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on Industrial Competition |
| By: | Ariel Pakes |
| Abstract: | The paper considers conceptual issues underlying empirical work on markets. It has three parts. The first reviews the analysis of demand and equilibrium in retail markets and then considers recent advances in the analysis of markets which require different assumptions; markets where adverse selection and moral hazard may be important, vertical markets with bargaining, and markets wherein a centralized allocation mechanism replaces prices. The second part considers the analysis of cost and production. It reviews the simultaneity and selection issues in production function estimation and then considers; the distinction between revenue and quantity generating functions and its implications for the analysis of markups, and the empirical analysis of fixed costs and its implications for the analysis of product repositioning. The paper concludes by considering issues that arise due to the complexity of empirical analysis of market dynamics and appropriate ways of dealing with them. |
| JEL: | D4 L0 L1 L3 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27906&r=all |
| By: | David Spector (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics) |
| Abstract: | When demand is noisy and firms' costs are uncertain, the availability of market share data increases the accuracy of each firm's information, and it creates incentives for signaling. Taking both effects into account, we find that under quantity competition with a homogeneous good, the availability of market share data has a positive impact on total surplus and an ambiguous one on consumer surplus. Under price competition with differentiated substitutes, it has a negative impact on consumer surplus and an ambiguous one on total surplus. If the cost difference is small, the effect of first-period signaling dominates the effect of second-period full information. Accordingly, in this case, the availability of market share data causes total and consumer surplus to increase in the case of quantity competition and to decrease in the case of price competition. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02946654&r=all |
| By: | Luo, Jinjing; Moschini, Giancarlo; Perry, Edward D. |
| Abstract: | A commonly observed feature of differentiated product markets is brand inertia, the tendency of consumers to purchase brands they have purchased in the past. In this paper, we develop and estimate a micro-level random coefficients logit model to study two competing explanations of brand inertia, state dependence and heterogeneity, in the U.S. soybean seed industry. Specifically, heterogeneity is captured by brand-specific random coefficients and state dependence is incorporated through a brand purchase history variable. We further deal with two important issues in the identification: we apply a correction to the initial conditions problem similar to the procedure outlined in Wooldridge (2005); and to deal with price endogeneity, we use the control function approach in our nonlinear regression environment. The model is estimated using a large dataset of more than 200,000 seed purchase decisions by roughly 28,000 farmers over the period 1996-2016. We find that state dependence and heterogeneity are both important features of seed demand. On average, farmers are willing to pay (WTP) an additional $6.77/unit for a brand if it was purchased in the previous period, equivalent to about 15% of the average retail price. We also find that farmers are willing to pay large premiums for brand labels and the glyphosate tolerance (GT) technology, however there is considerable heterogeneity in this willingness. To investigate the implications of state dependence, especially as it relates to the introduction and diffusion of the GT innovation, we simulate several counterfactual scenarios (with/without state dependence and/or the GT technology). Our simulations show that state dependence has little effect on the diffusion of the GT technology, but it functions as a cushion for the structural benefits brought about by the innovation—it reduces the gains/losses in brands’ market shares. We also show that there is an “early adoption†advantage associated with the marketing of the GT trait, which is reinforced by state dependence. |
| Date: | 2019–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201911260800001091&r=all |
| By: | Roy, Sunanda; Singh, Rajesh; Weninger, Quinn |
| Abstract: | We present a model of firm entry in an industry that is managed with a production cap-and- trade (CAT) regulation. Firms are heterogeneous in productivity; each knows its own productivity but is uncertain about where it ranks in the entrant population. Entry is modeled as a simultaneous move game with incomplete information. Under CAT, firms compete to secure shares of the fixed permit supply. Entry payoffs are determined by own and rival entrant pro- ductivity; if average productivity of rival entrants is low, permit prices are low and returns to vested capital are high. The opposite holds when average productivity of rival entrants is high. We derive Bayesian Nash equilibrium entry and show that under certain conditions placement uncertainty increases entry, relative to a full information benchmark. We also obtain conditions under which this result is reversed. We extend the model to consider placement bias, i.e., firms believe they attain better than average productivity. Bias exacerbates the excess-entry problem. Our main finding, that placement uncertainty alone can cause excess market entry and inefficiency, has been overlooked in the literature. The new mechanism offers an alternative explanation for competitive blind spots in entrepreneurs. |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202001310800001096&r=all |
