nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒07‒20
twenty papers chosen by
Russell Pittman
United States Department of Justice

  1. Exclusionary Pricing in Two-Sided Markets By Amelio, Andrea; Karlinger, Liliane; Valletti, Tommaso
  2. Global giants and local stars: How changes in brand ownership affect competition By Vanessa Alviarez; Keith Head; Thierry Mayer
  3. Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence By Moraga-González, José-Luis; Sándor, Zsolt; Wildenbeest, Matthijs
  4. Identification of Firms' Beliefs in Structural Models of Market Competition By Victor Aguirregabiria
  5. Data and Competition: a General Framework with Applications to Mergers, Market Structure, and Privacy Policy By de Cornière, Alexandre; Taylor, Greg
  6. The Impacts of Stricter Merger Legislation on Bank Mergers and Acquisitions: Too-Big-To-Fail and Competition By Carletti, Elena; Ongena, Steven; Siedlarek, Jan-Peter; Spagnolo, Giancarlo
  7. Collusion detection on public procurement in Russia By Rey, Alexey (Рэй, Алексей); Shagarov, Dmitriy (Шагаров, Дмитрий); Andronova, Ekaterina (Андронова, Екатерина); Molchanova, Glafira (Молчанова, Глафира)
  8. Assessing Market Power in the Italian Electricity Market: A synthetic supply approach By Francesco Rossetto; Luigi Grossi; Michael Pollitt
  9. Does competition increase pass-through? By Robert Ritz
  10. Retail alliances in the agricultural and food supply chain By Liesbeth Colen; Zohra Bouamra-Mechemache; Victoria Daskalova; Kjersti Nes
  11. Dynamics of Markups, Concentration and Product Span By Elhanan Helpman; Benjamin C. Niswonger
  12. Measuring the development of airline networks: Comprehensive indicators By Chantal Roucolle; Tatiana Seregina; Miguel Urdanoz
  13. Capacity mechanisms and the technology mix in competitive electricity markets By Par Holmberg; Robert A. Ritz
  14. European Gas Markets, Trading Hubs, and Price Formation: A Network Perspective By David Woroniuk; Arzé Karam; Tooraj Jamasb
  15. The good, the bad, and the complex: product design with asymmetric information By Asriyan, Vladimir; Foarta, Dana; Vanasco, Victoria
  16. Dynamic Effects of Licensing and Knowledge Transfer across Research Stages: Evidence from the Pharmaceutical Industry By Zhili Tian; Ralph Siebert
  17. From Imitation to Innovation: Where Is all that Chinese R&D Going? By Michael König; Zheng Michael Song; Kjetil Storesletten; Fabrizio Zilibotti
  18. Does Party Competition Affect Political Activism? By Hager, Anselm; Hensel, Lukas; Hermle, Johannes; Roth, Christopher
  19. Political Economy of Reform and Regulation in the Electricity Sector of Sub-Saharan Africa By Mahmud I Imam; Tooraj Jamasb; Manuel Llorca
  20. Competition in Markets for Ancillary Services? The implications of rising distributed generation By Michael Pollitt

  1. By: Amelio, Andrea; Karlinger, Liliane; Valletti, Tommaso
    Abstract: This paper studies the incentives to engage in exclusionary pricing in the context of two-sided markets. Platforms are horizontally differentiated, and seek to attract users of two groups who single-home and enjoy indirect network externalities from the size of the opposite user group active on the same platform. The entrant incurs a fixed cost of entry, and the incumbent can commit to its prices before the entry decision is taken. The incumbent has thus the option to either accommodate entry, or to exclude entry and enjoy monopolistic profits, albeit under the constraint that its price must be low enough to not leave any room for an entrant to cover its fixed cost of entry. We find that, in the spirit of the literature on limit pricing, under certain circumstances even platforms find it profitable to exclude entrants if the fixed entry cost lies above a certain threshold. By studying the properties of the threshold, we show that the stronger the network externality, the lower the thresholds for which incumbent platforms find it profitable to exclude. We also find that entry deterrence is more likely to harm consumers the weaker are network externalities, and the more differentiated are the two platforms.
    Keywords: Exclusionary practices; externalities; limit pricing; platforms; two-sided markets
    JEL: D40 L13 L41
    Date: 2020–02
  2. By: Vanessa Alviarez (Sauder School of Business (Columbia University) (Sauder)); Keith Head (Sauder School of Business (Columbia University)); Thierry Mayer (Département d'économie)
    Abstract: We assess the consequences for consumers in 76 countries of multinational acquisitions in beer and spirits. Outcomes depend on how changes in ownership affect markups versus efficiency. We find that owner fixed effects contribute very little to the performance of brands. On average, foreign ownership tends to raise costs and lower appeal. Using the estimated model, we simulate the consequences of counterfactual national merger regulation. The US beer price index would have been 4–7% higher without divestitures. Up to 30% savings could have been obtained in Latin America by emulating the pro-competition policies of the US and EU.
