nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒05‒18
twelve papers chosen by
Russell Pittman
United States Department of Justice

  1. Third-degree price discrimination in oligopoly when markets are covered By Dertwinkel-Kalt, Markus; Wey, Christian
  2. Organizational structure and technological investment By Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
  3. Business models for streaming platforms: content acquisition, advertising and users By E. Carroni; D. Paolini
  4. Physician Prices and Competition: Evidence from Acquisitions in the Private Health Care Sector By Saxell, Tanja; Nurminen, Mikko
  5. Product market competition and the labour market: Evidence from South Africa By Francesco Amodio; Michele Di Maio; Yifan Li; Patrizio Piraino
  6. Nowhere Else to Go: The Determinants of Bank-Firm Relationship Discontinuations after Bank Mergers By Oliver Rehbein; Santiago Carbo-Valverde
  7. Captive Power, Market Access, and Welfare Effects in the Bangladesh Electricity Sector By Amin, Sakib; Jamasb, Tooraj; Llorca, Manuel; Marsiliani, Laura; Renström, Thomas
  8. Merger control for IRPs: Do acquisitions of distressed firms warrant competition scrutiny? By Ram Mohan, M.P.; Raj, Vishakha
  9. Branching Networks and Geographic Contagion of Commodity Price Shocks By Teng Wang
  10. Are new shopping centers drivers of development in large metropolitan suburbs? The interplay of agglomeration and competition forces By Mihaescu, Oana; Korpi, Martin; Öner, Özge
  11. Credit Markets, Relationship Banking, and Firm Entry By Qingqing Cao; Paolo Giordani; Raoul Minetti; Pierluigi Murro
  12. Corporate Social Responsibility and Optimal Pigouvian Taxation By Villena, Mauricio

  1. By: Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We analyze oligopolistic third-degree price discrimination relative to uniform pricing, when markets are always covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm's Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm's relative margins under discriminatory pricing. Uniform pricing then decreases average prices and raises consumer surplus. We provide an intriguingly simple approach to calculate the consumer surplus gain from uniform pricing only based on market data of the discriminatory equilibrium (prices and quantities).
    Keywords: Third-Degree Price Discrimination,Uniform Pricing,Harmonic Mean Formula,Covered Demand
    JEL: D43 L13 L41 K21
    Date: 2020
  2. By: Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
    Abstract: We analyze firms' decisions to adopt a vertical integration or separation, taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains, where upstream sectors conduct R&D investment. Such investment determines the production costs of the downstream sector and has knowledge and R&D spillovers on the rivals' costs. In a general setting, we show that the equilibrium organizational structure depends on whether the situation considered belongs to one of four possible cases. We study how final good market competition, spillover, and incentives in innovation interact to determine the equilibrium vertical structure.
    Date: 2019–11
  3. By: E. Carroni; D. Paolini
    Abstract: A streaming platform obtains contents from artists and offers commercial spaces to advertisers. Users value contents' variety and quality of the service and are heterogeneously bothered by ads. Two solutions can be proposed to users. If they pay a positive price, they subscribe to a commercial-free service with an upgrade of quality (Premium). Otherwise, they have free access to a service of a basic quality. We find that a wider audience gives incentives to the platform to increase both the advertising intensity and the quality upgrade in the Premium. As a consequence, some people move to the Premium. At the limit, the platform opts for a purely subscription-based business model as the audience reaches a certain level. The parsimonious model we propose is able to give a rationale to the emergence of different business models in the streaming market as well as to the (end of the) disputes between artists and the Spotify model.
    Keywords: Media;Advertising;Multi-Sided Markets;Platform;Second-degree price discrimination
    Date: 2020
  4. By: Saxell, Tanja; Nurminen, Mikko
    Abstract: We consider the effects of mergers and acquisitions for private physicians, who compete for patients on price. To estimate the effects, we use nationwide administrative data on private physicians and the organization of their practice over 10 years in Finland. We show that acquisitions can reduce competition among physicians, leading to higher prices. We estimate the strongest price increase to be in gynecology, in which switching costs and inertia in physician choice may decrease physician competition, at least locally (within a health care unit). The reduction in the number of physicians in a target unit is the key mechanism behind the estimated effect.
