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on Industrial Competition |
| By: | Claire Borsenberger (Groupe La Poste); Helmuth Cremer (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique); Denis Joram (Groupe La Poste); Jean-Marie Lozachmeur (GREMAQ - Groupe de recherche en économie mathématique et quantitative - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - UT1 - Université Toulouse 1 Capitole); Estelle Malavolti (ENAC - Ecole Nationale de l'Aviation Civile, TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | The significant development of e-commerce and Internet marketplaces has provided numerous benefits to both retailers and customers. In addition, it has been a boon for delivery operators, allowing postal services to compensate at least in part revenue losses due to declining mail volumes. However, increasing concentration in e-commerce and the worry that market power may be extended into adjacent markets has turned into a major concern of policy makers and competition authorities. While many argue that traditional regulatory or competition policy may have to be amended within the context of platforms, there are so far few rigorous studies that can provide guidance. |
| Keywords: | foreclosure,E-commerce,delivery operators,vertical integration,bundling |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02888569&r=all |
| By: | Paul Belleflamme; Martin Peitz; Eric Toulemonde |
| Abstract: | We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets. |
| Keywords: | Two-sided platforms, market share, market power, oligopoly, network effects, antitrust |
| JEL: | D43 L13 L86 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_204&r=all |
| By: | BELLEFLAMME, Paul, (CORE, Université catholique de Louvain); PEITZ, Martin, (Universität Mannheim) |
| Abstract: | A monopolist sells a network good to a set of heterogeneous users who all care about total participation. We show that the provider of the network good effectively becomes a two-sided platform if it can condition prices on some user characteristics. This still holds true if the network operator cannot obsoerve consumer characteristics but induces user self-selection when it offers screening contracts. In our setting, all incentive constraints are slack The use of freemium strategies emerges as a special case of versioning. Here, a base version is offered at zero price and a premium version at a positive price. Overall, the paper illustrates the close link between price discrimination in the presence of a network good and pricing by a two-sided platform. |
| Keywords: | network goods, two-sided markets, platform pricing, group pricing, menu pricing |
| JEL: | D62 L12 L82 L86 |
| Date: | 2020–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2020024&r=all |
| By: | Garrod, Luke; Olczak, Matthew; Wilson, Chris M |
| Abstract: | Abstract The developing literature on consumer information and vertical relations has yet to consider information provision via costly retail price advertising. By exploring this, we show that the double marginalisation problem exists in equilibrium despite an upstream supplier offering a two-part tariff that is common knowledge to consumers. Intuitively, the supplier elicits higher retail prices to strategically reduce retailers' advertising expenditure in order to extract additional rents. We then demonstrate how vertical restraints, such as resale price maintenance, can increase supply-chain profits and consumer welfare by lowering retail prices despite paradoxically discouraging price advertising. |
| Keywords: | Price Advertising; Consumer Search; Double Marginalisation; Vertical Restraints; Clearinghouse |
| JEL: | D40 D83 L42 |
| Date: | 2020–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102621&r=all |
| By: | Cellini, Roberto |
| Abstract: | The paper presents a simple model of oligopoly, in which three firms supply differentiated products. The degree of product substitutability is not uniform across goods. We investigate the merger profitability, and we show that profitability depends on the degree of good differentiation. Contrary to what seems to emerge from different models, we find that merger between firms that supply “more similar” product is more profitable as compared to merger between firms supplying more differentiated goods. |
| Keywords: | oligopoly; merger; profitability; merger paradox |
| JEL: | D43 L13 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102416&r=all |
| By: | Tobias Salz |
| Abstract: | Intermediaries in decentralized markets can affect buyer welfare both directly, by reducing expenses for buyers with high search cost and indirectly, through a search-externality that affects the prices paid by buyers that do not use intermediaries. I investigate the magnitude of these effects in New York City’s trade-waste market, where buyers can either search by themselves or through a waste broker. Combining elements from the empirical search and procurement-auction literatures, I construct and estimate a model for a decentralized market. Results from the model show that intermediaries improve welfare and benefit buyers in both the broker and the search markets. |
