I21 I22 I23 J24 |
| Date: | 2020–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2020_003&r=all |
| By: | Leonardo S. Alencar; Rodrigo Augusto Silva de Andrade; Klenio de Souza Barbosa |
| Abstract: | This paper empirically investigates how market power in the credit market can change the magnitude of the effects of an increase in creditor protection on the interest rate and the spread of bank loans. To do so, we explore the improvement in the creditor protection produced by a new bankruptcy law approved in early 2005 in Brazil. Using monthly data on bank interest rates for corporate and consumer loans, we find that market concentration hampers 27.5% of the potential reducing effect of the law in the interest rate of new corporate credit operations. If we consider the average market concentration over all credit lines (treated and control groups), then the hampering effect represents 295 basis points, or 40.1%. Similar results are obtained when using Panzar and Rosse (1987) competition measure. The results show that an institutional reform that increases creditors protection has a positive effect on credit condition, but the concentration/competition structure of the market may diminish these effects considerably. |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:521&r=all |
| By: | Yifei Cao (School of Economics, University of Nottingham Ningbo China); Jenyu Chou (School of Economics, University of Nottingham Ningbo China); Ian Gregory-Smith (Department of Economics, University of Sheffield, UK); Alberto Montagnoli (Department of Economics, University of Sheffield, UK) |
| Abstract: | This paper examines the causal relationship between banking competition and financial stability. We find that an exogenous competition shock significantly improved the stability of banks, consistent with the ‘competition-stability hypothesis’. We show that banks improved their cost efficiency and reduced credit risks in response to U.S. banking deregulation. In addition, we show the competition shock had a larger impact on banks who were initially operating in a less competitive environment. Our findings provide the first quasi-natural experimental evidence on the non-linear relationship between bank competition and financial stability. |
| Keywords: | Bank Competition, Bank Risk, Financial Stability, Banking Deregulation |
| JEL: | G18 G20 G21 G28 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2020003&r=all |
| By: | Steve Bond; Arshia Hashemi; Greg Kaplan; Piotr Zoch |
| Abstract: | The ratio estimator of a firm's markup is the ratio of the output elasticity of a variable input to that input's cost share in revenue. This note raises issues that concern identification and estimation of markups using the ratio estimator. Concerning identification: (i) if the revenue elasticity is used in place of the output elasticity, then the estimand underlying the ratio estimator does not contain any information about the markup; (ii) if any part of the input bundle is either used to influence demand, or is neither fully fixed nor fully flexible, then the estimand underlying the ratio estimator is not equal to the markup. Concerning estimation: (i) even with data on output quantities, it is challenging to obtain consistent estimates of output elasticities when firms have market power; (ii) without data on output quantities, as is typically the case, it is not possible to obtain consistent estimates of output elasticities when firms have market power and markups are heterogeneous. These issues cast doubt over whether anything useful can be learned about heterogeneity or trends in markups, from recent attempts to apply the ratio estimator in settings without output quantity data. |
| JEL: | D2 D4 L1 L4 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27002&r=all |
| By: | Kei Ikegami (Graduate School of Economics, The University of Tokyo); Ken Onishi (Federal Reserve Board); Naoki Wakamori (Faculty of Economics, The University of Tokyo) |
| Abstract: | Physicians may change their practices when introducing advanced medical equip-ment, and, in particular, they tend to overuse it. We investigate further in efficiency arising from physicians at surrounding hospitals. Using the panel data on the Japanese hospitals, we find that there exists a business-stealing effect: Hospitals lose their patients because of MRI adoption by nearby public hospitals, and, to compensate for the loss of patients, physicians take more MRI scans per patient. Our results suggest that the decision to adopt medical equipment needs to be made collectively rather than individually to avoid not only excessive adoption but also further physician-induced demand. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2020cf1149&r=all |
| By: | Benjamin Eden (Vanderbilt University); Maya Eden (Brandeis University); Oscar Oflaherty (Vanderbilt University); Jonah Yuen (Vanderbilt University) |
