nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒08‒31
thirty-two papers chosen by
Russell Pittman
United States Department of Justice

  1. Partial Vertical Ownership with Asymmetric Information By Ricardo Gonçalves; Peyman Khezr; Flavio Menezes
  2. On the Profitability of Cross-Ownership in Cournot Oligopolies: Stock Sizes Matter By Hassan Benchekroun; Miao Dai; Ngo Van Long
  3. Do Retailers Manipulate Prices to Favour Private Label over Brands? By Ratula Chakraborty
  4. Entry and social efficiency under Bertrand competition and asymmetric information By Peyman Khezr; Flavio M. Menezes
  5. The Bigger the Stickier: Asymmetric Adjustment to Negative Demand Shocks By Javier Tasso
  6. R&D Spillovers throught RJV Cooperation By Albert Banal-Estañol; Tomaso Duso; Jo Seldeslachts; Florian Szücs
  7. Endogenous transport price, R&D spillovers, and trade By Takauchi, Kazuhiro; Mizuno, Tomomichi
  8. Free Licensing in a Differentiated Duopoly By Kabiraj, Tarun; Chatterjee, Rittwik; Chattopadhyay, Srobonti
  9. Corporate Interest in Antitrust Enforcement By Krisztina Antal-Pomázi
  10. The New Digital Platforms: Merger Control in Pakistan By Shahzada Aamir Mushtaq; Wang Yuhui
  11. Strategic CSR and merger in multiproduct mixed markets with state-holding corporation By Leal, Mariel; Garcia, Arturo; Lee, Sang-Ho
  12. Competition for Flexible Distribution Resources in a ’Smart’ Electricity Distribution Network By Tangerås, Thomas
  13. Business models for interoperable mobility services By Vincent A.C. van den Berg; Henk Meurs; Erik T. Verhoef
  14. You Can Lead a Horse to Water: Spatial Learning and Path Dependence in Consumer Search By Charles Hodgson; Gregory Lewis
  15. Credit cooperatives: Market structure, competition, and conduct. Exploring the case of Paraguay By Schneider, Andreas
  16. R&D, Market Power and the Cyclicality of Employment By Adam Honig; Zeynep Yom
  17. The Scientific Output of a Database on Commercialized Patents By Svensson, Roger
  18. Airbnb, Hotels, and Localized Competition By Maximilian Schäfer; Kevin Ducbao Tran
  19. Bertrand-Edgeworth oligopoly: Characterization of mixed strategy equilibria when some firms are large and the others are small By Salvadori, Neri; De Francesco, Massimo A.
  20. Cost Pass-through in Commercial Aviation: Theory and Evidence By Gayle, Philip; Lin, Ying
  21. When Do Consumers Talk? By Ishita Chakraborty; Joyee Deb; Aniko Oery
  22. Determinants of Economies of Scope in Retail By Maican, Florin; Orth, Matilda
  23. Compétitivité et guerre économique By Jacques Fontanel
  24. The ‘Welfare Loss from Monopoly’ Re-visited By Richard Carson
  25. Disclosure and Other Tools for Enhancing Consumer Engagement and Competition By Amelia Fletcher
  26. The Impact of Market Size on Firm Selection By KONDO Keisuke; OKUBO Toshihiro
  27. A Bargaining Approach: A Theory on ICER Pricing and Optimal Level of Cost-Effectiveness Threshold By Berdud. M.; Ferraro. J.; Towse. A.
  28. Investing in Ex Ante Regulation: Evidence from Pharmaceutical Patent Examination By Michael D. Frakes; Melissa F. Wasserman
  29. Repurchase Options in the Market for Lemons By Saki Bigio; Liyan Shi
  30. EU Competition Law: An Unaffordable Luxury in Times of Crisis? By Patrick Massey; Moore McDowell
  31. Only Time Will Tell: Credible Dynamic Signaling By Egor Starkov
  32. Alternative Methods for Studying Consumer Payment Choice By Oz Shy

  1. By: Ricardo Gonçalves (Católica Porto Business School, Universidade Catolica Portuguesa); Peyman Khezr (School of Economics, Finance and Marketing, RMIT University, Australia.); Flavio Menezes (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: We examine the role of asymmetric information about costs on the impact of partial (non-controlling) vertical integration on competition. We show that Greenlee and Raskovich (2006)’s invariance result that total downstream quantity (and, therefore, competition) is not impacted by such acquisitions holds in the case of privately known marginal costs and symmetric ownership shares. This invariance result provides a possible explanation for why partial acquisitions where downstream firms own equal shares in an upstream firm with market power are so uncommon.
    Keywords: Vertical integration; partial acquisition; asymmetric information.
