nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒06‒08
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Wages, Hires, and Labor Market Concentration By Marinescu, Ioana E.; Ouss, Ivan; Pape, Louis-Daniel
  2. The Economics of Platforms in a Walrasian Framework By Anil K. Jain; Robert M. Townsend
  3. Improving Market Performance in the Digital Economy By Chen, Yongmin
  4. Competition and Public Information: A Note By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  5. Airport Competition in Two-sided Markets By Xi Wan; Benteng Zou
  6. When Muth's Entrepreneurs Meet Schrödinger's Cat By Rodolphe Dos Santos Ferreira
  7. Концентрация и конкуренция в современном банковском секторе Сербии: анализ индексов концентрации By Bukvić, Rajko
  8. Prices and market power in mental health care: Evidence from a major policy change in the Netherlands By Rudy Douven; Chiara Brouns; Ron Kemp
  9. Interlocking Directorates and Competition in Banking By Guglielmo Barone; Fabiano Schivardi; Enrico Sette
  10. Covid-19 Pandemic and Abuse of Economic Dependence. Short-run Market Vulnerability and Exploitative conduct By Safieddine Bouali
  11. Optimal switching from competition to cooperation: a preliminary exploration By Raouf Boucekkine; Carmen Camacho; Benteng Zou
  12. Optimal Patent Policy for Pharmaceutical Industry By Izhak, Olena; Saxell, Tanja; Takalo, Tuomas
  13. Inefficiency and Regulation in Credence Goods Markets with Altruistic Experts By Razi Farukh; Anna Kerkhof; Jonas Loebbing
  14. The Agency Problem Revisited: A Structural Analysis of Managerial Productivity and CEO Compensation in Large U.S. Commercial Banks By Liu, Shasha; Sickles, Robin
  15. Internet – Platforms – Regulation: Coordination of Markets and Curation of Sociality By Dolata, Ulrich
  16. The impact of financial constraints on tradable and non-tradable R&D investments in Portugal By Magalhaes, Manuela

  1. By: Marinescu, Ioana E. (University of Pennsylvania); Ouss, Ivan (CREST (ENSAE)); Pape, Louis-Daniel (CREST (ENSAE))
    Abstract: How does employer market power affect workers? We compute the concentration of new hires by occupation and commuting zone in France using linked employer-employee data. Using instrumental variables with worker and firm fixed effects, we find that a 10% increase in labor market concentration decreases hires by 12.4% and the wages of new hires by nearly 0.9%, as hypothesized by monopsony theory. Based on a simple merger simulation, we find that a merger between the top two employers in the retail industry would be most damaging, with about 24 million euros in annual lost wages for new hires, and an 8000 decrease in annual hires.
    Keywords: labor market concentration, wages, hires, merger simulation
    JEL: J31 J32 J42 L13 J51 L40 L41 L44
    Date: 2020–05
  2. By: Anil K. Jain; Robert M. Townsend
    Abstract: We present a tractable model of platform competition in a general equilibrium setting. We endogenize the size, number, and type of each platform, while allowing for different user types in utility and impact on platform costs. The economy is Pareto effcient because platforms internalize the network effects of adding more or different types of users by offering type-specific contracts that state both the number and composition of platform users. Using the Walrasian equilibrium concept, the sum of type-specific fees paid cover platform costs. Given the Pareto efficiency of our environment, we argue against the presumption that platforms with externalities need be regulated.
    Keywords: First and second welfare theorems; Two-sided markets; Externalities
    JEL: D50 D62
    Date: 2020–05–18
  3. By: Chen, Yongmin
    Abstract: The digital economy has substantially reduced market frictions but also posed new challenges for the efficient functioning of markets. In particular, the drastic reductions in the costs of search, entry, transportation, and reproduction have profound implications for the role of platforms, the value of innovation, and the balance between firms' data needs and consumer privacy. I review some recent economic research that sheds light on these issues, and discuss how well-designed policies on competition, regulation, IP protection, and consumer privacy can improve market performance in the digital economy.
