nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒05‒25
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Dynamic competition with network externalities: how history matters By Hanna Halaburda; Bruno Jullien; Yaron Yehezkel
  2. Steering Incentives of Platforms: Evidence from the Telecommunications Industry By Brian McManus; Aviv Nevo; Zachary Nolan; Jonathan W. Williams
  3. On the Existence of Positive Equilibrium Profits in Competitive Screening Markets By Yehuda John Levy; Andre Veiga
  4. Competition in public service provision: the role of not-for-profit providers By Besley, Timothy; Malcomson, James M.
  5. Trade Induced Technological Change: Did Chinese Competition Really Increase European Innovation? By Douglas L. Campbell; Karsten Mau
  6. The economics of the German investigation of Facebook's data collection By Budzinski, Oliver; Gruésevaja, Marina; Noskova, Victoriia
  7. Концентрация и конкуренция в современном банковском секторе Сербии: анализ индексов концентрации By Bukvić, Rajko
  8. Limits of the platform economy: Digitalization and marketization in live music By Azzellini, Dario; Greer, Ian; Umney, Charles
  9. Fiber vs. vectoring: Limiting technology choices in broadband expansion By Fourberg, Niklas; Korff, Alex
  10. M&A by Chinese POEs in Developed Countries - Acquiring and Bundling Strategic Assets By Wu, Juan; Morschett, Dirk
  11. The Strategy of Innovative Development of Cross-Border E-Commerce Platforms in Vietnam By Tung, Dao Duy
  12. Expected Profits and The Scientific Novelty of Innovation By David Dranove; Craig Garthwaite; Manuel I. Hermosilla
  13. Everyday Regular Prices By Nicoletta Berardi; Federico Ravenna; Mario Samano
  14. Paying It Backward and Forward: Expanding Access to Convalescent Plasma Therapy Through Market Design By Scott Duke Kominers; Parag A. Pathak; Tayfun Sönmez; M. Utku Ünver
  15. Do Ads Harm News Consumption? By Shunyao Yan; Klaus M. Miller; Bernd Skiera
  16. Entrepreneurs embrace competition: Evidence from a lab-in-the-field study By Diemo Urbig; Werner Boente; Vivien D. Procher; Sandro Lombardo

  1. By: Hanna Halaburda (Unknown); Bruno Jullien (TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Yaron Yehezkel (Tel Aviv University [Tel Aviv])
    Abstract: We consider dynamic competition among platforms in a market with network externalities. A platform that dominated the market in the previous period becomes "focal" in the current period, in that agents play the equilibrium in which they join the focal platform whenever such equilibrium exists. Yet when faced with higher‐quality competition, can a low‐quality platform remain focal? In the finite‐horizon case, the unique equilibrium is efficient for "patient" platforms; with an infinite time horizon, however, there are multiple equilibria where either the low‐ or high‐quality platform dominates. If qualities are stochastic, the platform with a better average quality wins with a higher probability, even when its realized quality is lower, and this probability increases as platforms become more patient. Hence, social welfare may decline as platforms become more forward looking.
    Date: 2020–03
  2. By: Brian McManus; Aviv Nevo; Zachary Nolan; Jonathan W. Williams
    Abstract: We study the trade-offs faced by Internet Service Providers (ISPs) that serve as platforms through which consumers access both television and internet services. As online streaming video improves, these providers may respond by attempting to steer consumers away from streaming video toward their own TV services, or by attempting to capture surplus from this improved internet content. We augment the standard mixed bundling model to demonstrate the trade-offs the ISP faces when dealing with streaming video, and we show how these trade-offs change with the pricing options available to the ISP. Next, we use unique household-level panel data and the introduction of usage-based pricing (UBP) in a subset of markets to measure consumers' responses and to evaluate quantitatively the ISP's trade-offs. We find that the introduction of UBP led consumers to upgrade their internet service plans and lower overall internet usage. Our findings suggest that while steering consumers towards TV services is possible, it is likely costly for the ISP and therefore unlikely to be profitable. This is especially true if the ISP can offer rich pricing menus that allow it to capture some of the surplus generated by a better internet service. The results suggest that policies like UBP can increase ISPs' incentive to maintain open access to new internet content.
    JEL: L11 L13 L96
    Date: 2020–05
  3. By: Yehuda John Levy; Andre Veiga
    Abstract: We assume a fixed number of symmetric firms, competition in prices, constant returns to scale and frictionless consumer choices. Consumers differ in their preferences and profitability (e.g., due to heterogeneous risk aversion and loss probabilities), which creates adverse selection. Firms can offer multiple contracts to screen individuals, in equilibrium and in any deviation. We show that equilibrium profits vanish if each consumer has a unique optimizing bundle at equilibrium prices or, more generally, if there exists a linear ordering over of contracts that dictates the preferences of firms whenever consumers are indifferent between multiple optimal contracts. For instance, equilibrium profits vanish if the marginal rate of substitution of quality for price is sharper for profit than for utility. In particular, profit also vanishes if utility equals the sum of (negative) profit, and a surplus (eg, due to risk aversion). We provide examples of economies where there exists an equilibrium with strictly positive profit and show that these examples are robust (hold for an open set of economies).