    JEL: D4 L1 L2 L4
    Date: 2020–08–18
  2. By: Hassan Benchekroun; Miao Dai; Ngo Van Long
    Abstract: We examine the profitability of cross-ownership in an oligopolistic industry where firms compete as Cournot rivals. We consider a symmetric cross-ownership structure in which a subset of k firms engage in cross-shareholding and each firm has an equal silent financial interest in the other firms, while the remaining (n – k) firms stay independent. We show that a symmetric cross-ownership is never profitable for any levels of non-controlling minority shareholdings if the participation ratio (k/n) is less than or equal to (n+1)/(2n), while there exists a large range of cross-ownership for which it can be profitable beyond that participation ratio. This result may be called a cross-ownership paradox, analogous to the merger paradox. With the presence of stock constraints, however, we find some of the results from the cross-ownership paradox do not carry over to the case of non-renewable resource industries. The profitability of a symmetric cross-ownership can be positive even when the participation ratio (k/n) is less than or equal to (n+1)/(2n) and is always positive when the participation ratio (k/n) is greater than (n+1)/(2n), provided that the initial resource stock owned by each firm is small enough. We also highlight that cross-ownership can be preferable to a horizontal merger under Cournot competition. Not only is it more profitable to do so, more importantly, it constitutes a shrewd strategy to avoid possible legal challenges. Nous examinons la rentabilité de la propriété croisée dans une industrie oligopolistique où les entreprises se font concurrence en tant que rivales de Cournot. Nous considérons une structure de propriété croisée symétrique dans laquelle un sous-ensemble de k entreprises s'engagent dans des participations croisées, chaque entreprise ayant un intérêt financier silencieux égal dans les autres (k-1) entreprises du sous-ensemble, alors que (n - k) entreprises restent indépendantes. Nous montrons qu'une participation croisée symétrique n'est jamais rentable si le ratio de participation (k /n) est inférieur ou égal à (n + 1) / (2n), alors qu’il existe un large domaine de valeurs de k/n au-delà de (n+1)/(2n) pour lesquelles la participation croisée est rentable. Ce résultat peut être qualifié de paradoxe de la propriété croisée, analogue au paradoxe de la fusion. Cependant, dans le cas des industries de ressources non-renouvelables, avec la présence de contraintes de stock, nous constatons que certains des résultats du paradoxe de la propriété croisée ne se répercutent pas. La rentabilité d'une propriété croisée symétrique peut être positive même lorsque le taux de participation (k / n) est inférieur ou égal à (n + 1) / (2n) et est toujours positive lorsque le taux de participation (k / n) est supérieur à (n +1) / (2n), à condition que le stock initial de ressources détenu par chaque entreprise soit suffisamment petit. Nous soulignons également que la propriété croisée peut être préférable à une fusion horizontale sous la concurrence de Cournot. Non seulement il est plus rentable de le faire, mais surtout, cela constitue une stratégie astucieuse pour éviter d'éventuelles contestations judiciaires.
    Keywords: Cross-ownership,Profitability,Oligopoly,Non-renewable Resources,Resource Stock,Horizontal Merger,Competition Policy,Antitrust Laws, Propriété croisée,Rentabilité,Oligopole,Ressources non-renouvelables,Stock de ressources,Fusion horizontale,Politique de la concurrence,Lois antitrust
    JEL: L13 L41 Q3
    Date: 2020–08–11
  3. By: Ratula Chakraborty (Centre for Competition Policy and Norwich Business School, University of East Anglia)
    Abstract: Retailers act as both customers and competitors for brand manufacturers when selling private label in direct competition with brands. This paper considers whether retailers exploit this double-agent position to practice switch marketing, manipulating elements of the retail marketing mix to encourage shoppers to switch from buying brands to private label. Such manipulation can be blatant in nature, such as comparative advertising, brand delisting trials, copycat packaging, and biased shelf allocation. However, the key interest in this paper concerns whether retailers use a more subtle means through strategic pricing to favour private label over brands. The paper reveals very different price treatments of brands and matching private label goods. However, the identified pricing patterns are more indicative of retailers manipulating prices for the sake of segmenting consumers rather than displacing brands.
    Keywords: brand, private label, retailer, pricing, marketing, manipulation
    JEL: K21 L13 L14 L40
    Date: 2018–10–01
  4. By: Peyman Khezr (School of Economics, Finance and Marketing, RMIT University,); Flavio M. Menezes (School of Economics, University of Queensland)
    Abstract: This paper explores the welfare implications of free entry when firms face known entry costs, but production costs are privately known. Upon entering, firms compete in prices to supply a homogeneous good. Our framework yields results that are more nuanced than those of the literature on free entry, where there is either insufficient or excessive entry. Depending on the distribution of costs, the value of the entry fee, and the number of potential entrants, it is possible to have both excessive and insufficient entry as parameters change. We also show that the existence of entry costs fundamentally changes one of the key results of Spulber (1995) on the convergence of the equilibrium price to the competitive equilibrium. Instead, with entry costs, we have shown that the probability of excessive entry goes to one as the number of potential firms goes to infinity.
