nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒11‒30
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. National pricing with local quality competition By Tommy Staahl Gabrielsen; Bjørn Olav Johansen; Odd Rune Straume
  2. Selling Cross-Border in Online Markets: The Impact of the Ban on Geoblocking Strategies By Marc Bourreau; Fabio M. Manenti
  3. Optimal Destabilization of Cartels By von Auer, Ludwig; Pham, Tu Anh
  4. Data-driven mergers and personalization By Zhijun Chen; Chongwoo Choe; Jiajia Cong; Noriaki Matsushima
  5. Competition, cost structure, and labour leverage: Evidence from the U.S. airline industry By Wagner, Konstantin
  6. Manufacturer Cartels and Resale Price Maintenance By Hunold, Matthias
  7. Monopolies: Silent Spreaders of Poverty and Economic Inequality By David Fettig; James A. Schmitz
  8. Spilt Milk: COVID-19 and the Dangers of Dairy Industry Consolidation By Eileen Appelbaum; Jared Gaby-Biegle
  9. Changes in Consumer Perspective towards Discount at Brick-and-Mortar Stores owing to Emergence of Online Store Format in India By H. R., Ganesha; Aithal, Sreeramana; P., Kirubadevi
  10. Do energy efficiency standards hurt consumers?: evidence from household appliance sales By Brucal, Arlan; Roberts, Michael
  11. Coordinate to obfuscate? The role of prior announcements of recommended prices By Foros, Øystein; Nguyen-Ones, Mai
  12. Price-setting mixed duopoly, partial privatisation and subsidisation By Ohnishi, Kazuhiro
  13. Attainment of Equilibrium: Marshallian Path Adjustment and Buyer Determinism By Collins, Sean M.; James, Duncan; Servátka, Maroš; Vadovič, Radovan
  14. Pricing above Value: Selling to an Adverse Selection Market By Boone, Jan
  15. Adjusting to China Competition: Evidence from Japanese Plant-product-level Data By Flora Bellone; Cilem Selin Hazir; Toshiyuki Matsuura
  16. Patent Screening, Innovation, and Welfare By Schankerman, Mark; Schuett, Florian

  1. By: Tommy Staahl Gabrielsen (University of Bergen); Bjørn Olav Johansen (University of Bergen); Odd Rune Straume (NIPE and Department of Economics, University of Minho and Department of Economics, University of Bergen)
    Abstract: We study the incentives of national retail chains to adopt national (uniform) prices across local markets that differ in size and competition intensity. In addition to price, the chains may also compete along a quality dimension, and quality is always set locally. We show that absent quality competition, the chains will never use national pricing. However, if quality competition is sufficiently strong there exist equilibria where at least one of the chains adopts national pricing. We also identify cases in which national pricing bene ts (harms) all consumers, even in markets where such a pricing strategy leads to higher (lower) prices.
    Keywords: National pricing, local pricing, retail chains, price and quality competition
    JEL: L11 L13 L21
    Date: 2020
  2. By: Marc Bourreau; Fabio M. Manenti
    Abstract: We develop a model of strategic geoblocking, where two competing multi-channel retailers, located in different countries, can decide to block access to their online store from foreign consumers. We characterize the equilibrium when firms decide unilaterally whether to introduce geoblocking restrictions. We show that geoblocking results in a “puppy dog” strategy (Fudenberg and Tirole, 1984) for firms, which allows them to soften competition, but that it comes at the cost of lower demand. In the short term, a ban on geoblocking leads to lower prices, both offline and online. However, in the longer term, when firms can invest in increasing the demand from online shoppers, the ban may have adverse effects on investment and social welfare. We extend our analysis to account for price discrimination and investigate the role of shipping costs.
    Keywords: cross-border sales, geoblocking, e-commerce, investment
    JEL: L13 L41 L81
    Date: 2020
  3. By: von Auer, Ludwig; Pham, Tu Anh
    Abstract: A model-based derivation of an effective antitrust policy requires an economic framework that includes three actors: a cartel, a group of competing fringe firms, and a welfare maximizing antitrust authority. In existing models of cartel behavior, at least one of these actors is always missing. By contrast, the present paper's oligopoly model includes all three actors. The cartel is the Stackelberg quantity leader and the fringe firms are in Cournot competition with respect to the residual demand. Taking into account that the antitrust policy instruments (effort, fine, and leniency program) are not costless for society, an optimal policy is derived.