    Keywords: Perfect Competition, Equilibrium, Screening
    JEL: D41 C62 D82 G22
    Date: 2020–01
  4. By: Besley, Timothy; Malcomson, James M.
    Abstract: With public services such as health and education, it is not straightforward for consumers to assess the quality of provision. Many such services are provided by monopoly not-for-profit providers and there is concern that for-profit providers may increase profit at the expense of quality. This paper explores the implications of entry by for-profit providers when there is unobserved quality. The model generates three key policy-relevant insights. First, by developing a novel approach to competition between different organizational forms, it frames the relevant trade-offs precisely. Second, it shows the value of keeping an incumbent not-for-profit as an active provider. Third, it characterizes the optimal payment (or voucher value) to an entrant for each consumer who switches in a way that can be applied empirically.
    Keywords: Public services; Competition; Not-for-profit providers
    JEL: H11 H44 L21 L31
    Date: 2018–06–01
  5. By: Douglas L. Campbell (New Economic School); Karsten Mau (School of Business and Economics, Maastricht University)
    Abstract: Bloom, Draca, and Van Reenen (2016) find that Chinese competition induced a rise in patenting, IT adoption, and TFP by up to 30% of the total increase in Europe in the early 2000s. Yet average patents per firm fell by 94% for the most China-competing firms in their sample, but also by 94% for non-competing firms. Their findings for patents appear to be driven by the decision to normalize patents by adding one (i.e., patents+1). Since China-competing firms had fewer patents to begin with, adding one induces bias, making it appear as though patents declined by a smaller percentage in the China-competing sectors. When we estimate a negative binomial regression using patents as the dependent variable, correcting several coding errors, we find no (or even negative) correlation between Chinese competition and patent growth.
    Keywords: Patents, China, Europe, Textiles, Trade Shocks, Manufacturing
    JEL: F14 F13 L25 L60
  6. By: Budzinski, Oliver; Gruésevaja, Marina; Noskova, Victoriia
    Abstract: The importance of digital platforms and related data-driven business models is ever increasing and poses challenges for the workability of competition in the respective markets (tendencies towards dominant platforms, paying-with-data instead of traditional money, privacy concerns, etc.). Due to such challenges, investigations of such markets are of high interest. One of recent cases is the investigation of Facebook's data collection practices by German competition authorities. Our paper, in contrast to the wide stream of legal studies on this case, aims to analyze whether Facebook's practices regarding data collection could constitute an abuse of market power from an economic perspective, more specifically against the background of modern data economics. In doing so we summarize the state of the advanced theories, including influences from behavioral economics, addressing such markets, and discuss four potential theories of harm.
    Keywords: data economics,big data,economics of privacy,competition,Facebook case,paying-with-data,abuse of dominance,market power,digital economy
    JEL: K21 L41 L86 L12 M21 L14 K42
    Date: 2020
  7. By: Bukvić, Rajko
    Abstract: Russian. В статье анализируется степень концентрации и конкуренция в современном банковском секторе в Сербии, в частности в годах 2016-2019. Анализ обоснован на финансовых отчётах банков. Использованы традиционные показатели концентрации (CRn и HH индексы) и индекс Джини, и сравнительно редко пользованные индексы Линда. Степень концентрации вычислялся на основе пяти величин: совокупные активы, депозиты, капитал, оперативные доходы банков, и кредиты. Показано, что среди сравнительно большого числа банков в Сербии существующий степень концентрации сравнительно низкий, что созидает условия для развития здоровой конкуренции между ними. Ключевые слова: концентрация, конкуренция, банковский сектор, Сербия, индексы Линда, Херфиндаль-Хиршман индекс, Джини коэффициент English. The paper analyzes the degree of concentration and competition in modern Serbian banking sector, particularly in the years 2016-2019. The analysis is based on bank financial statements. It uses the traditional concentration indicators (CRn and HH indices) and Gini index, as well as the relatively rarely used Linda indices. The concentration degree is calculated based on five variables: total assets, deposits, capital, operating income of banks, and loans. It has been demonstrated that in the case of the relatively large number of banks in Serbia, the existing concentration degree is relatively low, which provides suitable conditions for the development of healthy competition among them. However, the approximation of the indices to moderate concentration within the period analyzed warns of the appearance of oligopoly.