    Keywords: entry; Bertrand equilibrium; asymmetric information.
    JEL: D21 D43 L1
    Date: 2020–08–07
  5. By: Javier Tasso
    Abstract: By extending a previous model, this article studies the response to unan- ticipated demand shocks in a simultaneous competition duopoly model, where adjustment is simultaneous as well and it is characterized by a sin- gle choice to adjust or not previous plans. In line with former analyses, responses are asymmetric in two dimensions: firms always react to positive demand shocks while they may not react to negative ones and, when de- mand shocks are negative and small in magnitude, only a single firm adjust its previous decisions. Since in the baseline model firms are identical, it is not determined which firm will adjust its decisions. By allowing for di↵erent marginal costs, there are medium sized negative shocks for which only the firm with higher marginal costs adjusts its price or quantities. This result suggest that the bigger firm is less willing to modify its plans after the shock and, as a consequence of this asymmetric response, it increases its market share.
    JEL: L1 D4
    Date: 2019–11
  6. By: Albert Banal-Estañol; Tomaso Duso; Jo Seldeslachts; Florian Szücs
    Abstract: We investigate the dimensions through which R&D spillovers are propagated across firms via cooperation through Research Joint Ventures (RJVs). We build on the framework developed by Bloom et al. (2013) which considers the opposing effects of technology spillovers and product market rivalry, and extend it to account for RJVs. Our main findings are that the adverse effects of product market rivalry are mitigated if firms cooperate in RJVs and that R&D spending is reduced among technologically close RJV participants.
    Keywords: Spillovers, R&D, research joint ventures, market value, patents
    JEL: L24 L44 K21 O32
    Date: 2020
  7. By: Takauchi, Kazuhiro; Mizuno, Tomomichi
    Abstract: Efficient distribution has a considerable influence on the sales volume of firms, and thus affects the firms' research and development (R&D) activities. This paper analyzes the relationship between competition in the transport sector and R&D of firms using the transportation services. We consider a two-region reciprocal market in which firms invest in cost-reducing R&D and use carriers that engage in price competition to supply their products to the foreign market. We show that, corresponding to the degree of R&D spillover, a transport cost (or price) reduction due to an increase in the number of carriers can increase or decrease the firms' R&D investments. This result is consistent with the finding in previous studies that trade liberalization can hinder R&D. Because inefficient firms lead to high prices in the market, an increase in the number of carriers may reduce consumer surplus. We further discuss a case in which firms have monopsony power in transportation services and show that our main results are robust to the extension.
    Keywords: Transport price; R&D spillovers; Price competition; Monopsony power
    JEL: F12 L13 R40
    Date: 2020–08–13
  8. By: Kabiraj, Tarun; Chatterjee, Rittwik; Chattopadhyay, Srobonti
    Abstract: The present paper discusses the possibility of free licensing in a model of differentiated duopoly. We have shown that given the market size, the degree of product differentiation and the unit cost of input production, free licensing will occur if the transferred technology is not much superior and the market price of input is sufficiently large. If, however, any of market size, input cost or product substitution goes up, the possibility of free licensing will fall. Our result has an important implication in the context of transboundary pollution. The overall welfare under free licensing will be higher unambiguously.
    Keywords: Transferred technology, free licensing, product differentiation, input price, cross-border pollution.
    JEL: D43 D45 L13 L24
    Date: 2020–06–30
  9. By: Krisztina Antal-Pomázi (Center for Economic and Regional Studies, Corvinus University of Budapest)
    Abstract: Antitrust enforcement is beneficial for consumers as long as they face lower prices, more alternatives to choose from, and get valid information about products and services. But what about the competing firms? Why is it good, or is it good at all for them if they are not allowed to form cartels, not allowed to become a monopoly, or not allowed to use their market power? The first part of the paper aims to answer questions like these. If we look beyond the idea of a welfare-maximizing social planner that creates competition policy in order to promote competition and put restraint on firms willing to monopolize markets, we might ask why such institutions emerge and who really benefits from them? Apart from the evident answer of consumers benefiting from lower prices, we consider the possibility of companies, or rather industries, benefiting from antitrust enforcement. In such a setting, preventing monopolization can be viewed as a service delivered by the regulating body. This service might be valuable for particular firms, but normally cannot be purchased on the market. Our paper presents a game theoretic model showing that such an effect exists under certain, sufficiently general conditions. Firms in an oligopolistic setting, prone to competitive escalation, would be willing to pay for the maintenance of an authority controlling business practices that are (considered) anti-competitive and thus preserving the status quo on the market. Finally, we test our results empirically, based on the practice of the competition authorities of the United Kingdom and the Netherlands. The data support the interest group theory of regulation and they match the predictions of our model.Acknowledgment: The present publication is the outcome of the project ?From Talent to Young Researcher project aimed at activities supporting the research career model in higher education?, identifier EFOP-3.6.3-VEKOP-16-2017-00007 co-supported by the European Union, Hungary and the European Social Fund.
