nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒06‒15
29 papers chosen by
Russell Pittman
United States Department of Justice

  1. Vertical Price Restraints and Free Entry Under Asymmetric Information By Leda Maria Bonazzi; Raffaele Fiocco; Salvatore Piccolo
  2. National brands in hard discounters: Market expansion and bargaining power effects By Bonnet, Céline; Bouamra-Mechemache, Zohra; Klein, Gordon
  3. Improved Information in Search Markets By Zhou, Jidong
  4. Search, Information, and Prices By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  5. Switching costs in competitive health insurance markets : the role of insurer's pricing strategies By Karine Lamiraud; Pierre Stadelmann
  6. The Berendsen (Elis)/Kings Laundry Merger: Three Into Two Won’t Go By Gorecki, Paul
  7. Slowdown antitrust investigations by decentralization By Emilie Dargaud; Armel Jacques
  8. Big Tech Mergers By Massimo Motta; Martin Peitz
  9. Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry By Kory Kroft; Yao Luo; Magne Mogstad; Bradley Setzler
  10. Liquid fuel price adjustment in Greece:a two-stage, threshold cointegration approach By Stavros Malkidis; Stilianos Fountas
  11. Reveal it or conceal it: On the value of second opinions in a low-entry-barriers credence goods market By Parampreet Bindra; Rudolf Kerschbamer; Daniel Neururer; Matthias Sutter
  12. Permit markets with political and market distortions By Alex Dickson; Iain A Mackenzie
  13. Entry games for the airline industry By Bontemps, Christian; Menezes Bezerra Sampaio, Raquel
  14. Price Parity Clauses for Hotel Room Booking: Empirical Evidence from Regulatory Change By Ennis, Sean; Ivaldi, Marc; Lagos, Vicente
  15. Germany’s ‘Lex Apple Pay’: Payment Service Regulation Overtakes Competition Enforcement By Jens-Uwe Franck; Dimitrios Linardatos
  16. Preemption with a Second-Mover Advantage By Smirnov, Vladimir; Wait, Andrew
  17. Social division in the market: conspicuous consumption with nationalist feelings By Ornella Tarola; Skerdilajda Zanaj
  18. Horizontal cooperation on investment: Evidence from mobile network sharing By Cojoc, Anca; Ivaldi, Marc; Maier-Rigaud, Frank; März, Oliver
  19. Effects of Changes in Exchange Rate Volatility on Short-run Equilibrium in International Oligopoly By Tetsuya Shinkai; Takao Ohkawa; Makoto Okamura; Ryoma Kitamura
  20. Poisson-Cournot Games By Francesco De Sinopoli; Christopher Kunstler; Claudia Meroni; Carlos Pimienta
  21. An analytical framework for retailer price and advertising decisions for products with temperature-sensitive demand By Régis Chenavaz; Octavio Escobar; Xavier Rousset
  22. Firm Acquisitions by Family Firms: a Mixed Gamble Approach By Katrin Hussinger; Abdul-Basit Issah
  23. The War of Rare Earth Elements: A Dynamic Game Approach By Luisito Bertinelli; Stéphane Poncin; Benteng Zou
  24. Market power, productivity and distribution of wages: theory and evidence with micro data By Oleksandr Shepotylo; Volodymyr Vakhitov
  25. Oligopoly Dynamics By Bernardo Melo Pimentel
  26. A Dynamic Theory of Regulatory Capture By Alessandro De Chiara; Marco A. Schwarz
  27. Consumption home bias and ethnocentrism: an international duopoly By Jean Gabszewicz; Ornella Tarola; Skerdilajda Zanaj
  28. The Market for Acquiring Card Payments from Small and Medium-Sized Canadian Merchants By Angelika Welte; Jozsef Molnar