| JEL: | D43 D44 L0 L13 L81 L97 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27700&r=all |
| By: | Wenzhi Ding; Ross Levine; Chen Lin; Wensi Xie |
| Abstract: | Theory offers differing perspectives and predictions about the impact of product market competition on corporate social responsibility (CSR). Using firm-level data on CSR from 2002 through 2015 and panel data on competition laws in 48 countries, we discover that intensifying competition induces firms to increase CSR activities. Analyses indicate that (a) intensifying competition spurs firms to invest more in CSR as a strategy for strengthening relationships with workers, suppliers, and customers and (b) the competition-CSR effect is stronger in economies where social norms prioritize CSR-type activities, e.g., treating others fairly, satisfying implicit agreements, protecting the environment, etc. |
| JEL: | K21 L4 M14 Z13 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27493&r=all |
| By: | Colombo, Stefano; Filippini, Luigi; Sen, Debapriya |
| Abstract: | We consider a patent licensing game with a capacity constrained innovator. We show that when the constraint is strong (weak), the patentee prefers licensing by means of a fixed fee (unit royalty). In the case of a two-part tariff, the innovator charges a positive fixed fee if and only if the constraint is strong enough. |
| Keywords: | Patent licensing; capacity constraint; Cournot duopoly |
| JEL: | D43 D45 L24 |
| Date: | 2020–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102653&r=all |
| By: | Uluc Aysun (Department of Economics, College of Business Administration, University of Central Florida); Melanie Guldi (Department of Economics, College of Business Administration, University of Central Florida); Adam Honig (Department of Economics, Amherst College); Zeynep Yom (Department of Economics, Villanova 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 |
| URL: | http://d.repec.org/n?u=RePEc:vil:papers:47&r=all |
| By: | Volker Nocke; Michael D. Whinston |
| Abstract: | Concentration-based screens for horizontal mergers, such as those employed in the US DOJ and FTC Horizontal Merger Guidelines, play a central role in merger analysis. However, the basis for these screens, in both form and level, remains unclear. We show that there is both a theoretical and an empirical basis for focusing solely on the change in the Herfindahl index, and ignoring its level, in screening mergers for whether their unilateral effects will harm consumers. We also argue, again both theoretically and empirically, that the levels at which the presumptions currently are set may allow mergers to proceed that cause consumer harm. |
| JEL: | L0 L4 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27533&r=all |
| By: | Hanming Fang; Long Wang; Yang Yang |
| Abstract: | The entry of High-Speed Railways (HSR) represents a disruptive competition to airlines, particularly for short- to medium-distance journeys. Utilizing a unique dataset that contains the details of all flights departing from Beijing to 113 domestic destinations in China since January 2009, we employ a difference-in-differences approach to examine the effects of HSR entry on the quality of service provided by airlines as proxied by their on-time performance, and to identify the channels through which competition leads to quality improvement. We document two main findings. First, the competition from the entry of HSR leads to significant reductions in the mean and variance of travel delays on the affected airline routes. Second, the reductions in departure delays--which are controlled mostly by airlines, and the duration of taxi-in time--which are controlled mostly by destination airports, are identified as the main sources of the improvement in the airlines' on-time performance. |
| JEL: | L1 L91 O18 R4 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27475&r=all |
| By: | Elia Ferracuti (Duke University - Fuqua School of Business); Roni Michaely (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute); Laura Wellman (Pennsylvania State University) |
| Abstract: | Using novel data on firms’ government relations staff, and two distinct empirical settings, we show that political activism enables firms to grow their market power. The documented increases in profit margins and market share persist for up to two years, and are concentrated among large politically active firms. We also utilize firms’ mandatory lobbying disclosures to identify a broad set of legislative actions lobbied for by sample firms, and analyze their strategic actions around those events. Taken together, our results show that politically active firms gain a competitive advantage through strategically timed investments when policy uncertainty is high. |
| Keywords: | Market Power, Political Activism, Policy Uncertainty, Competition, Profitability, Profit Margins, Market Share, Capital Investment |