    Date: 2020–04
  3. By: Moraga-González, José-Luis; Sándor, Zsolt; Wildenbeest, Matthijs
    Abstract: This paper extends the literature on simultaneous search by allowing for differentiated products and consumer search cost heterogeneity. In a duopolistic market, consumers with sufficiently low search costs choose to inspect the products of the two firms and purchase, if any, the most suitable; consumers with higher search costs choose to examine just one of the products; consumers with prohibitively high search costs do not check any of the products and drop out of the market altogether. For arbitrary search cost distributions, when match values are assumed to be uniformly distributed, a symmetric price equilibrium always exists. We provide a necessary and sufficient condition on the search cost distribution under which an increase in the costs of search of all consumers may result in a lower, equal or higher equilibrium price. The effects of prominence on equilibrium prices are also studied. The prominent firm charges a higher price than the non-prominent firm and both their prices are below the symmetric equilibrium price. Consequently, with simultaneous search, market prominence increases the surplus of consumers. In an extension, we provide conditions under which the equilibrium of the N-firm model exists.
    Keywords: differentiated products; non-sequential search; non-uniform sampling; oligopoly; Prominence; Search cost heterogeneity; simultaneous search
    JEL: C72 D43
    Date: 2020–02
  4. By: Victor Aguirregabiria
    Abstract: Firms make decisions under uncertainty and differ in their ability to collect and process information. As a result, in changing environments, firms have heterogeneous beliefs on the behavior of other firms. This heterogeneity in beliefs can have important implications on market outcomes, efficiency, and welfare. This paper studies the identification of firms' beliefs using their observed actions -- a revealed preference and beliefs approach. I consider a general structural model of market competition where firms have incomplete information and their beliefs and profits are nonparametric functions of decisions and state variables. Beliefs may be out of equilibrium. The framework applies both to continuous and discrete choice games and includes as particular cases models of competition in prices or quantities, auction models, entry games, and dynamic investment games. I focus on identification results that exploit a natural exclusion restriction in models of competition: an observable variable that affects a firm's cost (or revenue) but does not have a direct effect on other firms' profits. I present identification results under three scenarios --- common in empirical IO --- on the data available to the researcher.
    Keywords: Non-equilibrium beliefs; Structural models of competition; Identification; Revealed beliefs approach
    JEL: C57 D81 D83 D84 L13
    Date: 2020–06–29
  5. By: de Cornière, Alexandre; Taylor, Greg
    Abstract: What role does data play in competition? This question has been at the center of a fierce debate around competition policy in the digital economy. We use a competition-in-utilities approach to provide a general framework for studying the competitive effects of data, encompassing a wide range of markets where data has many different uses. We identify conditions for data to be unilaterally pro- or anti-competitive (UPC or UAC). The conditions are simple and often requires no information about market demand. We apply our framework to study various applications of data, including training algorithms, targeting advertisements, and personalizing prices. We also show that whether data is UPC or UAC has important implications for policy issues such as data-driven mergers, market structure, and privacy policy.
    Keywords: Big Data; Competition; data-driven mergers; privacy
    JEL: L1 L4 L5
    Date: 2020–02
  6. By: Carletti, Elena; Ongena, Steven; Siedlarek, Jan-Peter; Spagnolo, Giancarlo
    Abstract: The effect of regulations on the banking sector is a key question for financial intermediation. This paper provides evidence that merger control regulation, although not directly targeted at the banking sector, has substantial economic effects on bank mergers. Based on an extensive sample of European countries, we show that target announcement premia increased by up to 16 percentage points for mergers involving control shifts after changes in merger legislation, consistent with a market expectation of increased profitability. These effects go hand-in-hand with a reduction in the propensity for mergers to create banks that are too-big-to-fail in their country.