    Keywords: концентрация, конкуренция, банковский сектор, Сербия, индекс концентрации, индекс Хиршман-Херфиндаль, Джини коэффициент, коэффициент Тайдмана-Холла, индексы Линда, неоднозначность результатов, concentration, competition, banking sector, Serbia, concentration index, Herfindahl-Hirschman index, Gini coefficient, Tideman-Hall coefficient, Linda indices, unequivocal results
    JEL: C38 G21 L10
    Date: 2020
  8. By: Azzellini, Dario; Greer, Ian; Umney, Charles
    Abstract: Online platforms have disrupted parts of the capitalist economy, with allegedly severe consequences in the world of work. This study examines live music in Germany and the UK, where online platforms do not dominate, despite considerable digitalization of market intermediaries. The analysis shows that, as the degree of digitalization increases, matching services tend to work less as a workers' representative – which is traditionally the case for live music agents – and more as a force of marketization that disciplines workers by orchestrating price-based competition
    Keywords: platform economy,creative work,digitalisation,marketization,live music,digitalisation
    Date: 2019
  9. By: Fourberg, Niklas; Korff, Alex
    Abstract: The upgrade of legacy infrastructure is a challenging undertaking in general. The underlying issues are especially prominent for telecommunications networks outside of urban areas. Using German micro-level data, we identify the structural determinants for fiber optics deployment and its extent. We also measure the role of technology competition from the existing infrastructures, VDSL-Vectoring and TV-Cable. In this setting and exploiting a natural experiment, a technologically restrictive policy as proposed by the European Commission is found to be ineffective in promoting fiber deployment. Policy interventions in the form of subsidies targeted at specific local infrastructure projects, however, raise the likelihood of fiber deployment by a substantial margin. A targeted, proactive policy approach is therefore needed to overcome structural and geographical disadvantages.
    Keywords: Fiber expansion,Technology competition,Technology regulation,Subsidies,Regional Infrastructure
    JEL: D22 L52 L86 L96
    Date: 2020
  10. By: Wu, Juan (Faculty of Economics and Social Sciences); Morschett, Dirk (Faculty of Economics and Social Sciences)
    Abstract: Building on the resource-based view and based on 33 interviews with top executives of 11 Chinese private owned enterprises (POEs) and 15 Western target companies, this study is an in-depth multi-case analysis of Chinese crossborder merger and acquisitions. While literature has argued that acquisitions by Chinese companies in developed countries are motivated by asset-seeking, this study takes a more detailed look and investigates which exact assets are sought by POEs. Still a majority of the literature states that Chinese companies largely depend on their countryspecific assets much more than on firm-specific assets. Our study contradicts this view and shows that in many cases Chinese acquirers possess valuable firm-specific assets. Knowing the specific asset profile of the Chinese POEs, their assets and gaps, helps understand what assets they seek when they acquire Western companies. Furthermore, our study shows how they bundle strategic assets of acquired companies in developed countries with their own assets to create synergies. Different from the common view, our study provides evidence that technology transfer between Chinese POEs and Western targets went in both directions.
    Keywords: Cross-border M&A; Strategic Assets; Asset Bundling; Chinese MNCs; EMNC
    JEL: M16 F23
    Date: 2020–03–01
  11. By: Tung, Dao Duy (Tay Do University)
    Abstract: Over the past few years, Vietnam has been on the path of developing Cross Border Electronic Commerce (CBEC). E-business platform enterprise growth is scalabling transactions. CBEC’s economic effects are observed under four aspects as (1) Resource aggregate effect: cost effi-ciency, trading between producers and consumers is realized by E-business platforms; (2) Net-work effect: the positive correlation of platforms’ product or services with the quantity of con-sumers in increasing; (3) Innovation effect: startup costs for innovation (promotions, business models, new-coming products and services) have been recovered with E-business platforms. (4) The value of brand effect.
    Date: 2020–05–06
  12. By: David Dranove; Craig Garthwaite; Manuel I. Hermosilla
    Abstract: Innovation policy involves trading off monopoly output and pricing in the short run in exchange for incentives for firms to develop new products in the future. While existing research demonstrates that expected profits fuel R&D investments, little is known about the novelty of the projects funded by these investments. Relying on data that describe the scientific approaches used by a large sample of experimental drug projects, we expand on this literature by examining the scientific novelty of pharmaceutical R&D investments following the creation of the Medicare Part D program. We find little evidence that the positive demand shock implied by this program prompted firms to undertake scientifically novel R&D activity, as measured by whether the specific scientific approach had been used before. However, we find some evidence that firms invested in products involving novel combinations of scientific approaches. These estimates can inform economists and policymakers assessing the tradeoffs associated with marginal changes in commercial returns from newly developed pharmaceutical products.