    Keywords: Antitrust, Public enforcement, Monopolization, Interest groups, Anticompetitive business practices, Competitive escalation
    JEL: L13 L41 C72
  10. By: Shahzada Aamir Mushtaq; Wang Yuhui
    Abstract: The Pakistan competition policy, as in many other countries, was originally designed to regulate business conduct in traditional markets and for tangible goods and services. However, the development and proliferation of the internet has led to the emergence of digital companies which have disrupted many sectors of the economy. These platforms provide digital infrastructure for a range of services including search engines, marketplaces, and social networking sites. The digital economy poses a myriad of challenges for competition authorities worldwide, especially with regard to digital mergers and acquisitions (M&As). While some jurisdictions such as the European Union and the United States have taken significant strides in regulating technological M&As, there is an increasing need for developing countries such as Pakistan to rethink their competition policy tools. This paper investigates whether merger reviews in the Pakistan digital market are informed by the same explanatory variables as in the traditional market, by performing an empirical comparative analysis of the Competition Commission of Pakistan's (CCP's) M&A decisions between 2014 and 2019. The findings indicate the CCP applies the same decision factors in reviewing both traditional and digital M&As. As such, this paper establishes a basis for igniting the policy and economic debate of regulating the digital platform industry in Pakistan.
    Date: 2020–06
  11. By: Leal, Mariel; Garcia, Arturo; Lee, Sang-Ho
    Abstract: We consider two differentiated products mixed markets, comprised of a state holding corporation (SHC) and private firms, which decide strategic corporate social responsibility (CSR) and merger between the multiple plants. In the model of managerial delegation, we show that the level of unilateral CSR by a single plant under merger is higher than that under non-merger, but merged (non-merged) private firms can generate higher social welfare when products are low (high) substitutes. We also show that the level of bilateral CSR by both plants is lower than that of unilateral CSR under non-merger competition, and partial privatization is always optimal regardless of merger decisions but its degree under merger is lower than that under non-merger. Finally, we discuss policy implications of the firm’s strategic alliance in the case that merger is not voluntarily supportive.
    Keywords: Strategic corporate social responsibility; Merger; Mixed market; State holding corporation;
    JEL: D43 L21 L32
    Date: 2020–08–10
  12. By: Tangerås, Thomas (Research Institute of Industrial Economics (IFN))
    Abstract: In a ’smart’ electricity distribution network, flexible distribution resources (FDRs) can be coordinated to improve efficiency. But coordination enables whoever controls such resources to exercise market power. The paper establishes the following efficiency rankings of market structures: Aggregators competing for FDRs are more efficient than a distribution system operator (DSO) controlling resources, which is more efficient than no FDR market. A no- market solution is more efficient than an FDR market featuring either (i) both DSO and aggregators; or (ii) a monopoly aggregator also supplying generation to the real-time market. The paper also characterizes a regulation that implements the efficient outcome.
    Keywords: Aggregator; Distribution system operator; Market power; Real-time market; Regulation; Smart grid
    JEL: H41 L12 L51 L94
    Date: 2020–08–20
  13. By: Vincent A.C. van den Berg (Vrije Universiteit Amsterdam); Henk Meurs (Radboud University); Erik T. Verhoef (Vrije Universiteit Amsterdam)
    Abstract: Travelers often combine transport services from different firms to form trip chains: e.g. first train and then a bus. Integration of different forms of public and private transport into a single service is gaining attention with the concept of Mobility as a Service (MaaS). Usually, the focus is on such things as ease of use, and shifting demand away from the car. We solely focus on the effects on behaviour and welfare via the market structure of transport. In particular, we analyse three archetype ways in which MaaS could be operationalized: Integrator, Platform, and Intermediary. We find that these models differ strongly in how consumers and firms are affected. The Integrator seems best for consumers and social welfare. It always leads to lower prices than Free Competition without Maas and therefore benefits consumers; transport firm profits can be lower or higher. The Platform tends to lead to an outcome that is relatively close to Free Competition without Maas: prices can be higher or lower, while transport firm profits are lower. Finally, the Intermediary tends to lead to much higher prices. Regulation of the price that the MaaS firm has to pay may further lower prices, but compared to the Integrator the difference is often small. So, even without price regulation, MaaS supply can already benefit consumers by increasing competition and removing serial marginalization, even before we consider other benefits of MaaS such as information provision, ease of use and a demand shift towards public transport.