| By: | Lee, Jun Yeong; Hoffman, Elizabeth |
| Abstract: | This study investigates the impact of cheap talk on price in a repeated Bertrand oligopoly experiment. Each participant plays 20 rounds. Participants are placed in three-person bidding groups where the lowest bid wins. During the first 10 rounds, participants are not allowed to communicate with each other. All three-person groups converged to the zero-profit equilibrium in the first 10 periods. We then play another 10 rounds where participants can text with one another using an instant message system. Some groups were allowed to text before every round, some to text before every other round, some to text every third round, some to text every fourth round, and some to text only every fifth round. When texting is allowed, All groups attempt to collude to raise the price after being allowed to text, but the only groups who can maintain the higher price and converge over time to the joint-profit maximum are the groups who can text before every period. Hence, cheap talk is only effective when subjects can continuously monitor or converse. |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202005010700001106&r=all |
| By: | de Cornière, Alexandre; Sarvary, Miklos |
| Abstract: | The growing influence of internet platforms acting as content aggregators is one of the most important challenges facing the media industry. We develop a simple model to understand the impact of third-party content bundling by a social platform that has a monopoly on showing user-generated content to consumers. In our model consumers can access news either directly through a newspaper’s website, or indirectly through a platform, which also offers social content. We show that content bundling, when unilaterally implemented by the platform, tends to harm publishers and to increase the dispersion of quality across outlets. News quality is more likely to increase with content bundling when the cost of providing quality is low, and when competition among publishers is strong. When content bundling follows an agreement between the platform and publisher, its effects are reversed, as publishers’ profits go up while quality dispersion goes down. In a setup with heterogeneous consumers, we also show that the platform’s ability to personalize the mix of content it shows to users induces publishers to invest more in the quality of their content. |
| Date: | 2020–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124772&r=all |
| By: | Luo, Jinjing; Moschini, Giancarlo |
| Abstract: | We build a structural model of imperfect competition for a retail market that supplies both low-ethanol (E10) and high-ethanol (E85) gasoline blends. The model permits us to study some impacts of the E85 subsidy induced by the U.S. Renewable Fuel Standard, specifically how the pass-through of this subsidy to retail prices is affected by market power. The model is rooted in Hotelling's horizontal differentiation framework, which is extended to also represent the imperfect substitutability between E10 and E85 (a vertical product differentiation attribute). The model naturally captures two sources of imperfect competition in the fuel market—refueling stations' market power arising from their spatial location, and limited availability of E85 stations. We derive both analytical and numerical solutions for Nash equilibrium outcomes under various scenarios. In our baseline parameterization, when the penetration of E85 stations is incomplete, we find that the pass-through rate is about 0.7. Complete penetration of E85 stations leads to near complete pass-through, notwithstanding the market power enjoyed by stations because of their spatial location. With monopolistic market power (e.g., collusion), however, with full penetration of E85 stations the pass-through rate is lower. Moreover, when market power only arises from location differentiation (duopoly model with full penetration of E85), the pass-through rate converges to one as the subsidy gets large, whereas it converges to zero if a station has exclusivity in selling E85 (partial penetration of E85) or there is collusion/monopoly power from collusion. |
| Date: | 2019–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201908090700001674&r=all |
| By: | Maria Karadima; Helen Louri |
| Abstract: | Consolidation in euro area banking has been the major trend post-crisis. Has it been accompanied by more or less competition? Has it led to more or less credit risk? In all or some countries? In this study, we examine the evolution of competition (through market power and concentration) and credit risk (through non-performing loans) in 2005-2017 across all euro area countries (EA-19), as well as core (EA-Co) and periphery (EA-Pe) countries separately. Using Theil inequality and convergence analysis, our results support the continued existence of fragmentation as well as of divergence within and/or between core and periphery with respect to competition and credit risk, especially post-crisis, in spite of some partial reintegration trends. Policy measures supporting faster convergence of our variables would be helpful in establishing a real banking union. |