    Keywords: antitrust,stability,Cournot fringe,oligopoly,leniency
    JEL: L13 L41
    Date: 2020
  4. By: Zhijun Chen; Chongwoo Choe; Jiajia Cong; Noriaki Matsushima
    Abstract: Recent years have seen growing cases of data-driven tech mergers such as Google/Fitbit, in which a dominant digital platform acquires a relatively small firm possessing a large volume of consumer data. The digital platform can consolidate the consumer data with its existing data set from other services and use it for personalization in related markets. We develop a theoretical model to examine the impact of such mergers across the two markets that are related through a consumption synergy. The merger links the markets for data collection and data application, through which the digital platform can leverage its market power and hurt competitors in both markets. Personalization can lead to exploitation of some consumers in the market for data application. But insofar as competitors remain active, the merger increases total consumer surplus in both markets by intensifying competition. When the consumption synergy is large enough, the merger can result in monopolization of both markets, leading to further consumer harm when stand-alone competitors exit in the long run. Thus, there is a trade-off where potential dynamic costs can outweigh static benefits. We also discuss policy implications by considering various merger remedies.
    Date: 2020–11
  5. By: Wagner, Konstantin
    Abstract: I study the effect of increasing competition on financial performance through labour leverage. To capture competition, I exploit variation in product market contestability in the U.S. airline industry. First, I find that increasing competitive pressure leads to increasing labour leverage, proxied by labour share. This explains the decrease in operating profitability through labour rigidities. Second, by exploiting variation in human capital specificity, I show that contestability of product markets induces labour market contestability. Whereas affected firms might experience more stress through higher wages or loss of skilled human capital, more mobile employee groups benefit from competitions through higher labour shares.
    Keywords: competition,labour leverage,labour share,threat of entry
    JEL: G39 J31 L93
    Date: 2020
  6. By: Hunold, Matthias
    Abstract: We provide a theory of how RPM facilitate upstream cartels absent any information asymmetries using a model with manufacturer and retailer competition. Because retailers have an effective outside option to each manufacturer's contract, the manufacturers can only ensure contract acceptance by leaving a sufficient margin to the retailers. This restricts the wholesale price level even when manufacturers collude. In this context, resale price maintenance may only be profitable for the manufacturers if they collude. We thus provide a novel theory of harm for resale price maintenance when manufacturers collude and illustrate the fit of this theory in various competition policy cases.
    Keywords: resale price maintenance,collusion,retailing
    JEL: L41 L42 L81
    Date: 2020
  7. By: David Fettig; James A. Schmitz
    Abstract: The Covid-19 crisis has exposed the vast inequalities that exist within the US economy. As the virus has spread silently, it has laid bare other crises that face our nation---especially the economic vulnerabilities of the country's poor and marginalized. Many of these vulnerabilities can, in fact, be traced back to a single cause that itself has spread silently, but over the last several decades, not months: Monopolies. That monopolies are "silent spreaders of poverty and economic inequality" was well known to economic and legal scholars of the 1930s and 1940s. Wendell Berge, who was Assistant Attorney General for Antitrust in the 1940s, wrote: "Monopoly conditions have often grown up almost unnoticed by the public until one day it is suddenly realized that an industry is no longer competitive but is governed by an economic oligarchy." The harm caused by these monopolies that have mostly avoided detection often exist in markets with small firms, low concentration levels, and small price-cost margins, as in residential construction, or wreak their harm in public institutions, where prices and concentration have no meaning. While there has been a very welcome resurgence in the concern about monopolies in the last decade or so, this has primarily involved vast corporations, and often about their threat to democratic institutions. Though greatly welcomed, we should not let apprehension with these larger companies distract us from the many hidden monopolies that have silently spread harm to the poor for the last 100 years -- not just the last 10 or so. We should stand on the shoulders of giants that taught us this about monopolies, not only Berge, but Thurman Arnold, Henry Simons, and others.
    Keywords: Monopoly; Competition; Inequality; Cournot; Sabotage; Harberger; COVID-19; Thurman Arnold; Henry Simons; Silent spreaders; Housing
    JEL: D22 D42 K0 L0 L12
    Date: 2020–09–22
  8. By: Eileen Appelbaum (Center for Economic and Policy Research); Jared Gaby-Biegle (Center for Economic and Policy Research)
    Abstract: Consolidation came later in the dairy industry than in other agricultural sectors. A long history of dairy farmer cooperatives owned by their farmer members and vertically integrated to produce and distribute fluid milk and cheese products staved off industrialized farming and horizontal consolidation. But by 1990, advances in technology and a change in antitrust regulation enabled investor-owned firms like Borden Dairy and Dean Food as well as large farmer cooperatives like DFA, Prairie Farm and Land O’Lakes to dominate the industry. Consolidation and the pursuit of economies of scale led to two inflexible and separate supply chains in dairy – one serving retail markets for consumers, the other serving commercial markets for institutional customers. The COVID-19 pandemic and economic lockdown revealed the lack of resilience and risks in a system dominated by a few large actors. Viable reforms in the dairy industry that limit the domination by powerful actors can achieve resilience and improve the ability of the dairy industry to respond to disruptions.
    Keywords: Dairy Industry, Industrialization, Consolidation, Monopolization.