    Keywords: MaaS, market structure, platform, intermediary, integrator, regulation
    JEL: R40 D21 D43
    Date: 2020–08–20
  14. By: Charles Hodgson (Cowles Foundation, Yale University); Gregory Lewis (Microsoft Research)
    Abstract: We develop a model of consumer search with spatial learning in which sampling the payoff of one product causes consumers to update their beliefs about the payoffs of other products that are nearby in attribute space. Spatial learning gives rise to path dependence, as each new search decision depends on past experiences through the updating process. We present evidence of spatial learning in data that records online search for digital cameras. Consumers' search paths tend to converge to the chosen product in attribute space, and consumers take larger steps away from rarely purchased products. We estimate the structural parameters of the model and show that these patterns can be rationalized by our model, but not by a model without spatial learning. Eliminating spatial learning reduces consumer welfare by 12%: cross-product inferences allow consumers to locate better products in a shorter time. Spatial learning has important implications for the power of search intermediaries. We use simulations to show that consumer-optimal product recommendations are that are most informative about other products.
    Keywords: Consumer search, Platforms, Online markets, Industrial organization
    JEL: D12 L81 L0
    Date: 2020–08
  15. By: Schneider, Andreas
    Abstract: Measures of concentration and competition in the financial sector are important to determine public policies. However, cooperatives, and in particular in the context of small developing countries are largely ignored in economic literature. The empirical analysis is descriptive due to data availability and analysis the loan market of large credit cooperatives. However, findings are indicative and tentative. Results show that, in general, a) the cooperative system is highly concentrated, b) the loan market of large financial cooperatives is not concentrated, c) however, most loan modalities are highly concentrated, some are competitive and some are not, d) there is no indicative evidence of market abuse of the three largest credit cooperatives.
    Keywords: Credit cooperatives, Paraguay, Market structure, Competition, HHI, dual HHI
    JEL: L1 L10 L11
    Date: 2020–08–07
  16. By: Adam Honig (Amherst College, Amherst, MA); Zeynep Yom (School of Business, Villanova University)
    Abstract: This paper provides a first look into the joint effects of research and development (R&D) and market power on the cyclicality of employment. It presents a theoretical model with R&D and monopolistically competitive firms which shows that firms smooth their R&D activities when they face large R&D adjustment costs. This smoothing behavior comes at the expense of higher labor volatility, and it is stronger for firms with high R&D intensity and low market power. Firm-level data support these predictions. Dynamic panel estimations reveal that employment at competitive firms engaging in a high level of R&D is more procyclical.
    Keywords: R&D, employment volatility, firm-level data, COMPUSTAT
    JEL: E30 E32 O30 O33
    Date: 2020–08
  17. By: Svensson, Roger (Research Institute of Industrial Economics (IFN))
    Abstract: The purpose of this study is to present a unique database on commercialized patents and to illustrate how it can be used to analyze the commercialization process of patents. The dataset is based on a survey of Swedish patents owned by inventors and small firms with a remarkably high response rate of 80 percent. It contains some key variables on commercialization not found anywhere else, including whether, when and how (acquisition, licensing, existing or new firm) patents were commercialized as well as whether this commercialization was profitable or not. Thus, this patent database measures technological innovation. The dataset is complemented with indicators of patent quality (patent renewal, forward citations, and patent family) from archive sources. Basic statistics for the key variables are described. Finally, the scientific output in terms of published articles in peer-reviewed journals shows how this database can be used to analyze the commercialization process of patents. The dataset has, for instance, been used to 1) evaluate government loan programs for inventors; 2) analyze the different roles of the inventor and the Schumpeterian entrepreneur during commercialization; 3) estimate the transfer of tacit knowledge when patents are sold or licensed; and 4) analyze the entry strategy among inventors in oligopolistic markets.