  29. Dynamic Changes in Rail Shipping Mechanisms for Grain By Wilson, William W.

  1. By: Leda Maria Bonazzi (University of Essex); Raffaele Fiocco (Università di Bergamo); Salvatore Piccolo (Università di Bergamo, Compass Lexecon and CSEF)
    Abstract: We investigate the impact of vertical price restraints on the free-entry equilibrium and its welfare properties in a vertically related market where manufacturer-retailer hierarchies compete under asymmetric information. We compare the legal regimes of laissez-faire and ban on resale price maintenance (RPM) under different entry decision modes. When the entry decision is taken upstream, laissez-faire generates higher entry and increases consumer surplus, but a ban on RPM enhances total welfare. Socially excessive entry occurs under both legal regimes, and the entry bias declines with the spread of demand uncertainty. Conversely, when the entry decision is taken downstream, a ban on RPM stimulates entry and consumer surplus, but laissez-faire can be total welfare superior. Our results provide antitrust policy implications about vertical price control.
    Keywords: asymmetric information, free entry, quantity forcing, resale price maintenance, vertical restraints
    JEL: D82 L13 L42
    Date: 2020–05–27
  2. By: Bonnet, Céline; Bouamra-Mechemache, Zohra; Klein, Gordon
    Abstract: In this paper, we analyze the strategic role of the recent introduction of national brand products by hard discounters in the French market and its impact both at the retail and manufacturer levels. We use a structural econometric model of vertical relationships that takes into account the competition between both mainstream retailers and hard discounters, and between national brands and private labels. We apply this model to the French dairy dessert market, which is characterized by a high penetration of private labels and a high concentration at the manufacturer and retail levels. Using a counterfactual analysis, we show that the introduction of national brands by hard discounters does not only act as means to attract different consumer groups and extend their market share. In addition and even maybe more important, we also show that the introduction of national brands by hard discounters serves as a means to improve their bargaining positioning with respect to their private label providers.
    Keywords: Structural Model,Counterfactual Analysis,Hard Discount,The Role of Private Labels and National Brands
    JEL: L11 L25 L81 M31
    Date: 2020
  3. By: Zhou, Jidong
    Abstract: This paper studies how an improved information environment affects consumer search and firm competition. We find conditions for information improvement to have unambiguous impacts on search duration, price, and consumer welfare. In many cases consumers benefit from information improvement regardless of how it affects the market price, but there are also cases where information improvement raises price significantly so that consumers suffer from it. Our model provides a unified way to consider the market implications of various types of information improvement such as search advertising, personalized recommendation, filtering, and new display technology.
    Keywords: consumer search, price competition, information improvement
    JEL: D43 D83 L13
    Date: 2020–05–19
  4. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: Consider a market with identical ï¬ rms offering a homogeneous good. A consumer obtains price quotes from a subset of ï¬ rms and buys from the firm offering the lowest price. The \price count†is the number of ï¬ rms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we obtain a tight upper bound (under ï¬ rst-order stochastic dominance) on the equilibrium distribution of sale prices. The bound holds across all models of ï¬ rms’ common-prior higher-order beliefs about the price count, including the extreme cases of full information ( ï¬ rms know the price count) and no information (ï¬ rms only know the ex ante distribution of the price count). A qualitative implication of our results is that a small ex ante probability that the price count is one can lead to a large increase in the expected price. The bound also applies in a wide class of models where the price count distribution is endogenized, including models of simultaneous and sequential consumer search.
    Keywords: Search, Price Competition, Bertrand Competition, "Law of One Price", Price Count, Price Quote, Information Structure, Bayes Correlated Equilibrium
    JEL: D41 D42 D43 D83
    Date: 2020–03
  5. By: Karine Lamiraud (Essec Business School); Pierre Stadelmann
    Abstract: Our article deals with pricing strategies in Swiss health insurance markets and focuses on the relationship between basic and supplementary insurance. We analyzed how firms' pricing strategies (i.e., pricing of basic and supplementary products) can create switching costs in basic health insurance markets, thereby preventing competition in basic insurance from working properly. More specifically, using unique market and survey data, we investigated whether firms use bundling strategies or supplementary products as low-price products to attract and retain basic insurance consumers. To our knowledge, this is the first paper to analyze these pricing strategies in the context of insurance/health insurance. We found no evidence of bundling in the Swiss setting. We did however observe that firms used low-price supplementary products that contributed to lock in consumers. A majority of firms offered at least one of such product at a low price. None offered low-price products in both basic and supplementary markets. Low-price insurance products differed across firms. When buying a lowprice supplementary product, consumers always bought their basic contract from the same firm. Furthermore, those who opted for low-price supplementary products were less likely to declare an intention to switch basic insurance firms in the near future. This result was true for all risk category levels.