| JEL: | D72 G31 G38 P16 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2060&r=all |
| By: | Olivier Wang; Iván Werning |
| Abstract: | How does market concentration affect the potency of monetary policy? The ubiquitous monopolistic-competition framework is silent on this issue. To tackle this question we build a model with heterogeneous oligopolistic sectors. In each sector, a finite number of firms play a Bertrand dynamic game with staggered price rigidity. Following an extensive Industrial Organization literature, we focus on Markov equilibria within each sector. Aggregating up, we study monetary shocks and provide a closed-form formula for the response of aggregate output, highlighting three measurable sufficient statistics: demand elasticities, market concentration, and markups. We calibrate our model to the empirical evidence on pass-through, and find that higher market concentration significantly amplifies the real effects of monetary policy. To separate the strategic effects of oligopoly from the effects this has on residual demand, we compare our model to one with monopolistic firms after modifying consumer preferences to ensure firms face comparable residual demands. Finally, the Phillips curve for our model displays inflation persistence and endogenous cost-push shocks. |
| JEL: | E0 E3 E5 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27536&r=all |
| By: | Jens-Uwe Franck; Nils Stock |
| Abstract: | If both national competition law and article 101 TFEU apply to an agreement, the former must not set rules that are stricter than the latter. Member States remain free, though, to impose stricter rules if they are not classified as ‘competition law’. We analyse relevant jurisprudence by the English and French courts that have dealt with potential conflicts between, on the one hand, EU competition law and, on the other hand, the common law restraint of trade doctrine and the pratiques restrictives de concurrence under French commercial law. We develop criteria that allow (national) ‘competition law’ to be distinguished from similar regulatory interventions into agreements that pursue purposes distinct from article 101 TFEU and which, therefore, must not be regarded as ‘competition law’. This paper illustrates and elaborates on the challenges for the implementation of our approach by focusing on the ban on the use of parity clauses by hotel booking platforms in France, Austria, Italy and Belgium. We map a possible way forward to prevent further regulatory fragmentation in the internal market with regard to the regulation of platform-to-business agreements. |
| Keywords: | competition law; regulation; article 3(2) of Regulation 1/2003; objective pursued by article 101 TFEU; restraint of trade doctrine; pratiques restrictives de concurrence; platform- to-business agreements; price-parity clauses; Regulation 2019/1150 |
| JEL: | K21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_202&r=all |
| By: | Martin, Simon |
| Abstract: | We study a novel trade-off in market transparency regulation by estimating a structural model of the German retail gasoline market. Transparent environments enable easy price comparisons and match findings. Restricting transparency such that only the cheapest offers are shown induces firms to compete for attention, but matching is inefficient. We find that there is an inverse u-shaped relationship between consumer welfare and market transparency. Consumer welfare is maximal when only the first 20% of prices are shown, which decreases consumer expenditures by 1.2%. Our framework allows estimating games of incomplete information with very lax data requirement. |
| Keywords: | market transparency,consumer search,awareness,consideration sets,retail gasoline prices |
| JEL: | D22 D43 D83 L13 L50 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:350&r=all |
| By: | Kumse, Kaittisak; Suzuki, Nobuhiro; Sato, Takeshi; Demont, Matty |
| Keywords: | Marketing, Industrial Organization, Agricultural and Food Policy |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea20:304429&r=all |
| By: | Ayca Kaya (University of Miami); Santanu Roy (Southern Methodist University) |
| Abstract: | We consider repeated trading by sellers with persistent private information in dynamic lemons markets. We compare the outcomes of a transparent market where past trading prices are public to those of an opaque market, where they are private. We characterize the upper bound of trading surplus in an opaque market and construct a class of equilibria in a transparent market that improves upon this bound. We conclude that price transparency is beneficial in a repeated trading environment. The advantage of price transparency is indirect and operates through the strategic tools it provides the sellers of high quality to sustain high payoffs. |
| Keywords: | Repeated sales, adverse selection, lemons market, price transparency. |
| JEL: | D82 C73 D61 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:2008&r=all |
| By: | Cheng Chen; Tatsuro Senga; Chang Sun; Hongyong Zhang |