    Keywords: physicians, mergers and acquisitions, market power, private health care, independent contractors, Local public finance and provision of public services,
    Date: 2020
  5. By: Francesco Amodio; Michele Di Maio; Yifan Li; Patrizio Piraino
    Abstract: We study the relationship between product market competition and labour market outcomes in South Africa. We combine firm-level data from tax records with individual-level data from the labour force survey. We estimate markups across sectors, and derive a measure of employment concentration in high-markup sectors across South African district municipalities. We then test whether individual labour market outcomes differ systematically in those district municipalities where employment is more concentrated in high-markup sectors.
    Keywords: product market competition, Tax data, Unemployment
    Date: 2020
  6. By: Oliver Rehbein; Santiago Carbo-Valverde
    Abstract: The decision to change or terminate a bank-firm relationship has been demonstrated to be crucial to firm performance following bank mergers. We investigate what determines this decision and find both bank competition and the available firm collateral to be important factors. We additionally provide new evidence that firms that are able to add a bank rela- tionship following a merger exhibit much stronger post-merger performance. Our findings are consistent with the interpretation that bank mergers cause a reduction in lending to most firms, leading them to search for alternative sources of finance.
    Keywords: bank mergers, relationship banking, competition
    JEL: G21 G34
    Date: 2020–05
  7. By: Amin, Sakib (North South University); Jamasb, Tooraj (Department of Economics, Copenhagen Business School); Llorca, Manuel (Department of Economics, Copenhagen Business School); Marsiliani, Laura (Durham University Business School); Renström, Thomas (Durham University Business School)
    Abstract: Electricity sectors in many emerging and developing countries are characterised by significant captive industrial generation capacity. This is mainly due to unreliable electricity supplies from state-owned utilities. Integrating the captive capacity with the on-grid supply can improve resource utilisation in the electricity market. We use a Dynamic Stochastic General Equilibrium (DSGE) model to examine the effects of allowing the Bangladeshi Captive Power Plants (CPPs) to sell their excess output to the national grid at regulated prices. We find that opening the grid to CPPs would reduce the industrial output and GDP due to energy price distortions. We also show that the Bangladeshi economy would become more vulnerable to oil price shocks when CPPs are connected to the national grid. These results support the second-best theory, which implies that granting grid access without removing other price distortions can lead to economically inefficient outcomes. We propose that the government should not open the grid to CPPs to minimise energy market distortions yet. Instead, it should first consider alternative reform measures such as taking steps to reduce price distortions and enabling a competitive market environment.
    Keywords: Bangladesh; CPPs; DSGE model; Electricity generation
    JEL: D58 L94 Q43 Q48
    Date: 2020–05–01
  8. By: Ram Mohan, M.P.; Raj, Vishakha
    Abstract: In July 2019, the Competition Law Review Committee Report had recommended that Insolvency Resolution Plans (IRP) which result in combinations should be green-channelled. This would mean that IRP combinations would be automatically approved without any merger scrutiny. The theoretical basis of this recommendation is the ‘failing firm defence’ which allows parties to enter into mergers if they show that the exit of a firm from the market will be more harmful to competition than the merger. This paper assesses the advisability of green-channelling IRPs through the lens of competition law. It examines the IRPs which have been scrutinised by the CCI and examines whether they are treated differently from other mergers. We use the European Union as a point of comparison to describe how the failing firm defence is being implemented and to show that there can be anticompetitive effects to green-channelling IRPs without a full competition assessment. We conclude that while the failure of a firm is an important consideration when assessing mergers, it cannot be the sole determinant of their desirability.
