nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒12‒21
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Wages, Hires, and Labor Market Concentration By Ioana Marinescu; Ivan Ouss; Louis-Daniel Pape
  2. Optimal Vaccine Subsidies for Endemic and Epidemic Diseases By Matthew Goodkin-Gold; Michael Kremer; Christopher M. Snyder; Heidi L. Williams
  3. Subsidy policies and vertical integration in times of crisis: Can two virtues produce an evil? By Giuranno, Michele G.; Scrimitore, Marcella; Stamatopoulos, Giorgos
  4. Competitive CSR in a strategic managerial delegation game with a multiproduct corporation By Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho
  5. Artificial Intelligence and Market Manipulations: Ex-ante Evaluation in the Regulator's Arsenal By Nathalie de Marcellis-Warin; Frédéric Marty; Eva Thelisson; Thierry Warin
  6. Open Banking: Credit Market Competition When Borrowers Own the Data By Zhiguo He; Jing Huang; Jidong Zhou
  7. Asymmetric Information and Delegated Selling By Maarten Janssen; Santanu Roy
  8. Essays on competition, regulation and innovation in the banking industry By Capera Romero, Laura
  9. Separating retail and investment banking: evidence from the UK By Chavaz, Matthieu; Elliott, David
  10. Do Larger Importing Firms Face Lower Freight Rates? By Adina Ardelean; Volodymyr Lugovskyy
  11. Auto Dealer Loan Intermediation: Consumer Behavior and Competitive Effects By Tobias Salz; Andreas Grunewald; David C. Low; Jonathan A. Lanning
  12. Uncertain Commitment Power in a Durable Good Monopoly By Seres, Gyula
  13. On the Competitive Effects of Screening in Procurement By Seres, G.; Pigon, Adam
  14. Competition, Politics, & Social Media By Benson Tsz Kin Leung; Pinar Yildirim
  15. From the First World War to the National Recovery Administration (1917-1935) - The Case for Regulated Competition in the United States during the Interwar Period By Thierry Kirat; Frédéric Marty
  16. Attainment of Equilibrium via Marshallian Path Adjustment: Queueing and Buyer Determinism By Collins, Sean M.; James, Duncan; Servátka, Maroš; Vadovič, Radovan
  17. Promise, Trust and Betrayal: Costs of Breaching an Implicit Contract By Levy, Daniel; Young, Andrew
  18. Done Deal! Advisor impact on Pricing, Premia, Returns, and Deal Completion in M&A By Ecer, C. Fuat J.; Trautmann, Stefan
  19. Management as the sine qua non for M&A success By Manthos D. Delis; Maria Iosifidi; Pantelis Kazakis; Steven Ongena; Mike G. Tsionas

  1. By: Ioana Marinescu; Ivan Ouss; Louis-Daniel Pape
    Abstract: How does employer market power affect workers? We compute the concentration of new hires by occupation and commuting zone in France using linked employer-employee data. Using instrumental variables with worker and firm fixed effects, we find that a 10% increase in labor market concentration decreases hires by 12.4% and the wages of new hires by nearly 0.9%, as hypothesized by monopsony theory. Based on a simple merger simulation, we find that a merger between the top two employers in the retail industry would be most damaging, with about 24 million euros in annual lost wages for new hires, and an 8000 decrease in annual hires.
    JEL: J23 J3 J42 K21 L13
    Date: 2020–11
  2. By: Matthew Goodkin-Gold; Michael Kremer; Christopher M. Snyder; Heidi L. Williams
    Abstract: Vaccines exert a positive externality, reducing spread of disease from the consumer to others, providing a rationale for subsidies. We study how optimal subsidies vary with disease characteristics by integrating a standard epidemiological model into a vaccine market with rational economic agents. In the steady-state equilibrium for an endemic disease, across market structures ranging from competition to monopoly, the marginal externality and optimal subsidy are non-monotonic in disease infectiousness, peaking for diseases that spread quickly but not so quickly as to drive all consumers to become vaccinated. Motivated by the Covid-19 pandemic, we adapt the analysis to study a vaccine campaign introduced at a point in time against an emerging epidemic. While the nonmonotonic pattern of the optimal subsidy persists, new findings emerge. Universal vaccination with a perfectly effective vaccine becomes a viable firm strategy: the marginal consumer is still willing to pay since those infected before vaccine rollout remain a source of transmission. We derive a simple condition under which vaccination exhibits increasing social returns, providing an argument for concentrating a capacity-constrained campaign in few regions. We discuss a variety of extensions and calibrations of the results to vaccines and other mitigation measures targeting existing diseases.
