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on Industrial Competition |
| By: | Wenhao Li (Department of Economics, The Pennsylvania State University) |
| Abstract: | I characterize the consumer-optimal market segmentation in competitive markets with differentiated products. I show that this segmentation is public---in that each firm observes the same market segments---and takes a simple form: in each market segment, there is a dominant firm favored by all consumers in that segment. By segmenting the market, all but the dominant firm maximally compete to poach the consumer's business, setting price to equal marginal cost. Information, thus, is being used to amplify competition. This segmentation simultaneously generates an efficient allocation and delivers to each firm its minimax profit. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.05342&r=all |
| By: | Céline Bonnet (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); Zohra Bouamra-Mechemache (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 paper proposes a five-step methodology based on the estimation of demand and supply models to test the existence of manufacturers' collusive behaviour and evaluate its impact on market and welfare. This methodology allows for the estimation of profit sharing in vertical chains by properly modelling the contracting stage between manufacturers and retailers. We apply this methodology to analyse the effects of the "yogurt cartel" that prevailed in the French dairy dessert market between private label providers during the period 2006-2012. We find that data supports collusive behaviour between private label manufacturers, and lead to average price increase varying from 7.3% and 11.3%, according to the product category. We found an umbrella effect on dairy products sold under national brands at the wholesale level but not at the retail level. The cartel benefits manufacturers both for the sales of the national brand and private label products, while retailers lost profits over the private label products but gained profits over the national brand products. The cartel implies a relatively low decrease in consumer welfare —lower than the gain for the industry—such that the overall welfare effect of the cartel is positive. |
| Keywords: | cartel,collusion,profit sharing,Bargaining,private label |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02952676&r=all |
| By: | Kai Hao Yang (Cowles Foundation, Yale University) |
| Abstract: | A data broker sells market segmentations created by consumer data to a producer with private production cost who sells a product to a unit mass of consumers with heterogeneous values. In this setting, I completely characterize the revenue-maximizing mechanisms for the data broker. In particular, every optimal mechanism induces quasi-perfect price discrimination. That is, the data broker sells the producer a market segmentation described by a cost-dependent cutoff, such that all the consumers with values above the cutoff end up buying and paying their values while the rest of consumers do not buy. The characterization of optimal mechanisms leads to additional economically relevant implications. I show that the induced market outcomes remain unchanged even if the data broker becomes more active in the product market by gaining the ability to contract on prices; or by becoming an exclusive retailer, who purchases both the product and the exclusive right to sell the product from the producer, and then sells to the consumers directly. Moreover, vertical integration between the data broker and the producer increases total surplus while leaving the consumer surplus unchanged, since consumer surplus is zero under any optimal mechanism for the data broker. |
| Keywords: | Price discrimination, Market segmentation, Mechanism design, Virtual cost |
| JEL: | D42 D82 D61 D83 L12 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2258&r=all |
| By: | Hassan Afrouzi; Andres Drenik; Ryan Kim |
| Abstract: | How are a firm’s size and market power related to one another? Combining micro-data about producers and consumers, we document that while firms mainly grow by selling to more customers, their markups are only associated with their average sales per customer. To study the macroeconomic implications of these facts, we develop a model of firm dynamics with endogenous customer acquisition and variable markups. Relative to a model without customer acquisition, our model generates higher concentration at the top, but a lower aggregate markup. Our quantitative analysis reveals large welfare and efficiency losses due to (mis)allocation of customers across firms. By increasing market concentration among the most productive firms, the efficient allocation achieves 11% higher aggregate productivity and 15% higher output. |
| Keywords: | customer acquisition, misallocation, concentration, markups |
| JEL: | D24 D42 D61 E22 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8633&r=all |
| By: | Robert Clark (Queen's University); Mario Samano (HEC Montreal) |
| Abstract: | In an effort to lower costs of provision, authorities have encouraged the consolidation of providers for a number of services such as electricity distributors, school boards, hospitals, and municipalities. In this paper we propose an endogenous merger process to evaluate the impact of government-provided incentives on consolidation patterns,and to evaluate the resulting outcomes. The process takes as input estimates from a stochastic frontier cost model, which yields an average cost curve for the industry. Policy parameters are used to simulate final configurations using offers that are the output of a Nash Bargaining problem. The efficiency of candidate merged entities is determined by a relative-influence function that measures the degree to which the combination of the involved firms' levels of efficiency results in cost-increasing amalgamations, and an interconnection cost that measures the impact of the size of the conglomerate that is formed. We calibrate parameters by applying the merger process to replicate the observed industry reconfiguration and then use these parameters to simulate the consolidation patterns that would have resulted from different policy incentives. We apply the method to the case of Ontario, where past mergers of local electricity distribution companies were incentivized by transfer tax reductions and a further round of mergers was recently proposed. Our findings suggest that the proposed tax incentive would have no impact on efficiency levels and consolidation patterns, and that even a substantial subsidy would still leave about five times as many LDCs as desired by policy makers. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1447&r=all |