    Keywords: Managed Competition,Swiss Health Care Systems,Pricing,Consumer Inertia,Switching Costs,Supplementary Insurance,low-price supplementary product,Bundling
    Date: 2020–05–13
  6. By: Gorecki, Paul
    Abstract: The acquisition by Berendsen Ireland Limited of Kings Laundry Limited should have been prohibited by the Competition and Consumer Protection Commission, Ireland’s competition agency. Instead the agency cleared the merger subject to the divestment of three of Berendsen’s healthcare contracts. The Commission makes a compelling case for a finding that in the outsourced supply of flat linen rental and maintenance services to healthcare customers that the three to two merger would lead to a substantial lessening of competition. The divestment of Kings Laundry healthcare operations, an appropriate remedy to restore competition, was not feasible. The divestment of three healthcare contracts does not mitigate the anticompetitive effect of the merger: for customers that are the counterparties to the three contracts, the remedy will result in decline in the number of healthcare suppliers from three pre merger to two post merger. Neither of these two providers is likely to be an especially vigorous competitor. For all other healthcare customers, although the number of healthcare suppliers remains unchanged at three - pre and post merger, the evidence suggests that the purchaser of the three contracts is unlikely to replicate Kings Laundry as a significant competitive force in healthcare. The failure to implement the remedy within the nine month window deemed appropriate by the European Commission in its Remedies Notice raises concerns that Kings Laundry as a competitive force will become, in European Commission parlance, “degraded.”
    Keywords: mergers; structural remedies; substantial lessening of competition; and, Competition Act 2002.
    JEL: D22 D44 K21 L41
    Date: 2020–05–15
  7. By: Emilie Dargaud (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UL2 - Université Lumière - Lyon 2 - ENS Lyon - École normale supérieure - Lyon); Armel Jacques (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion)
    Abstract: When multi-product firms make simultaneous price-fixing agreements in different markets, the introduction of leniency programs may induce firms to compartmentalize their activities. Doing so results in slowdown antitrust investigations and decentralized firm can easily request leniency for a second cartel after the detection of an other. We study how variation of fine reduction may produce procompetitive but also procollusive effects.
    Keywords: leniency programs,antitrust policy,Collusion,organizational form,multimarket contact
    Date: 2020
  8. By: Massimo Motta; Martin Peitz
    Abstract: Big tech mergers are frequently occurring events. What are the competitive effects of these mergers? With the help of a simple model we identify the acquisition of potential competitors as a pressing issue for merger control in digital industries. We also sketch a few recent theories of harm of horizontal and conglomerate mergers that are potentially relevant in digital industries. Finally, we draw some policy recommendations on how to deal with mergers in such industries.
    Keywords: merger policy, digital markets, potential competition, conglomerate mergers
    JEL: L41 L13 K21
    Date: 2020–05
  9. By: Kory Kroft; Yao Luo; Magne Mogstad; Bradley Setzler
    Abstract: The primary goal of our paper is to quantify the importance of imperfect competition in the U.S. construction industry by estimating the size of rents earned by American firms and workers. To obtain a comprehensive measure of the total rents and to understand its sources, we take into account that rents may arise both due to markdown of wages and markup of prices. Our analyses combine the universe of U.S. business and worker tax records with newly collected records from U.S. procurement auctions. We first examine how firms respond to a plausibly exogenous shift in product demand through a difference-in-differences design that compares first-time procurement auction winners to the firms that lose, both before and after the auction. Motivated and guided by these estimates, we next develop, identify, and estimate a model where construction firms compete with one another for projects in the product market and for workers in the labor market. The firms may participate both in the private market and in government projects, the latter of which are procured through first-price sealed-bid auctions. We find that American construction firms have significant wage- and price-setting power. This imperfect competition generates a considerable amount of rents, two-thirds of which is captured by the firms. Lastly, we use the estimated model to perform counterfactual analyses which reveal how increases in the market power of firms, in the product market or the labor market, would affect the outcomes and behavior of workers and firms in the construction industry.