    Keywords: Digital economy, digitization, platforms, search, innovation, data protection, privacy
    JEL: D2 D8 L8 L86 O3
    Date: 2020–04
  4. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, MIT)
    Abstract: We study price discrimination in a market in which two ï¬ rms engage in Bertrand competition. Some consumers are contested by both ï¬ rms, and other consumers are “captive†to one of the ï¬ rms. The market can be divided into segments, which have different relative shares of captive and contested consumers. It is shown that the revenue-maximizing segmentation involves dividing the market into “nested†markets, where exactly one ï¬ rm may have captive consumers.
    Keywords: Price Competition, Bertrand Competition, Price Count, Price Quote, Information Structure, Bayes Correlated Equilibrium
    JEL: D41 D42 D43 D83
    Date: 2020–05
  5. By: Xi Wan (Nanjing Audit University, China); Benteng Zou (CREA, Université du Luxembourg)
    Abstract: This paper examines the importance of commercial revenue on optimal airport charges in Hotelling type duopoly airports under a two-sided market framework with two complementary services-concession and aeronautical operations. Each airport sets commercial and landing charges and serves a single airline. The airport- airline bundle competes for leisure and business passengers. The setting of landing charges under different regulatory regimes is investigated. We demonstrate that in the leisure travel market, which ignores schedule delay cost, the optimal landing fee is invariant to the regulatory scheme, and concession revenue is determined by an airports home market size. In the business travel market, the optimal landing charge is smaller if concession revenue is included in setting the landing fee than if it is not included. In the former case, increasing passenger volume does not guarantee increases in airports’ aeronautical revenue, and a negative impact may exist if the weight of concession profit out of total profit is small.
    Keywords: Airport competition; airport regulation; two-sided markets; landing fee; commercial charge.
    JEL: L93 D43 L13 C72
    Date: 2020
  6. By: Rodolphe Dos Santos Ferreira (Strasbourg University; BETA CNRS)
    Abstract: In his 1961 seminal paper, Muth applied his "rational expectations" hypothesis to a simple model of a competitive market for a homogeneous good produced under random shocks. The hypothesis goes beyond the Marshallian expectational approach to equilibrium in attributing to entrepreneurs the capacity to form theory-based price predictions. We find this capacity already in Cournot (1838), although in a model without explicit fundamental uncertainty. The purpose of this note is to show within the same model that oligopolistic competition adds indeterminacy, hence market uncertainty, to the picture, weakening in some sense the rational expectations hypothesis. Before equilibrium is realised, each entrepreneur stands in a hawkish-dovish superposition, very much as the Schrödinger's cat is in a dead-living superposition.
    Keywords: rational expectations, market uncertainty, oligopoly, equilibrium indeterminacy, competitive toughness
    JEL: B21 D43 D84 L13
    Date: 2020–05
  7. By: Bukvić, Rajko
    Abstract: Введение: в статье анализируются степень концентрации и конкуренция в современном банковском секторе в Сербии, который в период трансформации находится в процессе приспособления к рыночным условиям ведения дел. Внимание обращается на ситуацию в текущем десятилетии, в частности на период 2016–2019, для которого вычислены соответственные показатели концентрации. Материалы и методы: анализ обоснован в первой очереди на финансовых отчётах банков, также на квартальных отчётах Народного банка Сербии. Для оценки концентрации рынка использованы как традиционные показатели концентрации (CRn и HH индексы) и индексы Джини и Тайдмана-Холла, так и сравнительно редко использованные индексы Линда. Степень концентрации вычислялся на основе пяти балансовых величин: совокупные активы, депозиты, капитал, операционные доходы банков, и кредиты. Результаты: в статье показано, что среди сравнительно большого числа банков в Сербии существующий степень концентрации является низким. Всё-таки, показатели концентрации оказываются достаточно близкими к умеренной степени концентрации, что предупреждает о возможности появления олигополистической структуры, особенно имея в виду уже долго длящийся процесс интеграций и укрупнений в банковском секторе. Обсуждение: в общем-то результаты показывают низкую степень концентрации. Но, уже между самыми простыми показателями CR3 и CR4 выявляется различие: согласно коэффициенту CR4 концентрация является