| Abstract: | Using scanner data from supermarkets, we establish some stylized facts about temporary sales and argue that temporary sales play an important role in the reaction of prices to small demand shocks. We use a model in which temporary sales are reactions to aggregate shocks and the accumulation of unwanted inventories to account for our empirical findings. |
| Keywords: | Temporary Sales, Unwanted Inventories, Sequential Trade |
| JEL: | D4 E0 |
| Date: | 2020–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-20-00001&r=all |
| By: | Jiang, Jiaming; Goel, Rajeev K.; Zhang, Xingyuan |
| Abstract: | Whereas technical standards and Standard Setting Organizations (SSOs) are omnipresent and essential to mass production and mass communications, relatively little is formally known about the propensity of firms to belong to certain SSOs. This paper uses a social network analysis technique to empirically analyze the behavior of market participants and their propensities to belong to SSOs. We concentrate our study on standard setting organizations features and their intellectual property rights (IPR) policies such as licensing rules, disclosure requirements, as well as the features of the decision process of standards. Using data on more than 1060 member firms as participants in 28 SSOs, we are able to uniquely graph the membership of firms in SSOs by highlighting some important characteristics. Finally, a multinomial logit regression analysis studies the propensities of firms to belong to four SSOs and member firms' network communities. |
| Keywords: | standard setting organizations,network analysis,intellectual property rights policies,patents,market concentration |
| JEL: | L14 O3 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2153&r=all |
| By: | Gary Biglaiser; Jacques Crémer; André Veiga |
| Abstract: | We study incumbency advantage in markets with positive consumption externalities. Users of an incumbent platform receive stochastic opportunities to migrate to an entrant. They can accept a migration opportunity or wait for a future opportunity. In some circumstances, users have incentives to delay migration until others have migrated. If they all do so, no migration takes place, even when migration would have been Pareto-superior. This provides an endogenous micro-foundation for incumbency advantage. We use our framework to identify environments where incumbency advantage is larger. |
| Keywords: | platform migration, standardization and compatibility, industry dynamics |
| JEL: | D85 L14 R23 L15 L16 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8185&r=all |
| By: | Douglas L. Campbell (New Economic School); Karsten Mau (Maastricht University) |
| Abstract: | Bloom, Draca, and Van Reenen (2016) find that Chinese competition induced a rise in patenting, IT adoption, and TFP by 30% of the total increase in Europe in the early 2000s. We find that the average patents per firm fell by 94% for the most Chinacompeting firms in their sample, but also by 94% for non-competing firms (starting from an initially higher level), and that various intuitive controls, such as controls for sectoral trends, renders the impact on patents-per-firm insignificant. We also find that while TFP appears to be positively correlated with the rise in Chinese competition, IV estimates are inconclusive, and other measures of productivity, such as value-added per worker and profits, are not correlated. Various instrumental and proxy variable approaches also do not support a positive impact of the rise of China on European patents. |
| Keywords: | Patents, China, Europe, Textiles, Trade Shocks, Manufacturing |
| JEL: | F14 F13 L25 L60 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:abo:neswpt:w0252&r=all |
| By: | Sugata Marjit; Moushakhi Ray |
| Abstract: | Firm heterogeneity is mostly discussed in the literature from the viewpoint of productivity differential. In contrast this paper recognizes wealth heterogeneity as an important factor that results in firm heterogeneity. The issue of wealth heterogeneity and export incentive through credit market imperfection over the life cycle of a firm remains largely unaddressed in the literature. This paper studies the dynamics of wealth heterogeneity and export incentive of credit rationed firms through asset building. The theoretical and empirical results indicate that an increase in the initial level of competition implies greater export incentive. However, over the life cycle of a firm, the role of competition is impacted by the intensity of capital accumulation and the initial level of wealth. Greater local competition before the entry of firms in the export market hurts export incentive by limiting cash flows and asset build up. Thus low profits due to competition allows firms to look for export opportunities but lower cash flows hurt such incentives. |
| Keywords: | export incentive, credit market imperfections, technology, competition, asset level heterogeneity |
| JEL: | F10 F14 G10 G20 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8208&r=all |