    Keywords: imperfect competition; monopsony; market power; rents; rent sharing; auction; procurement
    JEL: J31 J42 D44 L11
    Date: 2020–06–06
  10. By: Stavros Malkidis (Department of Economics, University of Macedonia); Stilianos Fountas (Department of Economics, University of Macedonia)
    Abstract: In Greece, there is a widespread belief among consumers that fuel prices in the domestic market respond faster to crude oil price increases than decreases and they attribute this pricing pattern to exploitation of market power on behalf of the companies. This article attempts to investigate the issue of asymmetries in a two-stage price-adjusting mechanism able to identify the source of price asymmetries, either in the refining or in the distribution stage. The sample consists of daily data covering the period of January 2012 to November 2018 and has been split into two subsamples due to a structural break in October 2014. Employing threshold and momentum models of cointegration at the two stages linking crude oil to retail prices, we find that transmission is mostly symmetric for unleaded95 gasoline between 2012 and 2014 and asymmetric in the stage of refining for diesel. Between 2014 and 2018 asymmetry exists for both types of fuel in the refining stage, while the retail market presents symmetric pricing.
    Keywords: Asymmetry, Rockets and feathers, Error-correction models, Threshold cointegration, Fuel price.
    JEL: Q40 C32 L11
    Date: 2020–05
  11. By: Parampreet Bindra; Rudolf Kerschbamer; Daniel Neururer; Matthias Sutter
    Abstract: Credence goods markets with their asymmetric information between buyers and sellers are prone to large inefficiencies. In theory, poorly informed consumers can protect themselves from maltreatment through sellers by asking for second opinions from other sellers. Yet, empirical evidence whether this is a successful strategy is scarce. Here we present a natural field experiment in the market for computer repairs. We find that revealing a second opinion from another expert to the seller does neither increase the rate of successful repairs nor decrease the average repair price. We assess under which conditions gathering a second opinion can be valuable.
    Keywords: Credence goods, expert services, second opinions, natural field experiment
    JEL: C93 D82
    Date: 2020–09
  12. By: Alex Dickson (Department of Economics, University of Strathclyde); Iain A Mackenzie (School of Economics, University of Queensland, Brisbane, Australia, 4072.)
    Abstract: This article investigates the cost effectiveness of cap-and-trade markets in the presence of both political and market distortions. We create a model where dominant firms have the ability to rent seek for a share of pollution permits as well as influence the market equilibrium with their choice of permit exchange because of market power. We derive the subgame-perfect equilibrium and show the interaction of these two distortions has consequences for the resulting allocative efficiency of the market. We find that if the dominant rent-seeking firms are all permit buyers (or a composition of buyers and sellers) then allocative efficiency is improved relative to the case without rent seeking; by contrast, if the dominant rent-seeking firms are all permit ellers then allocative efficiency reduces.
    Keywords: pollution market, market power, rent-seeking.
    JEL: E65 G12 G18 P16
    Date: 2020–01
  13. By: Bontemps, Christian; Menezes Bezerra Sampaio, Raquel
    Abstract: In this paper we review the literature on static entry games and show how they can be used to estimate the market structure of the airline industry. The econometrics challenges are presented, in particular the problem of multiple equilibria and some solutions used in the literature are exposed. We also show how these models, either in the complete information setting or in the incomplete information one, can be estimated from i.i.d. data on market presence and market characteristics. We illustrate it by estimating a static entry game with heterogeneous firms by Simulated Maximum Likelihood on European data for the year 2015.
    Keywords: entry, airlines, multiple equilibria, estimation, industrial organization.