умеренной, почти для всех переменных. Близкими к умеренной степени концентрации оказались и коэффициенты HH, при этом не в равной степени во всех случаях. Наконец, индексы Линда подтверждают, что существующий степень концентрации отвечает полной конкуренции, с исключением переменной «Капитал», где подозревается олигополистическая структура. Заключение: степень концентрации в банковском секторе Сербии низок, хотя и достаточно близкий умеренной, и несмотря на многолетние процессы укрупнения банков, преимущественно через поглощения. Существующее число банков и соответствующая степень концентрации создают хорошие условия для развития здоровой конкуренции между ними. С другой стороны, полученные результаты не отличаются однозначностью, что особенно оказывается в динамическом плане. Этот момент подчёркивает не только необходимость использования большего числа показателей, но и особую чувствительность в толковании их результатов. Всё это надо учитывать в последующих анализах. Introduction: the paper analyzes the degree of concentration and competition in modern Serbian banking sector in the recent decade, particularly in the years 2016-2019. In the transition period the Serbian banking sector adapt to the market business circumstances. Materials and Methods: the analysis is based on bank financial statements and Quarterly Reviews of National Bank of Serbia. For the estimation of the market concentration, it were used the traditional concentration indicators (CRn and HH indices) and Gini and Tideman-Hall indexes, as well as the relatively rarely used Linda indices. The concentration degree is calculated based on five balance variables: total assets, deposits, capital, operating income of banks, and loans. Results: it has been demonstrated that in the case of the relatively large number of banks in Serbia, the existing concentration degree is relatively low. However, the approximation of the indices to moderate concentration within the period analyzed warns of the appearance of oligopoly, especially in regards to many years continued process of integration and enlargement in banking sector. Discussion: in general the results show the low degree of concentration. But, just between simplest indexes CR3 and CR4 it can be seen the difference: according to coefficient CR4 concentration is moderate, for almost all observes variables. Close to moderate degree of concentration are the indices HH, but not in all cases. Finally, the Linda indices accept, that existing concentration degree comply with perfect competition, but with the exception of the variable “Capital”, where the suspicion to oligopolistic structure was demonstrated. Conclusion: the degree of concentration in Serbian banking sector is low, but close to moderate, despite to many years continued processes of enlargement of banks, principally through the acquisitions. The actual number of banks and adequate market concentration degree provides suitable conditions for the development of healthy competition among banks. On the other side, the results of analysis are not equivocal, and this manifests firstly in dynamic consideration. This emphasizes not only the need for the use of many indicators, but also the sensitivity in interpretation its results. All that must be taken into account in the next analyses.
    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: Rudy Douven (CPB Netherlands Bureau for Economic Policy Analysis); Chiara Brouns (Menzis); Ron Kemp (ACM, EUR)
    Abstract: In the Dutch health care system of managed competition, insurers and mental health providers negotiate on prices for mental health services. Contract prices are capped by a regulator who sets a maximum price for each mental health service. In 2013, the majority of the contract prices equaled these maximum prices. We study price setting after a major policy change in 2014.
    JEL: I11 I18 L11
    Date: 2020–05
  9. By: Guglielmo Barone (University of Padua); Fabiano Schivardi (Luiss University, EIEF); Enrico Sette (Bank of Italy)
    Abstract: We study the effects on loan rates of a quasi-experimental change in the Italian legislation which forbids interlocking directorates between banks. We use a difference-in-differences approach and exploit multiple banking relationships to control for unobserved heterogeneity. We find that the reform decreased rates charged by previously interlocked banks to common customers by between 10-30 basis points. The effect is stronger if the firm had a weaker bargaining power vis-a-vis the interlocked banks. Consistent with the assumption that interlocking directorates facilitate collusion, interest rates on loans from interlocked banks become more dispersed after the reform.