    Keywords: Antitrust; banks; Merger Control; mergers and acquisitions; regulation
    JEL: G21 G34 K21 L40
    Date: 2020–02
  7. By: Rey, Alexey (Рэй, Алексей) (The Russian Presidential Academy of National Economy and Public Administration); Shagarov, Dmitriy (Шагаров, Дмитрий) (The Russian Presidential Academy of National Economy and Public Administration); Andronova, Ekaterina (Андронова, Екатерина) (The Russian Presidential Academy of National Economy and Public Administration); Molchanova, Glafira (Молчанова, Глафира) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: In public procurement in the markets, situations often arise when participants, instead of competing with each other for government contracts, distribute shares in the public procurement market and overestimate the price level above the competitive one. In this paper, it is proposed to use the methods of econometrics, mathematical statistics and machine learning to predict the likelihood that a purchase involving these counterparties on the supplier side and other candidates to win the competition will be the subject of a successful complaint to the FAS in terms of a cartel agreement between suppliers.
    Date: 2020–03
  8. By: Francesco Rossetto (Department of Economics, University of Verona); Luigi Grossi (Department of Economics, University of Verona); Michael Pollitt (EPRG, CJBS, University of Cambridge)
    Keywords: Electricity Wholesale Market, Market Power, Bidding Strategy, Synthetic Supply
    JEL: L94
    Date: 2019–07
  9. By: Robert Ritz (EPRG, CJBS, University of Cambridge)
    Keywords: Cost pass-through, imperfect competition, perfect competition, production technology
    JEL: D24 D41 D42 D43
    Date: 2019–07
  10. By: Liesbeth Colen (European Commission - JRC); Zohra Bouamra-Mechemache (Toulouse School of Economics); Victoria Daskalova (University of Twente); Kjersti Nes (European Commission - JRC)
    Abstract: This report summarizes the content and discussions of the JRC-DG AGRI workshop on 'The role of Retail Alliances in the Food supply chain' that was held in Brussels on 4-5 November 2020. It presents a typology of retail alliances, describes their functioning and activities, and analyses the impact of retail alliances on the food supply chain, from an economic and legal point of view.
    Keywords: retail, alliance, market power, food, agriculture
    Date: 2020–05
  11. By: Elhanan Helpman; Benjamin C. Niswonger
    Abstract: We develop a model with a finite number of multi-product firms that populate an industry together with a continuum of single product firms, and study the dynamics of this industry that arises from investments in the invention of new products. Consistent with the available evidence, the model predicts rising markups and concentration and a declining labor share. We then examine the dynamics of market shares and product spans in response to improvements in the technologies of the multi-product and single product firms, and the impact of these changes on the steady state distribution of market shares and product spans. Our model predicts the possibility of an inverted-U relationship between labor productivity and product span in the cross-section of firms, for which we provide suggestive evidence. It also predicts that rising entry costs of single-product firms may flatten the relationship between labor productivity and market shares of the large multi-product firms.
    JEL: D43 L11 L13 L25
    Date: 2020–06
  12. By: Chantal Roucolle (ENAC - Ecole Nationale de l'Aviation Civile); Tatiana Seregina (ENAC - Ecole Nationale de l'Aviation Civile, TBS - Toulouse Business School); Miguel Urdanoz (TBS - Toulouse Business School)
    Abstract: The literature on airlines presents few studies analyzing the airlines network evolution. We believe that this gap is due to the difficulty of capturing the network complexity in a simple manner. This paper proposes new simple and continuous indicators to measure the airlines' network structure. The methodology to build them is based on graph theory and principal component analysis. We apply this approach to the US domestic market for 2005–2018, and obtain three network indicators. The first one measures how close the network is to a single-center structure. The second indicator measures the airline's ability to provide alternative routes. The third indicator captures the network size. We analyze the indicators evolution across time and show their robustness under different scenarios.
    Keywords: Airline,Graph theory,Network,Principal Component Analysis (PCA),Indicators
    Date: 2020–03
  13. By: Par Holmberg (IFN, Stockholm); Robert A. Ritz (EPRG, University of Cambridge)
    Keywords: Investment, wholesale electricity market, capacity mechanism, capacity auction, strategic reserve
    JEL: D41 L94
    Date: 2019–07
  14. By: David Woroniuk (Durham University Business School); Arzé Karam (Durham University Business School); Tooraj Jamasb (Durham University Business School)
    Keywords: Market Integration, Information Transmissions, Natural Gas, Network Theory
    JEL: C32 F18 Q43 Q47 Q48
    Date: 2019–07
  15. By: Asriyan, Vladimir; Foarta, Dana; Vanasco, Victoria
    Abstract: This paper explores the incentives of product designers to complexify products, and the resulting implications for overall product quality. In our model, a consumer can accept or reject a product proposed by a designer, who can affect the quality and the complexity of the product. While the product's quality determines the direct benefits of the product to the consumer, the product's complexity affects how costly it is for this Bayesian consumer to extract information about the product's quality. Examples include banks that design financial products that they later offer to retail investors, or policymakers who propose policies for approval by voters. We find that complexity is not necessarily a feature of low quality products. While an increase in alignment between the consumer and the designer leads to more complex but better quality products, higher product demand or lower competition among designers leads to more complex and lower quality products. Our findings produce novel empirical implications on the relationship between quality and complexity of financial products and regulatory policies, which are consistent with recent evidence.
