nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒12‒14
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Collusion in Quality-Segmented Markets By Iwan Bos; Marco A. Marini
  2. Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry By Georges Siotis; Carmine Ornaghi; Micael Castanheira De Moura
  3. International Trade, Upstream Market Power, and Endogenous Mode of Downstream Competition By John Gilbert; Onur A. Koska; Reza Oladi
  4. The Welfare Effects of Early Termination Fees in the US Wireless Industry By Joseph Cullen; Nicolas Schutz; Oleksandr Shcherbakov
  5. Searching for Results: Optimal Platform Design in a Network Setting By Charlson, G.
  6. Vertical Relations, Pass-through, and Market Definition: Evidence from Grocery Retailing By Justus Haucap; Ulrich Heimeshoff; Gordon J. Klein; Dennis Rickert; Christian Wey
  7. Imperfect competition in product and labour markets. A quantitative analysis By Dario Tortarolo; Roman D. Zarate
  8. Structure and Competition in the Uruguayan Banking Sector By Miguel Mello; Jorge Ponce
  9. Advertising and Content Differentiation: Evidence from YouTube By Anna Kerkhof
  10. Protecting the Competitive Process, not a Competitive Structure - Reflections on the book by Nicolas Petit Big Tech and the Digital Economy By Frédéric Marty
  11. Information Exchange and Consumer Search By Anton Sobolev
  12. Hospital Competition in the Netherlands : An Empirical Investigation By Berden, Carolien; Croes, R.; Kemp, R.; Mikkers, Misja; van der Noll, Rob; Shestalova, V.; Svitak, Jan
  13. Competition Policy and Data Sharing on Data-driven Markets : Steps Towards Legal Implementation By Prüfer, Jens
  14. Efficient Pricing of Electricity Revisited By Mathias Mier
  15. Innovation in the digital age : Competition, cooperation, and standardization By Fiedler, Clemens
  16. Can International Competition Drive Insurance Market Growth? Evidence from Vietnam By World Bank
  17. Failure and Success in Mergers and Acquisitions By Renneboog, Luc; Vansteenkiste, C.
  18. Price Commitments in Standard Setting under Asymmetric Information By Boone, Jan; Schuett, Florian; Tarantino, E.
  19. Governance Structure, Technical Change and Industry Competition By Mattia Guerini; Philipp Harting; Mauro Napoletano
  20. Essays on the impact of different forms of collaborative R&D on innovation and technological change By Nasiri, Mohammad
  21. Pricing above Value: Selling to an Adverse Selection Market By Boone, Jan

  1. By: Iwan Bos (Department of Organisation, Strategy and Entrepreneurship, Maastricht University); Marco A. Marini (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: This paper analyzes price collusion in a repeated game with two submarkets; a standard and a premium quality segment. Within this setting, we study four types of price-?xing agreement: (i) a segment-wide cartel in the premium submarket only, (ii) a segment-wide cartel in the standard submarket only, (iii) two segment-wide cartels, and (iv) an industry-wide cartel. We present a complete characterization of the collusive pricing equilibrium and examine the corresponding e¤ect on market shares and welfare. Partial cartels operating in a su¢ ciently large segment lose market share and the industry-wide cartel prefers to maintain market shares at pre-collusive levels. The impact on consumer and social welfare critically depends on the cost of producing quality. Moreover, given that there is a cartel, more collusion can be bene?cial for society as a whole.
    Keywords: Partial Cartels, Price Collusion, Market Segmentation, Vertical Di¤erentiation.
    JEL: D4 L1
    Date: 2020–11
  2. By: Georges Siotis; Carmine Ornaghi; Micael Castanheira De Moura
    Abstract: We focus on market definition in the pharmaceutical industry, where the introduction of generics in different markets provide a sequence of quasi natural experiments involving a significant competitive shock for the molecule experiencing Loss of Exclusivity. We show that generic entry alters competitive constraints and generates market-wide effects. Paradoxically, entry may soften competitive pressure for some originators. We obtain these results by econometrically estimating time-varying price elasticities and apply the logic of the Hypothetical Monopolist Test to delineate antitrust markets. They provide strong empirical support to the approach consisting in defining relevant markets contingent on the theory of harm. We discuss the relevance of these findings in the context of ongoing cases.
    Keywords: market definition; competition policy; antitrust; pharmaceutical industry
    JEL: D22 I11 L13
    Date: 2020–12
  3. By: John Gilbert; Onur A. Koska (University of Canterbury); Reza Oladi
    Abstract: In a trade model with both horizontal and vertical product differentiation, we analyze the implications of upstream market power for the endogenous mode of downstream competition. We show that when high-quality exports are manufactured under large frictions due to upstream monopoly power, the exporter can become a Bertrand competitor against a Cournot local rival in equilibrium, especially when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low (implying higher input price distortions due to double marginalization). We also show that the availability of FDI as an alternative to trade can make strategic asymmetry even more likely, especially when both input trade costs and fixed investment costs are sufficiently low and trade costs in final goods are sufficiently large. Our results show that strategic asymmetry is welfare improving and has important implications for both trade and FDI policy.