    JEL: L11 L12 L41 Q13
    Date: 2020–08–15
  9. By: H. R., Ganesha; Aithal, Sreeramana; P., Kirubadevi
    Abstract: End-of-season sale (EOSS) has been one of the most important long duration sales promotion/discounting events for brick-and-mortar retailers and consumers in India. But, ever since the online retailing format has emerged in India, consumers now have wider options available for them to buy a product at a discounted price and notably, as online stores in India are following the product discounting as one of the key drivers for consumer acquisition, consumers’ perspective towards discount at brick-and-mortar store is expected to have changed. This change in consumers’ perspective has put the majority of brick-and-mortar retailers in India into a quandary and they are losing out their market share slowly to online retailers. In this research, authors have attempted to investigate; (a) proof, (b) pattern, (c) magnitude, (d) significance and (e) impact of this change in perspective towards discount across stakeholders and transpired the research outcomes into suggestions to enable brick-and-mortar retailers to design appropriate sales promotions.
    Keywords: Discount, End-of-season sale, Brick-and-mortar store, Offline store, Physical store, Consumer perspective, Online store, Sales promotion
    JEL: M1 M3 M31 M39
    Date: 2020–04–20
  10. By: Brucal, Arlan; Roberts, Michael
    Abstract: We build novel welfare-based price indices for major household appliances that leverage changes in same-model prices and how consumers substitute between exiting, continuing and new models. We then evaluate how minimum energy efficiency requirements and changing criteria for Energy Star™ labels affected these indices in the U.S. between 2001 and 2011, a period of time when some appliances experienced standard changes while others did not. We find that prices declined while quality and consumer welfare increased, especially when standards become more stringent. We also find that much of the price index decline can be attributed to standards-induced innovation, or cannibalism, not to inter-manufacturer competition. Our results also add to a growing body of evidence that the Consumer Price Index exaggerates inflation due to inadequate account of quality and substitution to new goods.
    Keywords: energy efficiency; standards; imperfect competition; price indices; ES/R009708/1
    JEL: D12 H23 L68 Q48
    Date: 2019–07–01
  11. By: Foros, Øystein (Dept. of Business and Management Science, Norwegian School of Economics); Nguyen-Ones, Mai (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: Firms may want to coordinate industry-wide price jumps that are predictable for rivals, however, unpredictable for consumers. We show how such coordination is carried out in Norwegian gasoline retailing. Overnight, the market leader initiated an equilibrium transition from regular to non-regular price jumps. Prior announcements of a non-transaction price variable, recommended prices, are used to coordinate the timing and the level of industry-wide price jumps.
    Keywords: Price coordination; consumer obfuscation; prior announcements
    JEL: D22 D43 L11 L13
    Date: 2020–11–18
  12. By: Ohnishi, Kazuhiro
    Abstract: This paper examines partial privatisation in a price-setting mixed duopoly model to reassess the welfare effect of production subsidies. It is shown that the result of this study is basically the same as that of the existing quantity-setting mixed market model.
    Keywords: Partial privatisation; Price competition; Subsidisation
    JEL: C72 D21 L32
    Date: 2020–11–10
  13. By: Collins, Sean M.; James, Duncan; Servátka, Maroš; Vadovič, Radovan
    Abstract: We examine equilibration in a market where Marshallian path adjustment can be enforced, or not, as a treatment: a posted offer market either with buyer queueing via value order, or random order, respectively. We derive equilibrium predictions, and run experiments crossing queueing rules with either human or deterministically optimizing robot buyers under both locally stationary and nonstationary marginal cost. Results on rate of convergence to competitive equilibrium are obtained, and Marshallian path adjustment is established as conducive to attaining competitive equilibrium.
    Keywords: laboratory experiment, Marshallian path adjustment, equilibration, markets
    JEL: C4 C9 C91
    Date: 2020–11–02
  14. By: Boone, Jan (Tilburg University, Center For Economic Research)
    Keywords: adverse selection; pricing above value; vertical relations; pharmaceutical prices; risk equalization
    Date: 2020
  15. By: Flora Bellone (Université Côte d'Azur; GREDEG CNRS); Cilem Selin Hazir (Leibniz Institute of Ecological Urban and Regional Development); Toshiyuki Matsuura (Keio Economic Observatory, Keio University)
    Abstract: This study examines how the product mixes of Japanese manufacturing plants have been impacted by the rise of China imports over the period 1997-2014, and the extent that plants' local embeddedness mitigate this causal relationship. We find evidence that China import competition induced both product downsizing and product exit within Japanese manufacturing plants. Moreover, we find that those negative e ects differ across plants according to various plant characteristics including the spatial organization of their parent firm. Finally, we show that both product survival and product sales are positively impacted by external agglomeration economies, but these e ects are strong for standalone plants only, and almost non-existent for plants aliated to spatially compact multi-unit firms.
    Keywords: Import competition, Product Portfolio, Local Product Relatedness
    JEL: F61 L25 D22
    Date: 2020–11
  16. By: Schankerman, Mark; Schuett, Florian (Tilburg University, TILEC)
    Keywords: innovation; patent quality; screening; litigation; courts; patent fees; licensing
    Date: 2020

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