| By: | Nan Miles Xi |
| Abstract: | By analyzing the duopoly market of computer graphics cards, we categorized the effects of enterprise's technological progress into two types, namely, cost reduction and product diversification. Our model proved that technological progress is the most effective means for enterprises in this industry to increase profits. Due to the technology-intensive nature of this industry, monopolistic enterprises face more intense competition compared with traditional manufacturing. Therefore, they have more motivation for technological innovation. Enterprises aiming at maximizing profits have incentives to reduce costs and achieve a higher degree of product differentiation through technological innovation. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.09074&r=all |
| By: | Francisco Cisternas; Wee Chaimanowong; Alan Montgomery |
| Abstract: | Extensive research has established a strong influence of product display on demand. In this domain, managers have many tools at their disposal to influence the demand through the product display, like assortment,shelf-space or allocating profitable products to highly attractive shelf locations. In this research, we focus on the influence of the product arrangement on competition among products within the display. Intuitively,products located next to each other are compared more often than when they are placed far apart. We introduce a model that allows product competition effects mediated by their relative position in the display. This model naturally produces an increased competition on products located closer together, inducing demand correlations based on products proximity with their competitors in the shelf, and not only their relative characteristics. We fit this model to experimental data from physical retail stores and in online product displays.The proposed model shows this effect to be significant; moreover, this model outperforms traditional models in fit and prediction power, and shows that ignoring the shelf-implied competition generates a bias in the price sensitivity, affecting price and promotion strategies. The proposed model was used to evaluate different shelf displays, and to evaluate and select displays with higher profitability, by exploiting the influence on competition among products to shift demand to higher profitability products. Finally, from the model,we generate recommendations for retail managers to construct better shelf designs;testing these suggestions on our fitted model on retail store data, we achieve a 3% increase in profits over current shelf designs. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.09227&r=all |
| By: | Bedri Kamil Onur Tas |
| Abstract: | This paper empirically investigates the impact of public procurement regulation quality on competition and cost-effectiveness. I employ the World Bank’s Benchmarking Public Procurement quality scores. Using extensive data about public procurement in the European Economic Area, Switzerland, and Macedonia, the paper exhibits positive effects of improved regulation quality. Better quality scores are associated with higher levels of competition and cost-effectiveness. Improved regulation quality significantly increases number of bidders and the probability that procurement price is lower than estimated cost |
| Keywords: | Public Procurement, Regulation, Competition |
| JEL: | H57 O12 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2019/22&r=all |
| By: | Gillen, David W.; Oum, Tae H.; Tretheway, Michael W. |
| Keywords: | Public Economics |
| Date: | 2020–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ctrf21:305967&r=all |
| By: | Andreas Haufler; Dirk Schindler |
| Abstract: | Many countries have introduced patent box regimes in recent years, offering a reduced tax rate to businesses for their IP-related income. Patent boxes are supposed to increase innovative activity, but they are also suspected to aim at attracting inward profit shifting from multinational firms. In this paper, we analyze the effects of patent box regimes when countries can simultaneously use patent boxes and R&D subsidies to promote innovation. We show that when countries set their tax policies unilaterally, innovation is fostered, at the margin, only by the R&D subsidy. The patent box tax rate is instead targeted at attracting international profit shifting, and it is optimally set below the corporate tax rate. With cooperative tax setting, the optimal royalty tax rate is instead equal to, or even above, the statutory corporation tax. Hence, patent box regimes emerge in the decentralized policy equilibrium, but never under policy coordination. Enforcing a nexus principle, as proposed by the OECD, is helpful to mitigate harmful competition for paper profits, but it comes at the price of increased strategic competition in direct R&D subsidies to attract physical R&D units instead of intangible patents. |
| Keywords: | R&D investment, patent boxes, investment tax credits, profit shifting, tax competition |
| JEL: | H25 H87 F23 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8640&r=all |
| By: | Inge van den Bijgaart; Davide Cerruti |
| Abstract: | We evaluate the effect of vehicle recalls on vehicle transactions in the second-hand market. Using a rich dataset of Dutch vehicle registrations, we exploit the quasi-experimental variation in recalls across nearly-identical cars. We find strong heterogeneities across market segment: vehicles with a lower (higher) list price or some (zero) defects experience an increase (decrease) in transactions after a recall. Based on our theoretical model, this suggests that recalls increase sorting in low-end markets, yet exacerbate adverse selection in high-end markets. Our results shed light on the effect of information arrival in markets subject to uncertainty and information asymmetries. |