    Date: 2020–05
  14. By: Ennis, Sean; Ivaldi, Marc; Lagos, Vicente
    Abstract: This paper examines the impact of most favored nation (MFN) clauses on retail prices, taking advantage of two natural experiments that changed vertical contracting between hotels and major digital platforms. The broad E.U. intervention narrowed the breadth of “price parity” obligations between hotels and major Online Travel Agencies (OTAs). Direct sales by hotels to customers subsequently became relatively cheaper. Comparisons with hotel pricing outside the E.U. confirm the reduction in prices for mid-level and luxury hotels. France and Germany went further and eliminated all price-parity agreements. This stronger intervention was associated solely with a significant additional price-reducing effect for mid-level hotels in Germany. Overall, wide MFNs are associated with higher retail prices. Regulating MFNs reduced prices with primary effects coming either from the narrow price-parity intervention or, perhaps, from direct sales becoming cheaper than OTAs in both E.U. and non-E.U. countries, and, interestingly, not from complete elimination of MFNs.
    Keywords: Price Parity Clause (PPC); Most favored nation (MFN); Most favored customer (MFC); Hotel Industry; Impact Evaluation; Online Travel Agency (OTA); digital platforms
    JEL: K21 L14 L42 L81
    Date: 2020–05
  15. By: Jens-Uwe Franck; Dimitrios Linardatos
    Abstract: As of January 2020, Section 58a of the German Payment Services Supervisory Act (PSSA) provides a right for payment service providers and e-money issuers to access technical infrastructure that contributes to mobile and internet-based payment services. This right of access is intended to promote technological innovation and competition in the consumers’ interests in having a wide choice among payment services, including competing solutions for mobile and internet-based payments. The provision has been dubbed ‘Lex Apple Pay’ as it seems to have been saliently motivated by the objective to give payment service providers the right of direct access to the NFC interfaces of Apple’s mobile devices. In enacting Section 58a PSSA, the German legislature has rushed forwards, overtaking the EU Commission’s ongoing competition investigation into Apple Pay as well as the pending reform of the German Competition Act, which is aimed precisely at operators of technological platforms, which enjoy a gatekeeper position. This article explores the scope of application and the statutory requirements of this right of access as well as available defences and possible legal barriers. We point out that, to restore a level playing field in the internal market, the natural option would be to further harmonize EU payment services regulation, including the availability of a right of access to technical infrastructure for mobile and internet-based payment services and e-money issuers.
    Keywords: ‘Lex Apple Pay’; Technology platforms; Antitrust; Payment Services Regulation; Mobile Payment; Access to NFC interfaces; Wallet Apps; Internal Market Regulation
    JEL: K21 K22
    Date: 2020–05
  16. By: Smirnov, Vladimir; Wait, Andrew
    Abstract: We examine innovation in a market-entry timing game with complete information and observable actions when there is a second-mover advantage. Allowing for heterogenous payoffs between players, and for both leader's and follower's payoff functions to be multi-peaked and non-monotonic, we find that there are at most two pure-strategy subgame perfect equilibria. Sometimes these resemble familiar second-mover advantage equilibria from the literature. However, we show that despite there being a follower advantage at all times, there can be a preemption equilibrium with inefficient early entry. In fact, immediate entry is possible in a continuous analogue of the centipede game. These results are related to the observed premature entry and product launches in various markets.
    Keywords: timing games, second-mover advantage, preemption.
    Date: 2020–05
  17. By: Ornella Tarola (University of Rome, Italy); Skerdilajda Zanaj (CREA, Université du Luxembourg)
    Abstract: In this paper, we explore the effects of conspicuous goods as means of social division between native citizens and migrants. We push forward the hypothesis that choosing a particular good can confer a sense of place. We introduce this idea in an international vertical differentiation market with two variants and two social groups: migrants and natives. Natives are narrow- minded since they attribute a positive social value to the variant that complies with their own consumption culture. Migrants are open-minded. When consumers belonging to different groups meet, they exchange information about their consumption habits and consumption well-being that reveals their consumption culture: narrow-minded versus open-minded. Consequently, after meeting, some consumers may change beliefs (narrow-minded to open-minded or vice versa) and consumption choices. Using a dynamic model, we fully elucidate the steady state equilibrium and highlight the impact of nationalism on migrant integration.