    Keywords: Patents; Commercialization; Innovation; Small firms; Inventors; Acquisition; Licensing; New start-up firms; Forward citations; Renewal; Patent equivalents; Financing; Entry strategy; Venture capital
    JEL: G24 G34 L10 L20 M13 O30 O31 O32 O34 O38
    Date: 2020–08–12
  18. By: Maximilian Schäfer; Kevin Ducbao Tran
    Abstract: The rise of online platforms has disrupted numerous traditional industries. A prime example is the short-term accommodation platform Airbnb and how it affects the hotel industry. On the one hand, consumers can profit from Airbnb due to an increased number of choices and lower prices. On the other hand, critics of the platform argue that it allows professional hosts to operate de facto hotels while being subject to much laxer regulation. Understanding the nature of competition between Airbnb and hotels as well as quantifying consumer welfare gains from Airbnb is important to inform the debate on necessary platform regulation. In this paper, we analyze competition between hotels and Airbnb listings as well as the effect of Airbnb on consumer welfare. For this purpose, we use granular daily-level data from Paris for the year 2017. We estimate a nested logit model of demand that allows for consumer segmentation along accommodation types and the different districts within the city. We extend prior research by accounting for the localized nature of competition within districts of the city. Our results suggest that demand is segmented by district as well as accommodation type. Based on the parameter estimates, we calibrate a supply-side model to assess how Airbnb affects hotel revenues and consumer welfare. Our simulations imply that Airbnb increases average consumer surplus by 4.3 million euro per night and reduces average hotel revenues by 1.8 million euro. Furthermore, we find that 28 percent of Airbnb travelers would choose hotels if Airbnb did not exist.
    Keywords: Hotel industry, short-term rentals, localized competition, consumer welfare, sharing economy, peer-to-peer markets, Airbnb
    JEL: D4 D6 L1 Z38
    Date: 2020
  19. By: Salvadori, Neri; De Francesco, Massimo A.
    Abstract: This paper studies Bertrand-Edgeworth competition among firms producing a homogeneous commodity under efficient rationing and constant (andidentical across firms) marginal cost until full capacity utilization is reached. Our focus is on a subset of the no pure-strategy equilibrium region of the capacity space in which, in a well-defined sense, some firms are large and the others are small. We characterize equilibria for such subset. For each firm, the payoffs are the same at any equilibrium and, for each type of firm, they are proportional to capacity. While there is a single profile of equilibrium distributions for the large firms, there is a continuum of equilibrium distributions for the small firms: what is uniquely determined, for the latter, is the capacity-weighted sum of their equilibrium distributions and hence the union of the supports of their equilibrium strategies.
    Keywords: Bertrand-Edgeworth oligopoly; mixed strategy equilibrium; large and small firms
    JEL: C72 D43 L13
    Date: 2020–08–05
  20. By: Gayle, Philip; Lin, Ying
    Abstract: The significant worldwide decline in crude oil price beginning in mid-2014 through to 2015, which resulted in substantial fuel expense reductions for airlines, but no apparent commensurate reductions in industry average airfares has caused much public debate. This paper examines the market mechanisms through which crude oil price may influence airfare, which facilitates identifying the possible market and airline-specific characteristics that influence the extent to which crude oil price changes affect airfare. Interestingly, and new, our analysis reveals that the crude oil-airfare pass-through relationship can be either positive or negative, depending on various market and airline-specific characteristics. We find evidence that airline-specific jet fuel hedging strategy and market origin-destination distance contribute significantly to pass-through rates being negative. Specifically, the value of pass-through rate decreases with airline fuel hedging ratios and with market origin-destination distance, but increases with competition in origin-destination markets. Even when the pass-through relationship is positive, suggesting that a portion of airlines’ fuel cost savings is passed on to consumers via lower airfares, this research reveals the market and airline-specific factors that limit the size of these savings passed on to consumers via lower airfares.
    Keywords: Crude oil price-Airfare Cost Pass-through; Jet fuel hedging
    JEL: L13 L93
    Date: 2020
  21. By: Ishita Chakraborty (Yale School of Management); Joyee Deb (Cowles Foundation, Yale University); Aniko Oery (Cowles Foundation, Yale University)
    Abstract: The propensity of consumers to engage in word-of-mouth (WOM) differs after good versus bad experiences, which can result in positive or negative selection of user-generated reviews. We show how the dispersion of consumer beliefs about quality (brand strength), informativeness of good and bad experiences, and price can affect selection of WOM in equilibrium. WOM is costly: Early adopters talk only if they can affect the receiver’s purchase. Under homogeneous beliefs, only negative WOM can arise. Under heterogeneous beliefs, the type of WOM depends on the informativeness of the experiences. We use data from to validate our predictions.