    JEL: D4 I18 L11 L65 O31
    Date: 2020–11
  3. By: Giuranno, Michele G.; Scrimitore, Marcella; Stamatopoulos, Giorgos
    Abstract: Vertical integration in an environment without foreclosure, or more generally without any mechanisms that restrict competition among firms, and subsidization of firms' production are two separate mechanisms that raise consumer welfare, and both have been proposed as antidotes to certain aspects of the current economic crisis caused by COVID-19. In this paper we show that the interplay of the two can, surprisingly, be harmful for consumers. We consider a two-layer imperfectly competitive industry where each downstream firm purchases an input from its exclusive upstream supplier, in the presence of a welfare-maximizing government. We allow one (or more than one) of the downstream firms to integrate with its upstream counterpart and we identify two opposite resulting effects: on the one hand, integration alleviates the double marginalization problem and raises industry output and on the other, it alters the government's optimal subsidy policy in a way that reduces output. It turns out that the latter effect dominates the former and thus integration leads to lower market output and consumer surplus. This holds irrespective of the mode of downstream market competition (quantities or prices) or the nature of commodities (homogeneous or differentiated). It also holds when the fiscal policy of the government is subject to social costs. Our conclusions are in particular relevant to the current pandemic period which spurs heavy subsidization of firms and reformulation of firms' vertical relations.
    Keywords: vertical industry; integration; subsidy policy; consumer surplus
    JEL: H21 L13 L42
    Date: 2020–11–28
  4. By: Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho
    Abstract: We study the firm's strategic choice of corporate social responsibility (CSR) in a managerial delegation framework where a multiproduct corporation competes against a single plant firm. We examine simultaneous-move versus sequential-move in output choices when CSR decisions are simultaneous. We show that both firms adopt CSR in a simultaneous-move game, whereas only the follower firm adopts CSR (but not the leader firm) in sequential-move games. We also consider an endogenous timing game in output choices between the two firms and show that a simultaneous-move is an equilibrium when the products are substitutes or weak complements, while a single plant firm's leadership is an equilibrium when the products are sufficiently strong complements. Our findings can explain the widely observed phenomenon, in the real world, of different industries in which firms' CSR activities are more or less (even non-CSR or negative CSR) commonly widespread. It also partially helps us understand CSR's strategic motives and its relations with the firm's profits.
    Keywords: corporate social responsibility; managerial delegation; multiproduct corporation; endogenous timing game
    JEL: D21 L13 L22 M14
    Date: 2020–11
  5. By: Nathalie de Marcellis-Warin; Frédéric Marty; Eva Thelisson; Thierry Warin
    Abstract: The digital economy's development poses questions unprecedented in their magnitude in potential market manipulations and manipulations of consumer choices. Deceptive and unfair strategies in consumer law may coexist and mutually reinforce each other with infringements in the field of competition, whether it be algorithmic collusion or abuse of a dominant position. Faced with the difficulty of detecting and sanctioning these practices ex-post, questions are raised about the sanction's dissuasive effect and its capacity to prevent possibly irreversible damage. To this end, this article considers the available supervision tools for the authorities in charge of market surveillance, the consumers or the stakeholders of the companies concerned.