| Keywords: | Banking competition, credit risk, NPLs, Theil index, convergence analysis |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:155&r=all |
| By: | Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Chunxiao Li |
| Abstract: | Using proprietary data from Alibaba, we examine how the 2015 Food Safety Law (FSL) affects e-commerce in China. The FSL requires most food sellers on e-commerce platforms to obtain a valid, online license for retail food handling. Because the FSL was rolled out progressively, we have a rare opportunity to observe a gradual transition from voluntary certification to partial licensing and mandatory licensing. Data summary shows that, conditional on sellers with valid licensing information, those that had a better online reputation and more online food sales before FSL tend to display their FSL license earlier on the platform, and buyers are more willing to transact with a seller after she displays her FSL license. To identify the causal impact of the FSL, we compare food and non-food categories via synthetic control matching. We find the average quality of surviving food sellers has improved after partial and mandatory licensing, partly because those who are unwilling to obtain the FSL license must exit the platform. Despite an increase in seller concentration, the platform's gross merchandise value (GMV) in the food category did not decline post FSL, nor did the average sales price increase significantly one year into full enforcement of the FSL. |
| JEL: | D82 K23 L5 L81 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27884&r=all |
| By: | Amelung, Torsten |
| Abstract: | This paper describes the development of the competition of electricity retail in Europe in general and the situation in Germany in particular. The competition in the retail business has been forcing electricity retailers to spend increasing resources on marketing, sales and customer service. This has led to a fierce competition both especially in Germany as price transparency is quite high. Short-term price adjustments by retail companies are led by behavioral patterns that follow the logic of the prisoner’s dilemma. Suppliers view marketing and sales expenditures as a short-term investment, thus weighing costs of winning new customers against the risk that customers might switch again in the medium-run. In order to escape this short-term competitive pressure, an increasing number of retail companies in the German electricity retail market focus on the diversification of their activities by offering new product lines such as distributed energy solutions, services for e-mobility and facility management. Moreover, there is a trend towards investing in the development of a brand to increase customer loyalty. |
| Keywords: | short term competition,second-mover-advantage,product versioning,diversification,distributed energy solutions,brand strategy,digitalization,affiliate marketing |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:224983&r=all |
| By: | Li, Xiaogang |
| Abstract: | This dissertation presents the theoretic and empirical findings on innovation, market returns, and trade, with particular focuses on how a firm's innovation activities affect their market returns through the channel of productivity-improving, and how policy uncertainty affects a firm's trading and innovation decisions.Chapter 2 examines the relationship between productivity and innovation, using the U.S. manufacturers' patent data from 1976-2006. First, this chapter investigates whether productive firms actively participate in innovation in terms of having more patents, and then examines whether their innovation activities are involved in a wide spectrum of technological categories. The empirical results reveal that: (i) productivity is positively correlated with the number of patents granted and the number of technological categories for these patents; and (ii) productivity is positively correlated with the number of citations per granted patent and is also positively correlated with the number of technological categories for cited patents per granted patent.Chapter 3 examines the impact of innovation on a firm's operating performance, market valuation, and stock returns, especially the role of Innovation Efficiency in predicting a firm's future market valuation. Three different measures of Innovation Efficiency--the number of granted patents per patent or citation (backward and forward) technological fields scaled by research and development expenditures--are proposed, which combine the breadth of knowledge used to innovate and R\&D investments. The empirical results show that: (i) firm's market valuation and excess returns increases are largely driven by the changing valuation of Innovation Efficiency, while innovation quantity, measured by patent intensity and R\&D intensity, has a strong and significant negative effect; (ii) the positive effect of Innovation Efficiency became larger over time