    Keywords: Costly communication, Recommendation engines, Review platforms, Word of mouth
    Date: 2020–08
  22. By: Maican, Florin (Department of Economics, School of Business, Economics and Law, Göteborg University); Orth, Matilda (Research Institute of Industrial Economics)
    Abstract: This paper studies the determinants of economies of scope and quantifies their impact on the extensive and intensive product margins in retail. We use a framework based on a multi- product technology to model stores’ incentives to expand product variety. Using novel Swedish data on product categories and stores, we find that high-productivity stores offer more product categories and sell more of all product categories. Stores with high demand shocks specialize in fewer product categories and sell more top-selling product categories. Policy simulations show that investments in technology increase the extensive and intensive product margins, especially benefitting stores in urban markets because of their productivity advantage. Learning from demand to increase productivity and variety is crucial in rural markets. Reducing the role of uncertainty in both productivity and demand shocks endorses product variety and raises sales and market share.
    Keywords: economies of scope; productivity; retail; product variety; technology; competition
    JEL: L11 L13 L25 L81 M21
    Date: 2020–08
  23. By: Jacques Fontanel (CESICE [2016-2019] - Centre d'études sur la sécurité internationale et les coopérations européennes [2016-2019] - IEPG [?-2019] - Sciences Po Grenoble - Institut d'études politiques de Grenoble [?-2019] - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])
    Abstract: Competitiveness is in the DNA of business in a market economy system. However, competition is not necessarily fair, on the one hand because the search for the maximum rate of profit makes it possible to accommodate the legal rules that are most favourable to firms, and on the other hand because the economy is an essential element of national security. Consequently, States may intervene to favour or disadvantage firms according to their relations with the countries from which they originate or according to political criteria that express power relations that are exercised both directly from State to State and indirectly through international economic organisations. Finally, competition can also lead to social wars, with the application of "less favoured" policies.
    Abstract: La compétitivité est dans l'ADN des entreprises dans un système d'économie de marché. Cependant, la compétition n'est pas nécessairement loyale, d'une part parce que la recherche du taux de profit maximum permet de s'accommoder des règles juridiques qui sont les plus favorables aux firmes et d'autre part parce que l'économie est un élément essentiel de la sécurité nationale. De ce fait, les Etats peuvent intervenir pour favoriser ou défavoriser des entreprises selon leurs relations avec les pays dont elles sont originaires ou selon des critères politiques d'expression de rapports de force s'exerçant aussi bien directement d'Etat à Etat qu'indirectement par le canal des organisations économiques internationales. Enfin, la compétition peut aussi conduire à des guerres sociales, avec l'application des politiques de « moins-disance ».
    Keywords: Compétitivité,Guerre économique,Sécurité nationale,Etats,Firmes multinationales,Competitiveness,economic war,national security,State,multinational firms.
    Date: 2019–03
  24. By: Richard Carson (Department of Economics, Carleton University)
    Abstract: In the 1950s, economists claimed that the ‘welfare loss from monopoly’ was well below 1% of GNP. This led to the literature on rent seeking that argued for an additional loss equal to all or part of the economic profit. Here I identify a third loss in the form of suppression of innovation and entrepreneurship when this leads to a decrease in political support. This decrease results from an increase in political competition and loss of rent on old technology. The third loss may be the highest of all.
    Keywords: Efficiency, Inclusiveness, Political Support, Rent Seeking.
    JEL: D42 O30 P59
    Date: 2020–08
  25. By: Amelia Fletcher (Centre for Competition Policy and Norwich Business School, University of East Anglia)
    Abstract: Finding ways to get consumers engaged in markets is a major current topic of debate. This article examines the important role consumer engagement plays in driving effective competition in markets. It then considers some key categories of intervention which can enhance consumer engagement, with a focus on the various roles that disclosure can play. Recent examples are provided from the UK, where many such engagement measures have been implemented. The article emphasises the importance, when policy-makers are designing such interventions, of understanding how real consumers truly behave. It also highlights the relevance to competitive outcomes of two further concepts: relative salience and relative consumer engagement. Finally, the article draws on both the successes and the failures of past interventions to identify some lessons for policy-makers when stepping into this area.
    Date: 2018–10–01
  26. By: KONDO Keisuke; OKUBO Toshihiro
    Abstract: This study analyzes how local market size affects the probabilities of firm exit by focusing on single-establishment firms in the service sector. The novelty of this study is that it identifies geographic ranges of local markets using the matched data of geocoded firm location and micro-geographic data with detailed firm exit information of all Japanese firms. The results reveal that the probability of firm exit increases as local market size increases within a narrow range (3 km radius) in the service sector. We also find that small firms tend to leave the market. Our results suggest that firm selection is stronger in larger markets, where larger firms are more likely to survive.