| Abstract: | Using a long-panel dataset of Japanese firms that contains firm-level sales forecasts, we provide evidence on firm-level uncertainty and imperfect information over their life cycle. We find that firms make non-negligible and positively correlated forecast errors. However, they make more precise forecasts and less correlated forecast errors when they become more experienced. We then build a model of heterogeneous firms with endogenous entry and exit where firms gradually learn about their demand by using a noisy signal. In our model, informational imperfections lead firms to enter the market without being fully informed. Moreover, young firms tend to wait long before entering or exiting the market faced with high uncertainty about their demand. The former learning effect, combined with the latter real-options effect, adversely affect firms’ entry decisions and thus resource allocation. Our quantitative exercise substantiates the importance of accumulation of experience for firms’ post-entry dynamics and aggregate productivity. |
| Keywords: | firm expectations, forecast errors, uncertainty, learning, productivity |
| JEL: | D83 D84 E22 E23 F23 L20 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8468&r=all |
| By: | Mertens, Matthias |
| Abstract: | This study investigates how labour market power shapes between-firm wage differences using German manufacturing sector data from 1995 to 2016. Over time, firm- and employee-side labour market power, defined as the difference between wages and marginal revenue products of labour (MRPL), increasingly moderated rising between-firm wage inequality. This is because small, low-wage, low-MRPL firms possess no labour market power and pay wages equal to or even above their MRPL, whereas large, high-wage, high-MRPL firms possess high labour market power and pay wages below their MRPL. These wage-MRPL differences grow over time and compress the firm wage distribution compared to the counterfactual competitive labour market scenario. Particularly for the largest, highest-paying, and highest-MRPL firms, wage-MRPL differences strongly increase over time. This allows these firms to generate increasingly large labour market rents while being active on competitive product markets, providing novel insights on why such "superstar firms" are profitable and successful. |
| Keywords: | inequality,labour market power,monopsony,rent-sharing,large firms |
| JEL: | J31 J42 L10 L60 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:132020&r=all |
| By: | Toren L. Fronsdal; Jay Bhattacharya; Suzanne Tamang |
| Abstract: | We study a unique all-payer data set spanning 38 states to examine the differences in inpatient reimbursement rates paid by traditional Medicare (TM), Medicare Advantage (MA), Medicaid, and private (under-65) insurers, and the differences in negotiated rates across the 60 largest private insurers. After controlling for enrollee and hospital mix, we find that private insurers pay 37 percent more than TM, and MA pays 10 percent more than TM for the five most common inpatient diagnoses. The correlation in risk-adjusted payments by private insurers and by TM at the same hospital for the same diagnosis is only 0.10. There is significant variation in negotiated prices within and across private payers. Among the five largest US insurers, the most expensive insurer negotiates prices that are 5-26 percent higher than the mean price for the 20 most common inpatient diagnoses. Additionally, we find a 10 percent increase in insurer market share corresponds to a 7 percent decrease in inpatient negotiated prices and a 10 percent decrease in the standard deviation of prices. This finding suggests that increased insurer market power allows payers to negotiate prospective payment contracts – rather than the more common fee-for-service payments – thereby offloading financial risk to providers. |
| JEL: | G22 I11 I13 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27490&r=all |
| By: | Yaqian Zhou; Hai Yang; Jintao Ke; Hai Wang; Xinwei Li |
| Abstract: | Recently, some transportation service providers attempt to integrate the ride services offered by multiple independent ride-sourcing platforms, and passengers are able to request ride through such third-party integrators or connectors and receive service from any one of the platforms. This novel business model, termed as third-party platform-integration in this paper, has potentials to alleviate the cost of market fragmentation due to the demand splitting among multiple platforms. While most existing studies focus on the operation strategies for one single monopolist platform, much less is known about the competition and platform-integration as well as the implications on operation strategy and system efficiency. In this paper, we propose mathematical models to describe the ride-sourcing market with multiple competing platforms and compare system performance metrics between two market scenarios, i.e., with and without platform-integration, at Nash equilibrium as well as social optimum. We find that platform-integration can increase total realized demand and social welfare at both Nash equilibrium and social optimum, but may not necessarily generate a greater profit when vehicle supply is sufficiently large or/and market is too fragmented. We show that the market with platform-integration generally achieves greater social welfare. On one hand, the integrator in platform-integration is able to generate a thicker market and reduce matching frictions; on the other hand, multiple platforms are still competing by independently setting their prices, which help to mitigate monopoly mark-up as in the monopoly market. |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2008.09815&r=all |