    JEL: I1 O3
    Date: 2020–05
  13. By: Nicoletta Berardi; Federico Ravenna; Mario Samano
    Abstract: Using a novel dataset from a large supermarket retailer in a European country that never engages in temporary sales, we establish that prices are actually as sticky as regular prices. Circumventing the debate on whether sales have to be included or excluded from price adjustments, we find evidence consistent with state-dependent price setting in a multiproduct firm. In particular, our data exhibit responsiveness of prices to changes to aggregate demand shifts, a more than trivial share of very small price changes, synchronization of price changes across items especially within the same product category. Price rigidity and the extent of state-dependence is heterogeneous across items. In particular, we find that pricing of top sales items (and even more of private label ones) is more flexible and state-dependent, which is consistent with price setting in a multiproduct firm characterized by rational inattention.
    Keywords: : Price Setting, Multiproduct Firm, State-Dependence, Synchronization, Rational Inattention, Sales Price, Regular Price.
    JEL: E31 D22 E4 E32
    Date: 2020
  14. By: Scott Duke Kominers (Harvard University); Parag A. Pathak (MIT); Tayfun Sönmez (Boston College); M. Utku Ünver (Boston College)
    Abstract: COVID-19 convalescent plasma (CCP) therapy is currently a leading treatment for COVID-19. At present, there is a shortage of CCP relative to demand. We develop and analyze a model of centralized CCP allocation that incorporates both donation and distribution. In order to increase CCP supply, we introduce a mechanism that utilizes two incentive schemes, respectively based on principles of “paying it backward” and “paying it forward.” Under the first scheme, CCP donors obtain treatment vouchers that can be transferred to patients of their choosing. Under the latter scheme, patients obtain priority for CCP therapy in exchange for a future pledge to donate CCP if possible. We show that in steady-state, both principles generally increase overall treatment rates for all patients—not just those who are voucher-prioritized or pledged to donate. Our results also hold under certain conditions if a fraction of CCP is reserved for patients who participate in clinical trials. Finally, we examine the implications of pooling blood types on the efficiency and equity of CCP distribution.
    Keywords: COVID-19, convalescent plasma, vouchers
    JEL: D47 C78
    Date: 2020–05–04
  15. By: Shunyao Yan; Klaus M. Miller; Bernd Skiera
    Abstract: Many online news publishers finance their websites by displaying ads alongside content. Yet, remarkably little is known about how exposure to such ads impacts users' news consumption. We examine this question using 3.1 million anonymized browsing sessions from 79,856 users on a news website and the quasi-random variation created by ad blocker adoption. We find that seeing ads has a robust negative effect on the quantity and variety of news consumption: Users who adopt ad blockers subsequently consume 20% more news articles corresponding to 10% more categories. The effect persists over time and is largely driven by consumption of "hard" news. The effect is primarily attributable to a learning mechanism, wherein users gain positive experience with the ad-free site; a cognitive mechanism, wherein ads impede processing of content, also plays a role. Our findings open an important discussion on the suitability of advertising as a monetization model for valuable digital content.
    Date: 2020–05
  16. By: Diemo Urbig (Schumpeter School of Business and Economics, University of Wuppertal); Werner Boente (Schumpeter School of Business and Economics, University of Wuppertal); Vivien D. Procher (Grenoble Ecole de Management, Univ Grenoble Alpes ComUE and RWI - Leibniz-Institut für Wirtschaftsforschung); Sandro Lombardo (Schumpeter School of Business and Economics, University of Wuppertal)
    Abstract: Referring to Isreal M. Kirzner (1973) and Joseph A. Schumpeter (1934), who emphasized the competitive nature of entrepreneurship, this study investigates whether potential and revealed entrepreneurs are more likely to seek competition than non-entrepreneurs. We provide a conceptual framework that links entrepreneurship to three facets of individual competitiveness drawn from economic, entrepreneurship, and psychological research: a desire to win, striving for personal development, and an enjoyment of competition. Following economic research linking competitive behavior in experiments to career choices, we conduct a lab-in-the-field study and demonstrate that entrepreneurs are more likely to enter competitions than non-entrepreneurs. Accounting for individual desires to win and mastery-related achievement motivations, our results indicate that entrepreneurs tend to enter competition for the sake of competition itself rather than for the prospect of winning it or personal development. Our results suggest that enjoyment of competition might be an additional factor driving entrepreneurs’ market entry decisions beyond well-known factors like overconfidence and risk taking.
    Keywords: Enjoyment of competition; Individual competitiveness; Entrepreneurship; Behavioral Economics; Lab-in-the-field experiment
    Date: 2020–05

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