    Date: 2020–05
  27. By: Berdud. M.; Ferraro. J.; Towse. A.
    Abstract: This paper presents a supply and demand model of pharmaceutical markets to analyse the relationship between the value of the Cost-Effectiveness Threshold (CET) and the distribution of the health and economic value of new medicines between consumers (payers) and developers (life science industry). As a novelty, the model incorporates a bargaining process and bargaining power distributed between the payer and the developers, which has an impact on the distribution of the health and economic value of new medicines between the two parties. One of the key findings of the paper is that, with sufficiently large payer's bargaining power, an efficient CET value, which distributes health and economic value evenly between the payer and developers, could be higher than the supply-side CET. The paper includes a user-friendly executive summary summarising key results of the paper and discussing its policy implications.
    Keywords: Economics of Innovation; Value, Affordability, and Decision Making
    JEL: I1
    Date: 2020–07–01
  28. By: Michael D. Frakes; Melissa F. Wasserman
    Abstract: The debate surrounding escalating prescription drug prices has increasingly focused on the legitimacy of the practice of brand-name manufacturers receiving patent protection on peripheral features of the drug such as the route of administration, as opposed to just the active-ingredient itself. The key question is whether these later-obtained, secondary patents protect novel features and represent true innovation or, instead, provide little to no innovative benefit and improperly delay generic entry. In this paper, we explore how the Patent Office may improve the quality of the secondary patents issued—thereby reducing the degree of unnecessary and harmful delays of generic entry—by giving examiners more time to review patent applications. Our findings suggest that current examiner time allocations are causing patent examiners to issue low quality secondary patents on the margin. We further set forth evidence suggesting that the costs to investing in greater ex ante scrutiny of secondary pharmaceutical patent applications by the Patent Office are greatly outweighed by the benefits, which include the avoidance of downstream litigation expenses and gains to consumer and total surplus from reduced drug prices.
    JEL: I18 O34
    Date: 2020–07
  29. By: Saki Bigio (UCLA); Liyan Shi (EIEF)
    Abstract: We study repurchase options (repo contracts) in a competitive asset market with asymmetric information. Gains from trade emerge from a liquidity need, but private information about asset quality prevents the full realization of trade. We obtain a unique equilibrium, which features a pooling repo contract and full participation among borrowers. The equilibrium repo contract resolves adverse selection: the embedded repurchase option prevents the market unraveling that occurs in asset-sale markets. However, the contract is inefficient due to cream skimming. Competition to attract high-quality borrowers through the terms of the repurchase option inefficiently lowers liquidity. The equilibrium contract has a closed form and is portable to many applications.
    JEL: D82 G23 G32
    Date: 2020–08
  30. By: Patrick Massey; Moore McDowell
    Abstract: The paper looks at two aspects of the Covid-19 pandemic. These are (i) the nature of this event and its implication for evaluating past policy and policy into the future, and (ii) the suitability of proposed changes in the implementation of competition policy affecting firm behaviour, market structures and state intervention. The first conclusion the paper reaches is that it is incorrect to describe the Covid-19 pandemic as a “Black Swan” event, unpredicted and unpredictable, and something for which it is not possible to prepare. Policy makers should accept responsibility for possible future events such as pandemics even when timing is uncertain. In the case of Covid-19, policy measures were clearly inadequate. The paper then considers the design and implementation of measures aimed at supporting economic recovery. The arguments that competition policy should be relaxed for the duration of the problem is rejected as ill-founded and counter-productive. In particular, it is wrong to treat the response to the Financial Crisis of 2008-2011 as justifying reduced competition in general. Some aspects of particular policy designs, decisions and actions in response to the recession flowing from the medical response to Covid-19 are subjected to critical analysis.
    Keywords: COVID-19; Economic recovery; Coronavirus
    JEL: I15 I18
    Date: 2020–05
  31. By: Egor Starkov (University of Copenhagen)
    Abstract: This paper explores a model of dynamic signaling without commitment. It is known that separating equilibria do not exist if the sender cannot commit to future costly actions, since no single action can have enough weight to be an effective signal. This paper, however, shows that informative and payoff-relevant signaling can occur even without commitment and without resorting to unreasonable off-path beliefs. Such signaling can only happen through attrition, when the weakest type mixes between revealing own type and pooling with the stronger types. The possibility of full information revelation in the limit hence depends crucially on the assumptions about the state space. We illustrate the results by exploring a model of dynamic price signaling and show that prices may be informative of product quality even if the seller cannot commit to future prices, with both high and low prices being able to signal high quality.
    Date: 2020–07
  32. By: Oz Shy
    Abstract: Using machine learning techniques applied to consumer diary survey data, the author of this working paper examines methods for studying consumer payment choice. These techniques, especially when paired with regression analyses, provide useful information for understanding and predicting the payment choices consumers make.
    Keywords: studying consumer payment choice; point of sale; statistical learning; machine learning
    JEL: C19 E42
    Date: 2020–06–23

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