    Keywords: relative preferences; vertical differentiation; nationalistic consumption; dynamic duopoly.
    JEL: D11 F18 L13
    Date: 2019
  18. By: Cojoc, Anca; Ivaldi, Marc; Maier-Rigaud, Frank; März, Oliver
    Abstract: We present a structural model to investigate the effects of horizontal cooperation on investment in the context of telecommunication networks. More specifically, we estimate the effect of network sharing in the mobile telecommunications industry on prices, network quality and consumer welfare. The presented framework allows estimating the effects of different types of sharing agreements including common ownership of shared assets in a joint venture company or collaboration via geographical separation (geo-split principle). The proposed identification strategy relies on differences in the costs of network deployment of shared versus non-shared network infrastructure, with different costs affecting operators' optimal choice of price and network quality. We apply the structural model to estimate the effects of a network sharing agreement in the Czech Republic, using a combination of unique datasets on prices, network quality measured as average download speed and operator's costs of network deployment. The results of our model indicate that horizontal cooperation on investments may be beneficial for consumers. Specifically, the network sharing agreement under study generated cost savings for the sharing parties, which were passed-on to consumers in the form of lower prices and higher average download speed. Our findings are of relevance to the assessment of network sharing agreements, which, considering the substantial investment cost associated with the 5G technology, are likely to play an even greater role in the telecommunications industry in the future. The findings are also of relevance to the general literature on horizontal cooperation on investments.
    JEL: L11 L40 L96
    Date: 2020–05
  19. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Takao Ohkawa (Faculty of Economics,Ritsumeikan University); Makoto Okamura (Faculty of Economics,Gakushuin University); Ryoma Kitamura (Faculty of Economics,Otemon Gakuin University)
    Abstract: This paper investigates exchange rate volatility in an international oligopolistic market in a foreign country that accepts affiliate firms through foreign direct investment. The affiliate firms must procure intermediate products from their overseas parent firms. We derive a Cournot equilibrium of a market in which affiliate firms compete with local firms under foreign exchange rate uncertainty. In equilibrium, we show that affiliates aggressively expand output and the ex-post expected profits and ex-ante certainty equivalence of the affiliates’ profits increase / decrease with a rise in exchange rate risk when the relative risk aversion coefficient is small / large.
    Keywords: risk aversion, exchange rate volatility, short-run equilibria, and international oligopoly
    JEL: G32 L13 L12
    Date: 2020–05
  20. By: Francesco De Sinopoli (Department of Economics, University of Verona); Christopher Kunstler (Institute of Energy and Climate Research, FZ Julich); Claudia Meroni (Department of Economics, University of Verona); Carlos Pimienta (School of Economics, UNSW Business School, UNSW)
    Abstract: We construct a Cournot model in which firms have uncertainty about the total number of firms in the industry. We model such an uncertainty as a Poisson game and we characterize the set of equilibria after deriving some novel properties of the Poisson distribution. When the marginal cost is zero, the number of equilibria increases with the expected number of firms ( n) and for n ≥ 3 every equilibrium exhibits overproduction relative to the model with deterministic population size. Overproduction is robust to sufficiently small marginal costs, however, for a fixed marginal cost, the set of equilibria approaches the equilibrium quantity of the deterministic model as n goes to infinity.
    Keywords: Cournot competition, Population uncertainty, Poisson games, Poisson distribution
    JEL: C72 D43 L13
    Date: 2020–05
  21. By: Régis Chenavaz (KEDGE Business School [Marseille], AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Octavio Escobar (School of Business - Adelphi University); Xavier Rousset (UPD5 - Université Paris Descartes - Paris 5)
    Abstract: The demand for weather-sensitive products, such as beverages, ice creams, or chocolate varies with changes in temperature. Yet, retailers lack a framework to adapt the marketing mix elements, such as price and advertising, in line with such changes. We provide a theoretical framework to fill this gap by developing an analytical model to derive the optimal marketing mix when product demand depends on temperature. The model prescribes how price and advertising for different demand characteristics should be set following a temperature change. Integrating the temperature element in the marketing mix offers an original profit-enhancing strategy.
