|
on Industrial Competition |
| By: | Belleflamme, Paul (Université catholique de Louvain, LIDAM/CORE, Belgium); Peitz, Martin; Toulemonde, Eric |
| 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: | 2020–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2020027&r=all |
| By: | Thomas Favory (Economics Discipline, Business School, University of Western Australia) |
| Abstract: | This paper proves the existence and uniqueness of Bertrand-Nash equilibrium in oligopolies, where each firm may sell multiple substitutes of the same good. Bertrand competition emerges as a limit case when the number of products per firm increases if the consumers’ willingness to pay for products follow a sufficiently slim-tailed distribution. In opposition, the double exponential distribution is not slim enough, and firms conserve monopolistic power even for an arbitrarily large number of products per firm. Moreover, the double exponential distribution provides closed-form solutions that relate to discrete choice theory. First, a duality with representative consumers helps recover multinomial logit (MNL) demand functions and constant elasticity of substitution (CES) utility functions. Second, the game in which firms sequentially set the quality, then the price of their products, has a unique equilibrium. |
| Keywords: | Multiproduct firms, Price competition, Oligopoly, Discrete choice, Product differentiation |
| JEL: | D21 D43 L12 L13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:20-24&r=all |
| By: | Gnutzmann-Mkrtchyan, Arevik; Hoffstadt, Martin |
| Abstract: | Antidumping creates opportunities for abuse to stifle market competition. Whether cartels actually abuse trade policy for anticompetitive purposes remains an open question in the literature. To address this gap, we construct a novel dataset that matches cartel investigations with trade data at the product level. We then estimate the world import price and quantity effects of antidumping in cartel products. We find that the use of antidumping in cartel industries helps to maintain higher world import prices and lower quantities during cartel periods, and to induce the establishment of a cartel. The effect is present both for antidumping cases that result in duties and cases that are withdrawn by the petitioning industry. |
| Keywords: | tcartels; collusion; antitrust; antidumping; trade policy |
| JEL: | F14 F15 L41 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-677&r=all |
| By: | Paolo Bertoletti; Federico Etro |
| Abstract: | We study monopolistic competition with asymmetric preferences over a variety of goods provided by heterogeneous firms, and show how to compute equilibria (which approximate Cournot and Bertrand equilibria when market shares are negligible) through the Morishima measures of substitution. Further results concerning pricing and entry emerge under homotheticity and when demands depend on a common aggregator, as with GAS preferences. Under additivity we can determine which goods are going to be provided under free entry, and the selection effects associated with changes in market size (i.e. opening up markets), consumers' Â’income (i.e. demand shocks), aggregate productivity (i.e. supply shocks or technological growth) and preference parameters. |
| Keywords: | Monopolistic competition, Asymmetric preferences, Heterogeneous firms, Generalized separability, Variable markups |
| JEL: | D11 D43 L11 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:454&r=all |
| By: | Albert Banal-Estañol; Melissa Newham; Jo Seldeslachts |
| Abstract: | We investigate patterns in common ownership networks between firms that are active in the US pharmaceutical industry for the period 2004-2014. Our main findings are that “brand firms” —i.e. firms that have R&D capabilities and launch new drugs— exhibit relatively dense common ownership networks with each other that further increase significantly in density over time, whereas the network of “generic firms” —i.e. firms that primarily specialize in developing and launching generic drugs— is much sparser and stays that way over the span of our sample. Finally, when considering the common ownership links between brands firms, on the one hand, and generic firms, on the other, we find that brand firms have become more connected to generic firms over time. We discuss the potential antitrust implications of these findings. |
| Keywords: | common ownership networks, pharmaceutical companies, competition, innovation |
| JEL: | G23 K21 L11 L41 L65 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1216&r=all |
| By: | Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis); Andrew T. Young (College of Business Administration, Texas Tech University, USA) |
| Abstract: | We study the cost of breaching an implicit contract in a goods market. Young and Levy (2014) document an implicit contract between the Coca-Cola Company and its consumers. This implicit contract included a promise of constant quality. We offer two types of evidence of the costs of breach. First, we document a case in 1930 when the Coca-Cola Company chose to avoid quality adjustment by incurring a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost. Second, we explore the consequences of the company’s 1985 introduction of “New Coke” to replace the original beverage. Using the Hirschman's (1970) model of Exit, Voice, and Loyalty, we argue that the public outcry that followed New Coke’s introduction was a response to the implicit contract breach. |
| Keywords: | Invisible Handshake, Implicit Contract, Customer Market, Long-Term Relationship, Cost of Breaching a Contract, Cost of Breaking a Contract, Coca-Cola, New Coke, Exit, Voice, Loyalty, Nickel Coke, Sticky/Rigid Prices, Cost of Price Adjustment, Cost of Quality Adjustment |
| JEL: | E31 K10 L11 L16 L66 M20 M30 N80 N82 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:20-26&r=all |
| By: | Frédéric Marty; Thierry Warin |
| Abstract: | In this article, we investigate the role of keystone players and consider their impact in terms of innovation rate in an industry. To do so, we build a theoretical framework that considers the innovation rate in the context of an industry with one keystone player and then with multiple keystone players. The results are threefold. First, the presence of a keystone player is incredibly important for innovation on a market. Second, however, our results also show that a biased market power in favor of the keystone player may hinder innovation in this industry, although the negative impact on the industry’s innovation rate may not be seen at first. Finally, we demonstrate that an industry obtains a higher innovation rate with multiple keystone players. This framework could inform decisions for the antitrust enforcers. |
| Keywords: | Innovation,Coopetition,Technological Dependence,Dominant Position,Keystone Players,Platform, |