    Keywords: International trade; upstream market power; vertical product differentiation; horizontal product differentiation; Cournot-Bertrand-Nash equilibrium
    JEL: D43 F12
    Date: 2020–12–01
  4. By: Joseph Cullen; Nicolas Schutz; Oleksandr Shcherbakov
    Abstract: We develop and estimate a dynamic structural model of the US wireless industry. The demand model features two sources of dynamics: First, consumers that switch contracts must pay early termination fees to their current wireless service provider; second, handsets are durable. Consumers and wireless carriers are forward-looking and, in contrast to previous work, have perfect foresight over the evolution of the industry. Carriers compete using open-loop strategies. Counterfactual simulations reveal that the elimination of early termination fees, despite raising equilibrium prices, unambiguously benefits consumers. Firms may benefit as well provided the cost of processing early termination fees is high enough.
    Keywords: switching costs, perfect foresight, structural estimation, dynamics
    JEL: D12 L11 L13 L40 L96
    Date: 2020–12
  5. By: Charlson, G.
    Abstract: Large online platforms, like Airbnb or Amazon Marketplace, increasingly direct users to internal search engines that limit the number of sellers consumers observe. We show that such behaviour is consistent with profit maximisation. To do so, we model buyer-seller interactions as a series bipartite graphs, which are each realised with a probability chosen by the platform owner. Prominent players disproportionately increase competition, which decreases prices. To maximise profit, the platform owner ensures that buyers only observe a consistent number of sellers in every state of the world realised with positive probability. When products are vertically differentiated, the platform owner biases observation towards high-quality products, but doing so reduces prices, and, as a result, the optimal number of sellers in the network. The extent to which platforms in different markets highlight high-quality products and the number of sellers their search processes show is a function of both quality dispersion and substitutability.
    Keywords: networks, platforms, industrial organisation, network design, games on networks
    JEL: D20 L20
    Date: 2020–12–02
  6. By: Justus Haucap; Ulrich Heimeshoff; Gordon J. Klein; Dennis Rickert; Christian Wey
    Abstract: We examine how different pass-through rates, from input- to final consumer prices, and different vertical contracts affect upstream market definition. Our theory model predicts that, under reasonable conditions, higher pass-through rates lead to definitions of larger upstream markets. Data from grocery retailing is used to quantify the empirical implications of our theoretical result. We find that resale price maintenance leads to larger upstream market definitions than linear pricing models. The reason is that linear pricing contracts are associated with lower pass-through rates under imperfect competition. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.
    Keywords: market definition, vertical relations, pass-through, structural models
    JEL: L10 L40 L80 C50
    Date: 2020
  7. By: Dario Tortarolo; Roman D. Zarate
    Abstract: We disentangle the extent of imperfect competition in product and labor markets using plant level data. We derive a formula for the ratio between markups and markdowns assuming costminimizing firms that face upward-sloping labour supply and downward-sloping product demand curves. We then separate this combined measure of market power by estimating firm-level labour supply elasticities instrumenting wages with a different set of instruments: including the use of intermediate inputs, input price shocks, and TFP shocks. Our results suggest that both markets exhibit imperfect competition, but the variation is mainly driven by markups. We also estimate the relative gains of removing market power dispersion on allocative efficiency, finding that markups are more important on TFP than markdowns.
    Keywords: labour markets, imperfect competition, markups, TFP shocks
    Date: 2020
  8. By: Miguel Mello (Banco Central del Uruguay); Jorge Ponce (Banco Central del Uruguay)
    Abstract: Using a quarterly data set for 14 banks in Uruguay between 2004 and 2018, we find that this sector is a concentrated oligopoly that exhibits global economies of scale. Specific product economies of scale are only significant in loans to households. Likewise, we find statistically significant economies of scope between loans to households in foreign and in local currency, as well as between loans to firms and deposits in local currency. The credit market to households is the less competitive, behaving like a monopoly or under implicit collusion. The credit market to firms exhibits greater competition than that suggested by the structure of the market, specially in local currency. Overall, the results suggest that there exists room for the development and increasing competition of the Uruguayan banking sector.
    Keywords: Cost function, economies of scale and scope, market structure, competition, banks, Uruguay
    JEL: G21 L10
    Date: 2019
  9. By: Anna Kerkhof
    Abstract: This paper studies the effect of advertising on content differentiation on YouTube, the second-most visited website in the world. I demonstrate that an exogenous increase in the feasible advertising quantity leads to a considerable decrease in the YouTubers’ probability to duplicate mainstream content, i.e., the type of content that attracts the largest number of views. The result is driven by an intuitive mechanism: Mainstream content is provided by many competing YouTubers; thus, viewers who perceive advertising as a nuisance – and therefore as an implicit price they have to pay – could easily switch to a competitor if a YouTuber increased her advertising quantity. Switching is less likely, however, if the YouTuber differentiates her content from the mainstream, gains market power in a niche, and thereby softens competition in the ad “price."