    Keywords: Pricing,advertising,temperature,weather-sensitivity,marketing mix
    Date: 2019–11
  22. By: Katrin Hussinger (CREA, Université du Luxembourg); Abdul-Basit Issah (LBG Open Innovation in Science Center, Vienna, Austria)
    Abstract: This study elucidates the mixed gamble confronting family firms when considering a related firm acquisition. The socioemotional and financial wealth trade-off associated with related firm acquisitions as well as their long-term horizon turns family firms more likely to undertake a related acquisition than non-family firms, especially when they are performing above their aspiration level. Post-merger performance pattern confirm that family firms are able to create long-term value "through these acquisitions and by doing so they surpass non-family firms. These findings stand in " contrast to commonly used behavioural agency predictions, but can be reconciled with theory through a mixed gambles’ lens.
    Keywords: Firm acquisitions; related firm acquisitions; mixed gamble; aspiration level, socioemotional wealth, value creation
    JEL: G34 L10 L20 M20
    Date: 2019
  23. By: Luisito Bertinelli (CREA, Université du Luxembourg); Stéphane Poncin (CREA, Université du Luxembourg); Benteng Zou (CREA, Université du Luxembourg)
    Abstract: Rare earth elements govern today’s high-tech world and are deemed to be essential for the attainment of sustainable development goals. Since the 1990s, these elements have been predominantly supplied by one single actor, China. However, due to the increasing global relevance of their availability, other countries are now encouraged to enter the market. The objective of this paper is to analyze the strategic interactions among (potential) suppliers. In particular, we are interested in (1) the optimal timing for a newcomer (e. g. the U.S.) to enter the market, (2) the incumbent’s (i. e. China’s) optimal behavior, and (3) the cost-efficiency of cooperative vs. competitive market relations. By setting up a continuous-time dynamic game model, we show that (1) the newcomer should postpone the production launch until its rare earth reserves coincide with those of the incumbent, (2) the incumbent should strive for a late market entry and therefore keep its monopolistic resource extraction at the lowest possible level, (3) compared to the payoffs under competition, cooperation leads to a Pareto improvement when started at an early stage. The findings of our model are particularly relevant for the rational strategic positioning of the two great powers, America and China.
    Keywords: rare earth elements, dynamic games, open-loop strategic Nash equilibria.
    JEL: C61 C7 Q3
    Date: 2019
  24. By: Oleksandr Shepotylo (Aston Universtiy, Birmingham, UK.); Volodymyr Vakhitov
    Abstract: The declining labor share in national income and rising inequality over the last four decades raise questions about causes of these trends. In order to explain these trends, we develop a theoretical model that links intra-industry distribution of wages to variation in market power of firms. The model predicts that wages depend crucially on the demand side characteristics – they decline with market power if and only if demand elasticity is increasing with firm’s output. Trade liberalization leads to expansion of more productive firms, which also increases their bargaining power, resulting in lower share of wage bill in total revenue. The model predictions are tested on a sample of Ukrainian manufacturing firms in 2001– 2007. We document that an increase in firm’s size increases its bargaining power relative to workers. We measure firm level markups, and show that they increase with firm’s output and market size. We find that wage rises with firm’s productivity, but fall with its market power. The results are robust to various model specifications estimated at the firm and industry levels.
    Keywords: wage bargaining; wage inequality; heterogeneous firms; productivity; variable markups; international trade; monopolistic competition
    JEL: D43 F12 J31
    Date: 2020–05
  25. By: Bernardo Melo Pimentel
    Abstract: The present notes summarise the oligopoly dynamics lectures professor Lu\'is Cabral gave at the Bank of Portugal in September and October 2017. The lectures discuss a set industrial organisation problems in a dynamic environment, namely learning by doing, switching costs, price wars, networks and platforms, and ladder models of innovation. Methodologically, the materials cover analytical solutions of known points (e.g., $\delta = 0$), the discussion of firms' strategies based on intuitions derived directly from their value functions with no model solving, and the combination of analytical and numerical procedures to reach model solutions. State space analysis is done for both continuous and discrete cases. All errors are my own.