    Keywords: Complexity; financial products; Information Acquisition; Information Frictions; Product design; regulation; signaling
    JEL: D78 D82 D83 G13
    Date: 2020–01
  16. By: Zhili Tian; Ralph Siebert
    Abstract: In the pharmaceutical industry, firms frequently engage in licensing agreements to overcome innovation challenges and keep up with the pace of developing new drugs. Licensing helps firms jointly develop new drugs and acquire external knowledge, which helps improve their internal drug development capability. Our study examines the dynamic effects of licensing on the success of the licensees’ internal drug development across research stages. We adopt a structural equation modeling approach and find that external knowledge transfer via licensing can have differential effects on firms’ internal research stage-specific R&D capabilities. The success of transferring external knowledge to an in-licensing firm is critically dependent on the firm’s internal R&D capabilities, their financial capability, and the research stage. We find that license agreements formed at the early stage (the discovery and preclinical test phases) and intermediate stage (phase 1 and 2 clinical test phases) exert strong direct and short-run effects on internal R&D capabilities in the same research stages. Moreover, licensing formed at the intermediate stage exerts remarkably strong indirect and long-run effects that impact R&D capabilities in successive research stages. Licensing in the late stage (phase 3 clinical test and product approval) is costly and does little to enhance firms’ internal R&D capabilities. Our results also show that licensing is formed among firms with stronger financial resources, and those resources are necessary for a successful technology transfer. Our results also provide insights into the impact of licensing on project success rates across research stages.
    Keywords: pharmaceutical drug development, licensing, R&D capabilities, effects of licensing on R&D capabilities
    JEL: L24 L25 L65 D22
    Date: 2020
  17. By: Michael König; Zheng Michael Song; Kjetil Storesletten; Fabrizio Zilibotti
    Abstract: We construct a model of firm dynamics with heterogeneous productivity and distortions. The productivity distribution evolves endogenously as the result of the decisions of firms seeking to upgrade their productivity over time. Firms can adopt two strategies toward that end: imitation and innovation. The theory bears predictions about the evolution of the productivity distribution. We structurally estimate the stationary state of the dynamic model targeting moments of the empirical distribution of R&D and TFP growth in China during the period 2007--2012. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan and find the results to be robust. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on long-run growth.
    JEL: L16 O31 O47 O53
    Date: 2020–06
  18. By: Hager, Anselm (University of Oxford); Hensel, Lukas (University of California, Berkeley and IZA); Hermle, Johannes (Humboldt-Universität zu Berlin); Roth, Christopher (University of Warwick)
    Abstract: Does party competition affect political activism? This paper studies the decision of party supporters to join political campaigns. We present a framework that incorporates supporters’ instrumental and expressive motives and illustrates that party competition can either increase or decrease party activism. To distinguish between these competing predictions, we implemented a field experiment with a European party during a national election. In a seemingly unrelated party survey, we randomly assigned 1,417 party supporters to true information that the canvassing activity of the main competitor party was exceptionally high. Using unobtrusive, real-time data on party supporters’ canvassing behavior, we find that treated respondents are 30 percent less likely to go canvassing. To investigate the causal mechanism, we leverage additional survey evidence collected two months after the campaign. Consistent with affective accounts of political activism, we show that increased competition lowered party supporters’ political self-efficacy, which plausibly led them to remain inactive.
    Keywords: Party Activism ; Electoral Competition ; Field Experiment ; Campaigns
    Date: 2020
  19. By: Mahmud I Imam (Nigerian Defence Academy Kaduna, Nigeria); Tooraj Jamasb (Durham University Business School); Manuel Llorca (Durham University Business School)
    Keywords: Independent regulation, electricity sector reform, government ideology, dynamic GMM, Sub-Saharan Africa
    JEL: D73 Q48 L51 L94 O55 P16
    Date: 2019–05
  20. By: Michael Pollitt (EPRG, CJBS, University of Cambridge)
    Keywords: ancillary services, balancing energy, frequency regulation, reactive power, constraint management, reserves
    JEL: L94
    Date: 2019–07

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