| By: | Sandström, Maria (Department of Economics) |
| Abstract: | Can an increasing importance of intangible capital in the economy explain increases in markups and profits? I use a heterogeneous firm model to show how intangible capital is related to markups and profits at the industry level. The uncertainty and scalability properties of intangible capital imply that firms that succeed in their intangible capital investment can charge high markups relative to other firms, whereas firms that fail will exit. However, the high markups do not lead to any economic profits in the industry as a whole if they only serve to cover the total fixed costs of intangible capital. To empirically examine the relationship between intangible capital, markups and profits, I study average markups and profit shares in a panel of Swedish industries. There is evidence of a positive relationship between intangible capital and average industry markups. However, the evidence of the relationship between intangible capital and profits is less conclusive. |
| Keywords: | Intangible capital; Markups; Profits; Labor share; Market Power |
| JEL: | D24 E22 L11 |
| Date: | 2020–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2020_004&r=all |
| By: | de-Ramon, Sebastian (Bank of England); Francis, William B (Bank of England); Straughan, Michael (Bank of England) |
| Abstract: | We use quantile regression to examine the links between competition and firm-level solvency risk for all banks and building societies in the United Kingdom between 1994 and 2013. Quantile regression provides a finer picture of the relationship (as compared with standard regression techniques) across institutions ranked according to how close each is to insolvency. We find that for domestic banks and building societies already close to insolvency the association is favourable, suggesting that risk decreases (increases) with more (less) competition. For foreign-owned banks and for relatively healthy building societies farther from insolvency we find the opposite, indicating that risk increases (decreases) with more (less) competition. We find that regulation is effective in moderating adverse links between risk and competition. Our results highlight real differences in the links between competition and risk at the individual level that are useful for assessing the link at the system-wide level. |
| Keywords: | Bank competition; bank risk; Boone indicator; quantile regression |
| JEL: | G21 G28 L22 |
| Date: | 2020–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0885&r=all |
| By: | David A. Benson; Ken Onishi |
| Abstract: | This note analyzes competition and concentration in "middle market" lending using loan level data obtained from large bank holding companies' Y14 reports to the Federal Reserve. The middle market segment is typically considered to be credit for firms larger than small businesses but too small for large-scale commercial lending or syndicated credit. Lender choice and the supply of credit to large and small firms has been studied extensively by academics and policy makers. |
| Date: | 2020–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-08-10&r=all |
| By: | Gilbert L. Skillman (Department of Economics, Wesleyan University) |
| Abstract: | The non-symmetric Nash bargaining solution is frequently applied in the study of labor market outcomes, but the axiomatic approach in which it is grounded offers little guidance as to the determinants of agents’ threat points and relative bargaining power. This paper modifies the Rubinstein-Wolinsky (1985) sequential matching and bargaining model to study the role of individual bargaining costs, status quo payoffs, and outside options in determining bargaining power weights and threat points in Nash bargaining solution. Key results differentiate the strategic implications of fixed and time discount-based bargaining costs and demonstrate the general validity of the Nash bargaining solution in characterizing steady-state market outcomes in which outside options are endogenously determined. In this scenario, agents’ relative bargaining weights depend on their matching probabilities. |
| Keywords: | Nash bargaining solution, strategic bargaining, outside options, status quo payoffs, labor markets, matching and bargaining |
| JEL: | C78 J31 J52 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:wes:weswpa:2020-005&r=all |