| JEL: | L12 L22 L41 L86 |
| Date: | 2020–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2020s-61&r=all |
| By: | Ziad Ghandour (University of Minho and NIPE); Odd Rune Straume (NIPE and Department of Economics, University of Minho and Department of Economics, University of Bergen) |
| Abstract: | We study quality competition in a mixed oligopoly (with applications to health care and education) where a welfare-maximising public provider competes with two pro fit-maximising private providers that differ with respect to the regulatory regime they face, with only one of the private providers being included in the public funding scheme. We fi nd that changes in the funding scheme or in the degree of competition have differential effects on quality provision across the different types of providers and thus generally ambiguous effects on average quality provision. In terms of social welfare, we fi nd that the two policy instruments in the funding scheme price and copayment are policy complements (substitutes) for sufficiently low (high) levels of the copayment rate. We also identify a welfare trade-off between the public funding schemes generosity (price level) and the extent (number of private providers included). |
| Keywords: | Quality; Competition; Mixed oligopoly. |
| JEL: | H44 I11 L13 L33 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:10/2020&r=all |
| By: | Thomas M. Eisenbach (Federal Reserve Bank of New York); Gregory Phelan (Williams College) |
| Abstract: | In standard Walrasian macro-finance models, pecuniary externalities due to fire sales lead to excessive borrowing and insufficient liquidity holdings. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the external- ity and find that this is far from guaranteed. Cournot competition can overcorrect the inefficiently high borrowing in a standard model of levered real investment. In contrast, Cournot competition can exacerbate the inefficiently low liquidity in a standard model of financial portfolio choice. Implications for welfare and regulation are there- fore sector-specific, depending both on the nature of the shocks and the competitive- ness of the industry. |
| Keywords: | liquidity, fire sales, overinvesment, financial regulation, macroprudential regulation |
| JEL: | D43 D62 E44 G18 G21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2020-10&r=all |
| By: | Marco Bertini; Stefan Buehler; Daniel Halbheer |
| Abstract: | This paper studies how a firm should make pricing and transparency decisions when consumers care about supply chain characteristics. We first show how preferences that account for price and unit cost constrain the firm’s pricing power and profit. Surprisingly, we find that the firm may be forced to sell at unit cost under markup aversion. Next, we assume that consumers are uncertain about unit cost and show that, in a pooling equilibrium, it is optimal for both the low-cost and high-cost firm to conceal its unit cost if the cost of disclosure exceeds the corresponding gain from demand expansion. Third, we show that in a separating equilibrium it is optimal for the high-cost firm alone to engage in cost transparency when the increase in product market profit exceeds the cost of disclosure. Finally, we establish the conditions under which it is optimal for the firm to disclose other details of the supply chain including provenance, labor policies, and environmental footprint. |
| Keywords: | conscientious consumption, cost transparency, operational transparency, pricing, reference-dependent preferences |
| JEL: | D42 L21 M20 M30 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8675&r=all |
| By: | Robert M. Adams; Vitaly M. Bord |
| Abstract: | The consumer credit card market has experienced dramatic, unprecedented changes in the wake of the COVID-19 shutdown of the U.S. economy. Revolving credit in the G.19 Consumer Credit statistical release fell by an annualized rate of 32 percent in the second quarter of 2020. |
| Date: | 2020–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-10-21-1&r=all |
| By: | Kanishka Dam (Center for Research and Teaching in Economics (CIDE)); Prabal Roy Chowdhury (Indian Statistical Institute, Delhi) |
| Abstract: | The possibility of vertical collusion between an informationally opaque borrower and corruptible loan officers, to whom the task of monitoring is delegated, in bank-loan officer-borrower hierarchies shapes the incentive contracts for the loan officers. Collusive threats exacerbate incentives for overmonitoring, and make monitoring efforts of the banks strategic complements because of a novel ‘race-to-collusion’ effect—a hitherto unexplored effect of multiple-bank lending. Thus, delegation contract solves the free-riding problem in the presence of monitoring duplication, and may lead to higher levels of per-bank monitoring in multiple-bank lending. Moreover, over-monitoring, albeit inefficient relative to the optimal contract in the absence of race-to-collusion, may enhance social welfare. We further show that the collusion-proofness principle may fail to hold under multiple-bank lending. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:alo:isipdp:20-05&r=all |
| By: | World Bank |
| Keywords: | Public Sector Development - Regulatory Regimes Finance and Financial Sector Development - Banks & Banking Reform Finance and Financial Sector Development - Financial Regulation & Supervision Private Sector Development - Competitiveness and Competition Policy |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34444&r=all |
| By: | Alvaro Gonzalez-Castellanos (Skolkovo Institute of Science and Technology); David Pozo (Skolkovo Institute of Science and Technology); Aldo Bischi (Skolkovo Institute of Science and Technology) |
| Abstract: | There is a growing interest in the integration of energy infrastructures to increase systems' flexibility and reduce operational costs. The most studied case is the synergy between electric and heating networks. Even though integrated heat and power markets can be described by a convex optimization problem, prices derived from dual values do not guarantee cost recovery. In this work, a two-step approach is presented for the calculation of the optimal energy dispatch and prices. The proposed methodology guarantees cost-recovery for each of the energy vectors and revenue-adequacy for the integrated market. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2011.10384&r=all |
| By: | Carlos Rodriguez Castelan; Eduardo A. Malasquez; Rogelio Granguillhome |
| Keywords: | Public Sector Development - Public Sector Economics Public Sector Development - State Owned Enterprise Reform Private Sector Development - Privatization Public Sector Development - Decentralization Science and Technology Development - Statistical & Mathematical Sciences Poverty Reduction - Inequality |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34310&r=all |