    Keywords: advertising, content differentiation, economics of digitization, horizontal product differentiation, long tail, media diversity, user-generated content, YouTube
    JEL: D22 L15 L82 L86
    Date: 2020
  10. By: Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: Nicolas Petit's Big Tech & the Digital Economy - The Molygopoly Scenario offers a most stimulating insight into the conditions of competition between digital ecosystems and emphasises its dynamic aspects by placing the question of innovation in a context of uncertainty at the centre of its subject matter. This review aims to present the analysis carried out by Nicolas Petit and his proposals in terms of controlling the strategies of the firms through competition rules. It puts Nicolas Petit's work into perspective by successively considering three dimensions: the comeback of structuralist analyses of competition, considering it from the perspective of an effective rivalry on the market, the understanding of competition both as competition in the market and competition for the market, and finally the analysis of the enforcement of competition rules in molygopolistic markets.
    Keywords: digital ecosystems, competition laws, innovation, dominance
    JEL: K10 K20 K30 L41 N42
    Date: 2020–10
  11. By: Anton Sobolev
    Abstract: Many benchmarks in over-the-counter markets, such as LIBOR, are formed based on the submission of banks' interbank interest rates. Benchmarks are important, as they help consumers to search and provide firms with a basis for price setting. This paper explores firms' incentives to contribute information about their costs for the purpose of benchmark formation. We show that benchmarks reduce price variance and lead consumers to search less. As a result, firms charge higher prices and consumers end up buying from less efficient firms, which negatively affects total welfare. We find that in order to deter consumer search, firms find it optimal to share their private costs if the search friction is sufficiently high. Moreover, the reduction of search in these markets can dramatically decrease welfare even when consumers are not aware of the content of the information exchange, but observe that it took place.
    Keywords: information sharing, consumer search, benchmark, LIBOR
    JEL: D43 D83 L13
    Date: 2020–12
  12. By: Berden, Carolien; Croes, R.; Kemp, R.; Mikkers, Misja (Tilburg University, School of Economics and Management); van der Noll, Rob; Shestalova, V. (Tilburg University, School of Economics and Management); Svitak, Jan (Tilburg University, School of Economics and Management)
    Date: 2019
  13. By: Prüfer, Jens (Tilburg University, School of Economics and Management)
    Date: 2020
  14. By: Mathias Mier
    Abstract: Increasing shares of intermittent renewable energies challenge the dominant way to trade electricity ex-ante in forward, day-ahead, and intraday markets: Coal power plants and consumers cannot react to the stochastic element of renewables, whereas gas turbines can. We use a theoretical model to analyze consumer behavior and incentives of perfectly competitive firms to invest in different types of technologies under ex-ante pricing. Curtailed consumers need to get subsidized in high of their disruption cost. Coal power firms recover cost. Renewables and gas turbine firms fail to do so. We identify imperfections that arise from the delay in price setting and market clearing. Do real-time prices induce an efficient outcome? Consumers need to get taxed in high of rationing cost. Support is redundant for gas turbine firms, but renewables firms still fail to recover cost because they cannot ensure against their price risk.
    Keywords: Efficient pricing, market design, capacity mechanisms, renewable energies, supply uncertainty, consumer behavior
    JEL: D41 D47 Q41 Q48 L94 L98
    Date: 2020
  15. By: Fiedler, Clemens (Tilburg University, School of Economics and Management)
    Date: 2020
  16. By: World Bank
    Keywords: Finance and Financial Sector Development - Finance and Development Finance and Financial Sector Development - Insurance & Risk Mitigation International Economics and Trade - Access to Markets
    Date: 2020–06
  17. By: Renneboog, Luc (Tilburg University, School of Economics and Management); Vansteenkiste, C. (Tilburg University, School of Economics and Management)
    Date: 2019
  18. By: Boone, Jan (Tilburg University, School of Economics and Management); Schuett, Florian (Tilburg University, School of Economics and Management); Tarantino, E. (Tilburg University, School of Economics and Management)
    Date: 2019
  19. By: Mattia Guerini (Université Côte d'Azur, CNRS, GREDEG, France; Sant'Anna School of Advanced Studies; Sciences Po., OFCE); Philipp Harting (Bielefeld University); Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School)
    Abstract: We develop a model to study the impact of corporate governance on firm investment decisions and industry competition. In the model, governance structure affects the distribution of shares among short- and long-term oriented investors, the robustness of the management regarding possible stockholder interference, and the managerial remuneration scheme. A bargaining process between firm's stakeholders determines the optimal allocation of financial resources between real investments in R&D and financial investments in shares buybacks. We characterize the relation between corporate governance and firm's optimal investment strategy and we study how different governance structures shape technical progress and the degree of competition over the industrial life cycle. Numerical simulations of a calibrated set-up of the model show that pooling together industries characterized by heterogeneous governance structures generate the well-documented inverted-U shaped relation between competition and innovation.
    Keywords: Governance structure, industry dynamics, competition, technical change
    JEL: G34 L22 M12
    Date: 2020–11
  20. By: Nasiri, Mohammad (Tilburg University, School of Economics and Management)
    Date: 2020
  21. By: Boone, Jan (Tilburg University, School of Economics and Management)
    Date: 2020

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