    Keywords: Algorithmic Manipulation,Deceptive Practices,Unfair Practices,Algorithmic Surveillance,
    JEL: D18 K21 L86
    Date: 2020–12–04
  6. By: Zhiguo He; Jing Huang; Jidong Zhou
    Abstract: Open banking facilitates data sharing consented by customers who generate the data, with a regulatory goal of promoting competition between traditional banks and challenger fintech entrants. We study lending market competition when sharing banks' customer data enables better borrower screening or targeting by fintech lenders. Open banking could make the entire financial industry better off yet leave all borrowers worse off, even if borrowers could choose whether to share their data. We highlight the importance of equilibrium credit quality inference from borrowers' endogenous sign-up decisions. When data sharing triggers privacy concerns by facilitating exploitative targeted loans, the equilibrium sign-up population can grow with the degree of privacy concerns.
    JEL: D18 G21 L13 L15 L51
    Date: 2020–11
  7. By: Maarten Janssen (University of Vienna); Santanu Roy (Southern Methodist University)
    Abstract: Asymmetric information about product quality can create incentives for a privately informed manufacturer to sell to uninformed consumers through a retailer and to maintain secrecy of upstream pricing. Delegating retail price setting to an intermediary generates pooling equilibria that avoid signaling distortions associated with direct selling even under reasonable restrictions on beliefs; these beliefs can also prevent double marginalization by the retailer. Expected profit, consumer surplus and social welfare can all be higher with intermediated selling. However, if secrecy of upstream pricing cannot be maintained, selling through a retailer can only lower the expected profit of the manufacturer.
    Keywords: Asymmetric Information; Product Quality; Delegation, Intermediary, Signaling.
    JEL: L13 L15 D82 D43
    Date: 2020–12
  8. By: Capera Romero, Laura (Tilburg University, School of Economics and Management)
    Date: 2020
  9. By: Chavaz, Matthieu (Bank of England); Elliott, David (Bank of England)
    Abstract: The idea of separating retail and investment banking remains controversial. Exploiting the introduction of UK ring-fencing requirements in 2019, we document novel implications of such separation for credit and liquidity supply, competition, and risk-taking via a funding structure channel. By preventing conglomerates from using retail deposits to fund investment banking activities, this separation leads conglomerates to rebalance their activities towards domestic mortgage lending and away from supplying credit lines and underwriting services to large corporates. By redirecting the benefits of deposit funding towards the retail market, this rebalancing reduces the cost of credit for households, without eroding lending standards. However the rebalancing also increases mortgage market concentration and risk-taking by smaller banks via indirect competition effects.
    Keywords: Bank regulation; Universal banking; Glass-Steagall; Mortgages; Syndicated lending; Competition
    JEL: G21 G24 G28
    Date: 2020–11–27
  10. By: Adina Ardelean (Santa Clara University); Volodymyr Lugovskyy (Indiana University)
    Abstract: This paper documents that, even within a narrowly defined product and port-to-port route, the maritime international freight rates are lower for larger importing firms. Even after controlling for shipment sizes, the 90th-percentile importing firm faces a 20% lower freight rate and, as a result, a 1.8% lower delivered price for a given product and route than the 10th-percentile firm. The firm size matters only in the presence of some degree of competition among shippers—monopoly shippers charge a higher, but symmetric freight rates across all firms. These results are consistent with our theoretical predictions and are robust to multiple robustness checks, including controlling for the size of an exporting firm. We further argue that asymmetries in access to imports affect input prices, TFP estimation, and magnify the extent of firm size heterogeneity.
    Keywords: Freight Rates, Firm Size Advantage, Maritime Shipping
    Date: 2020–02
  11. By: Tobias Salz; Andreas Grunewald; David C. Low; Jonathan A. Lanning
    Abstract: This paper studies the intermediation of auto loans through auto dealers using new and comprehensive administrative data. The arrangements between auto dealers and lenders incentivize dealers to increase loan prices. We leverage details of the corresponding contracts to demonstrate that many consumers are less responsive to finance charges than to vehicle charges. Taking this behavior into account, we estimate an equilibrium model of dealer price setting and lender competition. We explore counterfactuals where dealers have no discretion to price loans and final rates are set by lenders instead. We find large gains in consumer surplus from such a policy.