    Date: 2020–05–08
  9. By: Teng Wang
    Abstract: This paper studies the role of banks' branching networks in propagating the oil shocks. Banks that were exposed to the oil shocks through their operations in oil-concentrated counties experienced a liquidity drainage in the form of a declining amount of demand deposit inflow as well as an increasing percentage of troubled loans. Banks were forced to sell liquid assets, and contracted lending to small businesses and mortgage borrowers in counties that were not directly affected by the oil shocks. The effect is magnified when banks do not have strong community ties, but is mitigated if banks' branching network is sufficiently dispersed. I also find the decline in local credit supply cannot be completely offset by healthy competing banks' increased lending, providing fresh evidence from the perspective of bank competition.
    Keywords: Bank competition; Oil shocks; Out-of-market lending; Transmission of shocks; SME lending
    JEL: G20 G21 G30
    Date: 2020–05–01
  10. By: Mihaescu, Oana (Institute of Retail Economics (Handelns Forskningsinstitut)); Korpi, Martin (Ratio); Öner, Özge (University of Cambridge)
    Abstract: We investigate to which extent shopping centers are drivers of economic development by studying how distance to newly established shopping centers affects the performance of incumbent firms located in the suburbs of the three Swedish major metropolitan areas (Stockholm, Gothenburg, and Malmö) between 2000 and 2016. We use a regression setup with 27,000 firm-year observations and explore the possible heterogeneity imposed on the results from two main elements of spatial economics theory: the size of the new retail area and the distance from the new retail area to the analyzed incumbents. We observe a clear difference in the direction of the effects of large versus small shopping centers. While competition forces are much stronger when large shopping centers make entry, yielding an average negative effect of 5% on incumbent firm revenue and 3% on firm employment, results indicate an opposite pattern for smaller shopping centers, with firm revenue and firm employment increasing by 4 and 3%, respectively. Moreover, we also observe that both agglomeration and competition effects attenuate sharply with distance from the new entrant, confirming one of the central premises of retail location theory. Finally, the results indicate that the geographical scope of the effects is much wider in the case of larger shopping centers, with the estimates becoming insignificant at about 9-10 km from the new entry, as compared to 3-4 km in the case of smaller retail centers.
    Keywords: Shopping centers; firm performance; retail location; agglomeration effects; competition; attenuation of effects
    JEL: D22 L25 P25 R11 R12
    Date: 2020–05–06
  11. By: Qingqing Cao (Michigan State University); Paolo Giordani (LUISS University); Raoul Minetti (Michigan State University); Pierluigi Murro (LUISS University)
    Abstract: Credit frequently flows to the business sector through information-intensive bank-firm relationships. This paper studies the impact of relationship banking on firm entry. Exploiting Italian data, we document that relationship-oriented local credit markets feature lower entry, larger size at entry, and relatively more spin-offs than de novo entrepreneurs' entries. Information spillovers from credit relationships to entrants contribute to these effects. A dynamic general equilibrium model calibrated to the Italian data can match these effects when information spillovers are allowed for. Relationship banks' information on incumbents is transferable to incumbents' spin-offs but crowds out information acquisition on de novo entrants. The buildup of incumbents' business wealth during credit relationships can outweigh the aggregate output effect of reduced entry.
    Keywords: Credit Relationships, Firm Entry, Information Spillovers, Spin-offs
    JEL: E44 G21 O16
    Date: 2020–05
  12. By: Villena, Mauricio
    Abstract: We formally study Pigouvian taxation in a duopoly market in which a CSR firm interacts with a profit maximizing firm. Unlike previous literature, we consider three different scenarios: (i) the CSR firm acts as a consumer-friendly firm, cares for not only its profits but also consumer surplus, as a proxy of its concern for its "stakeholders" or consumers; (ii) the CSR firm main objective is a combination of its own profit and the environment, caring for the environmental damage produced by the market in which it interacts; and (iii) the CSR firm is both consumer and environmental friendly. Finally, we compare the different Pigouvian rules derived with the first best competitive market solution and the monopoly/duopoly second best solutions.
    Keywords: Corporate social responsibility, consumer-friendly firm, environment-friendly firm, Mixed Duopoly, Emission Taxation
    JEL: H23 L13 L31 Q5 Q50
    Date: 2019–12–03

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