from 1950 to 2010 and for high-technology industries; (iii) high efficient innovation firms are able to achieve higher and more persistent profitability and better operating performance through the effect of productivity.Chapter 4 introduces a dynamic general equilibrium growth model with policy uncertainty where policy uncertainty endogenously affects the dynamics of technical change, market leadership, firm entry and exit selection, and trade flows, in a world with two large open economies at different stages of development. The theoretical investigation illustrates that increase in policy uncertainty has a significant negative effect on exports and imports, but has ambiguous effects on innovation and welfare, while dynamically, trade liberalization boosts domestic innovation through induced international competition. In the empirical portion, this chapter studies how policy uncertainty affects innovation and firm decisions to enter into and exit from export markets by estimating the impact of trade policy uncertainty on patents applied by Chines manufacturing firms, as well as firm's entry and exit. Using Chinese patent applications and Chinese customs transactions between 2000-2006, this chapter exploits time-variation in product-level trade policy and the empirical results show that: (i) Chinese firms have less incentive in innovation activities when facing increased trade policy uncertainty; (ii) Chinese firms are less likely to enter new foreign markets when their products are subject to increased trade policy uncertainty; (iii) Chinese firms are more likely to exit from established foreign markets when policy uncertainty increases. |
| Date: | 2020–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202001010800009179&r=all |
| By: | Fanny Simon (NIMEC - Normandie Innovation Marché Entreprise Consommation - UNICAEN - Université de Caen Normandie - NU - Normandie Université - ULH - Université Le Havre Normandie - NU - Normandie Université - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université); Alberic Tellier (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Most studies concerning dominant designs focus on ‘collective' or ‘competitive' strategies that companies deploy to impose their choices on the market. The objective of this research is to assess the extent to which ‘coopetitive' strategies may lead to a dominant design. We analyzed the development of a dominant design over an 84-year period through a historical study in the field of pinball machines. Our study focuses on the five main manufacturers of pinball machines and analyzes data from 1930 to 2014. We demonstrate that companies undergo three phases that involve the progressive development of coopetitive relationships with different impacts on the generation of innovation. Because manufacturers differentiated their offerings, innovated and simultaneously imitated others, increased competition resulted. Simultaneously, external threats and the need to collectively respond to clients and partners prompted the manufacturers to cooperate with one another. Thus, our research provides a better understanding of how specific horizontal coopetitive relationships among manufacturers of the same type of products impact the development of a dominant design at the industry level. This case study suggests that as a theoretical framework, coopetition introduces new insights into the comprehension of relational dynamics during the development of dominant designs. Our observations also confirm or invalidate conclusions drawn in previous works related to coopetition strategies. In particular, this case is interesting as although the appropriability regime was weak, companies still developed coopetitive relationships, contradicting previous studies. |
| Keywords: | absorptive capacity,cooperation,Pinball industry,Innovation |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02933068&r=all |
| By: | Higham, Kyle; de Rassenfosse, Gaetan; Jaffe, Adam B |
| Abstract: | The ‘quality’ of novel technological innovations is extremely variable, and the ability to measure innovation quality is essential to sensible, evidence-based policy. Patents, an often vital precursor to a commercialised innovation, share this heterogeneous quality distribution. A pertinent question then arises: How should we define and measure patent quality? Accepting that different stakeholders have different views of this concept, we take a multi-dimensional view of patent quality in this work. We first test the consistency of popular post-grant outcomes that are often used as patent quality measures. Finding these measures to be generally inconsistent, we then use a raft of patent indicators that are defined at the time of grant to dissect the characteristics associated with different post-grant outcomes. We find broad disagreement in the relative importance of individual characteristics between outcomes and, further, significant variation of the same across technologies within outcomes. We conclude that measurement of patent quality is highly sensitive to both stakeholder viewpoint and technology type. Our findings bear implications for scholarly research using patent data as well as for policy discussions about patent quality. |
| Date: | 2020–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:49qxk&r=all |