    JEL: G41 G51 L0 L13 L5 L62
    Date: 2020–11
  12. By: Seres, Gyula (Tilburg University, School of Economics and Management)
    Date: 2019
  13. By: Seres, G. (Tilburg University, School of Economics and Management); Pigon, Adam
    Date: 2019
  14. By: Benson Tsz Kin Leung; Pinar Yildirim
    Abstract: An increasing number of politicians are relying on cheaper, easier to access technologies such as online social media platforms to communicate with their constituency. These platforms present a cheap and low-barrier channel of communication to politicians, potentially intensifying political competition by allowing many to enter political races. In this study, we demonstrate that lowering costs of communication, which allows many entrants to come into a competitive market, can strengthen an incumbent's position when the newcomers compete by providing more information to the voters. We show an asymmetric bad-news-good-news effect where early negative news hurts the challengers more than the positive news benefit them, such that in aggregate, an incumbent politician's chances of winning is higher with more entrants in the market. Our findings indicate that communication through social media and other platforms can intensify competition, how-ever incumbency advantage may be strengthened rather than weakened as an outcome of higher number of entrants into a political market.
    Date: 2020–12
  15. By: Thierry Kirat; Frédéric Marty
    Abstract: The experience of the war economy during the First World War in the United States reinforced the influence of arguments in favour of managed competition. By extending the principles of scientific management to the economy as a whole, this approach aimed to coordinate firms through the exchange of information, which was seen as a necessity both in terms of economic efficiency and response to cyclical fluctuations. Such a stance greatly reduced the application of competition rules. Nevertheless, the proposals that emerged during the 1929 crisis – leading to the reproduction of the war-economy experience in peacetime at the risk of steering the US economy towards the formation of cartels under the supervision of the federal government – were rejected by President Herbert Hoover, despite his defence of a model for regulated competition in the 1920s. The paradox was President Franklin D. Roosevelt’s resumption of these projects within the framework of the First New Deal. This paper deals with the arguments that were put forward to evade competition rules and explains why the Democratic administration ultimately decided to return to a resolute enforcement of the Sherman Act.
    Keywords: War Economy,Cartelization,Competition Rules,Scientific Management,Information Exchange,
    JEL: L40 L51 N12
    Date: 2020–12–09
  16. 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
  17. By: Levy, Daniel; Young, Andrew
    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 and Loyalty; Nickel Coke; Sticky Prices; Rigid Prices; Price Stickiness; Price Rigidity; Cost of Price Adjustment; Menu Cost; Cost of Quality Adjustment
    JEL: E31 K10 L11 L16 L66 M20 M30 N80 N82
    Date: 2020–11–25
  18. By: Ecer, C. Fuat J.; Trautmann, Stefan (Tilburg University, Center For Economic Research)
    Keywords: Mergers & Acquisitions; Financial Advisors; Transactions; governance
    Date: 2020
  19. By: Manthos D. Delis (Montpellier Business School); Maria Iosifidi (University of Surrey - Surrey Business School); Pantelis Kazakis (University of Glasgow - Adam Smith Business School); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Mike G. Tsionas (Montpellier Business School)
    Abstract: This paper studies whether management quality in acquiring firms determines merger and acquisition (M&A) success. We model management practices as an unobserved (latent) variable in a standard microeconomic model of the firm and derive firm-year management estimates. We show that our measure is among the most important determinants of value creation in M&A deals. Our results are robust to the inclusion of acquirer fixed effects, to a large set of control variables, and to several other sensitivity tests. We also show that management explains, albeit to a lesser extent, acquirers’ return on equity and Tobin’s q.
    Keywords: Mergers and acquisitions; Management practices; Acquirer returns
    JEL: G14 G34 J24
    Date: 2020–12

This nep-com issue is ©2020 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.