    Date: 2020
  10. By: Safieddine Bouali (ISG - Institut Supérieur de Gestion de Tunis [Tunis] - Université de Tunis [Tunis])
    Abstract: Economic disruptions due to the global Covid-19 pandemic have unleashed uncountable litigation between firms on how to enforce their contractual relationships. In this context, the survival of undertakings becomes a real issue when partners in vertical relationships or global value chains behave opportunistically. Should this exploitative conduct be scrutinized as anti-competitive practices by the competition authorities in full separation from ordinary courts? In this paper, we argue that the well-known rule of abuse of the state of economic dependence (ASED) could deter opportunism that arises likewise during the Covid-19 pandemic or any other global crises. Actually, rejected by the Chicago School of Antitrust, and not acknowledged by the contract doctrine except its facet of negligent conduct, exploitative abuses could reintegrate the list of harmful practices to the consumers albeit after an intricate analysis. The article further investigates the extent to which the ASED, deterring a wide spectrum of exploitative conduct, fills the gap left by the provisions punishing unfair practices albeit it confers a considerable room for the specialist judges' discretion. Such ASED implementation would ensure more deterrence of the lawful opportunism inasmuch it narrows cracks of the legal corpus between exclusionary and exploitative abuses.
    Abstract: Les perturbations économiques dues à la pandémie mondiale de Covid-19 ont déclenché d'innombrables litiges entre les entreprises sur la manière de faire respecter leurs relations contractuelles. Dans ce contexte, la survie des entreprises devient un réel problème lorsque les partenaires dans les relations verticales ou les chaînes de valeur mondiales se comportent de manière opportuniste. Ce comportement d'exploitation devrait-il être examiné comme des pratiques anticoncurrentielles par les autorités de la concurrence, en toute séparation des tribunaux ordinaires? Dans cet article, nous soutenons que la règle bien connue de l'abus de l'état de dépendance économique (ASED) pourrait dissuader l'opportunisme qui survient également lors de la pandémie de Covid-19 ou de toute autre crise mondiale. En fait, rejetés par la Chicago School de l'antitrust, non reconnus par la doctrine du contrat, à l'exception de sa facette de conduite négligente, les abus d'exploitation pourraient réintégrer la liste des pratiques néfastes pour les consommateurs, bien qu'après une analyse complexe. L'article examine en outre dans quelle mesure l'ASED, dissuadant un large éventail de comportements d'exploitation, comble le vide laissé par les dispositions réprimant les pratiques déloyales, même s'il confère une latitude considérable au pouvoir discrétionnaire des juges spécialisés. L'article soutien que la mise en œuvre de l'ASED assurerait une plus grande dissuasion de l'opportunisme légal dans la mesure où elle rétrécit les fissures du corpus juridique entre les abus d'exclusion et d'exploitation.
    Keywords: Covid-19,Exploitative conduct,Competition Law,Contract Governance,Abuse of State of Economic dependence
    Date: 2020–05–05
  11. By: Raouf Boucekkine (Aix-Marseille University, CNRS and EHESS); Carmen Camacho (Paris School of Economics, CNRS); Benteng Zou (CREA, Université du Luxembourg)
    Abstract: In this paper, we tackle a generic optimal regime switching problem where the decision making process is not the same from a regime to another. Precisely, we consider a simple model of optimal switching from competition to cooperation. To this end, we solve a two- stage optimal control problem. In the first stage, two players engage in a dynamic game with a common state variable and one control for each player. We solve for open-loop strategies with a linear state equation and linear-quadratic payoffs. More importantly, the players may also consider the possibility to switch at finite time to a cooperative regime with the associated joint optimization of the sum of the individual payoffs. Using theoretical analysis and numerical exercises, we study the optimal switching strategy from competition to cooperation. We also discuss the reverse switching.
    Keywords: Cooperation, competition, dynamic games, multi-stage optimal control.
    JEL: C61 D71
    Date: 2020
  12. By: Izhak, Olena; Saxell, Tanja; Takalo, Tuomas
    Abstract: We show how characterizing optimal patent policy for the pharmaceutical industry only requires information about generic producers’ responses to changes in the effective duration and scope of new drug patents. To estimate these responses, we use data on Paragraph IV patent challenges, and two quasi-experimental approaches: one based on changes in patent laws and another on the allocation of patent applications to examiners. We find that extending effective patent duration increases generic entry via Paragraph IV patent challenges whereas broadening protection reduces it. Our results imply that pharmaceutical patents should be made shorter but broader.