    Date: 2020–05
  26. By: Alessandro De Chiara; Marco A. Schwarz
    Abstract: Firms have incentives to influence regulators' decisions. In a dynamic setting, we show that a firm may prefer to capture regulators through the promise of a lucrative future job opportunity (i.e., the revolving-door channel) than through a hidden payment (i.e., a bribe). This is because the revolving door publicly signals the firm's eagerness and commitment to reward friendly regulators, which facilitates collusive equilibria. Moreover, the revolving-door channel need not require an explicit agreement between the firm and the regulator, but may work implicitly giving rise to an industry norm. This renders ineffective standard anti-corruption practices, such as whistle-blowing protection policies. We highlight that closing the revolving door may give rise to other inefficiencies. Moreover, we show that cooling-off periods may make all players worse off if timed wrongly. Opening the revolving door conditional on the regulator's report may increase social welfare.
    Keywords: collusion, corruption, dynamic games, experts, regulation, regulatory capture, revolving door
    JEL: D82 J45 K23 L14 L51
    Date: 2020–12
  27. By: Jean Gabszewicz (Université catholique de Louvain, Belgium); Ornella Tarola (University of Rome, Italy); Skerdilajda Zanaj (CREA, Université du Luxembourg)
    Abstract: We define a model with two countries and two vertically differentiated goods, a high and a low quality variant, and heterogenous consumers with respect to their willingness to pay for quality. Consumers in one country are ethnocentric in consumption. They thrive additional satisfaction when consuming a domestic good rather than a foreign one, since only the former can satisfy their sense of place. We investigate the role of trade costs and ethnocentric attitude in shaping the equilibrium configuration of the international duopoly.
    Keywords: home bias, relative preferences, vertically differentiated model.
    JEL: D43 F10 F15
    Date: 2019
  28. By: Angelika Welte; Jozsef Molnar
    Abstract: This note uses industry data and a unique dataset of small and medium-sized merchants to provide insights into the acquirer-merchant market in Canada. Three main findings are presented. First, smaller merchants pay their acquirer more for every dollar of card payment than larger merchants. Second, this finding is mainly explained by high fixed costs. Third, the acquiring market in Canada is concentrated and has remained fairly stable since 2010.
    Keywords: Financial services; Market structure and pricing; Payment clearing and settlement systems
    JEL: C2 D2 E4 E42
    Date: 2020–06
  29. By: Wilson, William W.
    Abstract: Grain shipping involves many sources of risk and uncertainty. In response to these dynamic challenges faced by shippers, railroad carriers offer various types of forward contracting and allocation instruments. An important feature of the U.S. grain marketing system is that there are now a number of pricing and allocation mechanisms used by most rail carriers. These have evolved since the late 1980’s and have had important changes in their features over time. The operations and impact of these mechanisms are not well understood, yet are frequently the subject of public criticism and studies and at the same time are revered by (some) market participants. These mechanisms serve several important functions that are critical to the grain marketing system. These include allocating capacity across shippers, allocating shipments temporally and seasonally, as well as geographically, and determine the price or value of the service. The purpose of this study is to provide a comprehensive review, description, and analysis of these mechanisms. The specific objectives are to (1) document the evolution and operations of these mechanisms over time and across carriers; and (2) determine and describe the impacts of these practices on basis, both spatially and temporally, and on trading firms and other market participants. Multiple empirical models were developed and used to analyze two important aspects of this problem. One aspect is the role and relationship of the shipping costs on basis values. These results show that basis is more complicated than previously modeled. Export basis are mostly impacted by export competition and imports. In addition, the export basis is simultaneously dependent on the origin basis. Last, there is an important relation among rail velocity, and the secondary car market, which is simultaneously determined with the export basis. Other models examine the impact of these mechanisms on shipper conduct, specifically, how risks and rail mechanisms impact shipper strategies. The last section provides a discussion of summary and conclusions, and of future issues.
    Keywords: Crop Production/Industries, Marketing, Production Economics
    Date: 2020–06–11

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