| Keywords: | vehicles, recalls, adverse selection, sorting, information |
| JEL: | D12 D83 L15 L62 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8636&r=all |
| By: | Yi-Chun; Chen; Xiangqian; Yang |
| Abstract: | We study the information design problem in a single-unit auction setting. The information designer controls independent private signals according to which the buyers infer their binary private values. Assuming that the seller adopts the optimal auction due to Myerson (1981) in response, we characterize both the buyer-optimal information structure, which maximizes the buyers' surplus, and the sellerworst information structure, which minimizes the seller's revenue. We translate both information design problems into finite-dimensional, constrained optimization problems in which one can explicitly solve for the optimal information structures. In contrast to the case with one buyer (Roesler and Szentes, 2017 and Du, 2018), we show that with two or more buyers, the symmetric buyer-optimal information structure is different from the symmetric seller-worst information structure. The good is always sold under the seller-worst information structure but not under the buyer-optimal information structure. Nevertheless, as the number of buyers goes to infinity, both symmetric information structures converge to no disclosure. We also show that in an ex ante symmetric setting, an asymmetric information structure is never seller-worst but can generate a strictly higher surplus for the buyers than the symmetric buyer-optimal information structure. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.08990&r=all |
| By: | Robert Clark (Queen's University); Decio Coviello (HEC Montreal); Adriano De Leverano (ZEW - Leibniz Centre for European Economic Research in Mannheim) |
| Abstract: | A number of recent papers have proposed that a pattern of isolated winning bids may be associated with collusion. In contrast, others have suggested that bid clustering, especially of the two lowest bids, is indicative of collusion. In this paper, we present evidence from an actual procurement cartel uncovered during an anticollusion investigation that reconciles these two points of view and shows that both patterns arise naturally together as part of a cartel arrangement featuring complementary bidding. Using a difference-in-difference approach, we compare the extent of winning-bid isolation and clustering of bids in Montreal's asphalt industry before and after the investigation to patterns over the same time span in Quebec City, whose asphalt industry has not been the subject of collusion allegations. Our findings provide causal evidence that the collusive arrangement featured both clustering and isolation. We use information from testimony of alleged participants in the cartels to explain how these two seemingly contradictory patterns can be harmonized. |
| Keywords: | Auction, Bidding ring, Collusion, Complementary bidding, Clustered bids, Missing bids, Public procurement |
| JEL: | L22 L74 D44 H57 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1446&r=all |
| By: | Cape, D.M. |
| Keywords: | Public Economics |
| Date: | 2020–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ctrf21:305939&r=all |
| By: | Thierry Kirat (Université Paris-Dauphine; PSL Research Université; IRISSO CNRS); Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | L'originalisme qui s'est développé dans la jurisprudence américaine depuis les années 1970 vise à fonder les décisions des juridictions sur la recherche de l'intention du législateur à partir de l'histoire ou à partir de l'analyse textuelle du vocabulaire utilisé. Si l'originalisme vise à réduire la marge de discrétion du juge et donc à assurer la cohérence et la prévisibilité des décisions, il est souvent considéré comme porteur d'un biais conservateur. Cette contribution montre comment les différentes variantes d'originalisme ont effectivement conduit à donner un fondement constitutionnel à des politiques plus conservatrices depuis les années 1970. Elle vise également à distinguer les différentes approches originalistes (telles que portées par Robert Bork, Clarence Thomas ou Antonin Scalia) de l'approche propre à l'analyse économique du droit, telle que portée par Richard Posner. |
| Keywords: | originalisme, antitrust, Ecole de Chicago |
| JEL: | K10 K20 K30 L41 N42 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2020-43&r=all |
| By: | Ariel Burstein; Vasco M. Carvalho; Basile Grassi |
| Abstract: | We study markup cyclicality in a granular macroeconomic model with oligopolistic competition. We characterize the comovement of firm, sectoral, and economy-wide markups with sectoral and aggregate output following firm-level shocks. We then quantify the model’s ability to reproduce salient features of the cyclical properties of markups in French administrative firm-level data, from the bottom (firm) level to the aggregate level. Our model helps rationalize various, seemingly conflicting, measures of markup cyclicality in the French data. |
| JEL: | E0 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27958&r=all |
| By: | Romain Gauriot Author e-mail: romain.gauriot@nyu.edu; Lionel Page Author e-mail: lionel.page@uts.edu.au (Division of Social Science) |
| Abstract: | We study the efficiency of market prices’ reaction to information shocks. We use a natural experiment setting on binary option markets: we compare the evolution of market prices in situations where the occurrence or not of information shocks depends on knife-edge situations and where shocks can be considered as good as random. We find that most of the time, prices react surprisingly efficiently to information shocks with no evidence of abnormal average returns. We nonetheless find evidence of under-reaction in specific situations where information shocks are large. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nad:wpaper:20200058&r=all |