    Keywords: patent policy, pharmaceuticals, generic entry, innovation, imitation, Business regulation and international economics, I18, K20, L13, O34, O31,
    Date: 2020
  13. By: Razi Farukh; Anna Kerkhof; Jonas Loebbing
    Abstract: We study a credence goods problem - that is, a moral hazard problem with non-contractible outcome - where altruistic experts (the agents) care both about their income and the utility of consumers (the principals). Experts' marginal rate of substitution between income and consumer utility declines in income, such that experts care less for consumers when their financial situation is bad. In a market setting with multiple consumers per expert, a cross-consumer externality arises: one consumer's payment raises the expert's income, which makes the non-selfish part of preferences more important and thereby induces the expert to provide higher quality services to all consumers. The externality renders the market outcome inefficient. Price regulation partially overcomes this inefficiency and Pareto-improves upon the market outcome. If market entry of experts is endogenous, price regulation should be accompanied by entry restrictions. Our theory provides a novel rationale for the widespread use of price and entry regulation in real-world markets for expert services.
    Date: 2020–05–26
  14. By: Liu, Shasha (Freddie Mac); Sickles, Robin (Rice U)
    Abstract: The paper analyzes performance, incentives, and the inefficiencies that may arise due to agency problems and market power using a newly developed panel of large U.S. commercial banks that have too-big-to-fail nature. We use a structural model to characterize managerial efficiency, which complements technical efficiency in standard stochastic frontier models. We incorporate managerial decisions, bank-specific characteristics, and market competition in deriving managerial efficiency. Data on the 50 largest commercial banks in the U.S. during 2000 and 2017 are collected from the Call Reports, and are matched with CEO compensation from S&P's Execucomp database. The paper connects empirical evidence with economic theory and contributes to the literature on efficiency and management. The ultimate goal is to better understand the linkages among managerial performance, CEO compensation, and the size and scope of bank operations. Current results point to robust empirical findings. Economies of scale have steadily declined throughout the period, and are not positively related to managerial performance and CEO compensation. The size of a bank does not seem to be justified by the evidence in that larger banks offer larger bonuses and tend to have lower managerial efficiency and diminishing scale economies.
    JEL: C13 C33 D22 G21
    Date: 2020
  15. By: Dolata, Ulrich
    Abstract: The leading Internet groups, with their extensively networked platforms, have become the key players in the design and regulatory framing of the Internet in the course of the 2010s. This paper examines the mechanisms by which they fulfil their role as structurebuilding, rule-making and action-coordinating core actors in today's Web. The focus is on two essential regulatory areas: on the one hand, the private-sector organization and regulation of markets, in which they themselves, as platform operators, coordinate market processes and determine the conditions of competition; on the other hand, the tech- nically mediated structuring and curation of social relationships and social behavior, through which the platform operators assume far-reaching social ordering and regulatory functions. The few large platforms that today enable and coordinate large parts of private and public life on the Internet can - according to the thesis of this article - be understood as differentiated societal structures with a distinct institutional basis, which the platform operators shape and control to a considerable extent by means of their own rules, regulations and coordination bodies-up to the performance of quasi-sovereign tasks by the companies, which were previously reserved for state authorities and have so far largely been able to elude democratic legitimation and control.
    Date: 2020
  16. By: Magalhaes, Manuela
    Abstract: We develop a directed technical change model with two sectors, tradable and non-tradable, and dynamic firms’ decisions to invest in R&D in the presence of financial constraints. The model establishes a linkage between R&D decisions, product and process innovations, future productivity, profits, and credit constraints. The model is estimated using Portuguese firms’ data of the tradable and non-tradable sectors. We find that the previous R&D investments raises the innovating probabilities, the innovating probabilities are higher in the tradable sector, and the startup costs of innovation tend to be higher than the maintenance costs. The results also show complementary between the R&D benefits and the firm’s financial strength, diminishing marginal returns to capital on innovation benefits, and high heterogeneity of the innovation costs across industries. Finally, when the firms’ financial strength and the trade-off between tradable and non-tradable goods are considered, the R&D benefits in the non-tradable sector do not compensate its cost given the higher productivity and innovation probabilities of the tradable sector. As a result, the R&D investments in the tradable sector illustrates a misallocation of financial resources.
    Keywords: : Credit constraints, firm-level data, productivity, R&D, tradable and non-tradable goods.
    JEL: O31 O32
    Date: 2020–04–04

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