nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒01‒04
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Third-Degree Price Discrimination in Oligopoly When Markets Are Covered By Markus Dertwinkel-Kalt; Christian Wey
  2. Welfare of Price Discrimination and Market Segmentation in Duopoly By Xianwen Shi; Jun Zhang
  3. Organizational structure and technological investment By Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
  4. Downstream new product development and upstream process innovation By Akio Kawasaki; Tomomichi Mizuno; Kazuhiro Takauchi
  5. Zero Rating, Content Quality and Network Capacity By Emmanuel LORENZON
  6. Privacy and antitrust in digital platforms By Nicholas Economides; Ioannis Lianos
  7. Banning Price Discrimination under Imperfect Competition: Evidence from Colombia's Broadband By Juan Sebastian Vélez-Velásquez
  8. Use and Abuse of Antidumping by Global Cartels By Arevik Gnutzmann-Mkrtchyan; Hoffstadt
  9. Emotions Matter for Policy-Making: An Example on Tacit Collusion and Guilt By Rossella Ferrario; Elena Manzoni
  10. Product quality and third-party certification in potential lemons markets By Dong Yan; Christian A. Vossler; Scott M. Gilpatric
  11. Information Exchange among Firms: The Coherence of Justice Brandeis' Regulated Competition Approach By Patrice Bougette; Frédéric Marty
  12. Strategic use of environmental innovation in vertical chains and regulatory attitudes By Mabrouk, R.; Kurtyka, O.
  13. Solving the Housing Crisis will Require Fighting Monopolies in Construction By James A. Schmitz
  14. Standard-Essential Patents and Incentives for Innovation By Wipusanawan, Chayanin
  15. Profiting from big data analytics: The moderating roles of industry concentration and firm size By Elisabetta Raguseo; Claudio Vitari; Federico Pigni
  16. Regional market integration and the emergence of a Scottish national grain market By Cassidy, Daniel; Hanley, Nick
  17. How Big is the “Lemons” Problem? Historical Evidence from French Wines By Mérel, Pierre; Ortiz-Bobea, Davis Ariel; Paroissien, Emmanuel
  18. Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada By ; ; Fumiko Hayashi; Joanna Stavins

  1. By: Markus Dertwinkel-Kalt; Christian Wey
    Abstract: We analyze oligopolistic third-degree price discrimination relative to uniform pricing when markets are always covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm’s Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm’s relative margins under discriminatory pricing. Uniform pricing then decreases average prices and raises consumer surplus. We provide an intriguingly simple approach to calculate the gain in consumer surplus and loss in firms’ profits from uniform pricing only based on market data of the discriminatory equilibrium (prices and quantities).
    Keywords: third-degree price discrimination, oligopolistic competition, market integration
    JEL: D43 L13 L41 K21
    Date: 2020
  2. By: Xianwen Shi; Jun Zhang
    Abstract: We study welfare consequences of third-degree price discrimination and market segmentation in a duopoly market with captive and contested consumers. A market segmentation divides the market into segments that contain different proportions of captive and contested consumers. Firm-optimal segmentation divides the market into two segments and in each segment only one firm has captive consumers. In contrast to the existing literature with exogenous segmentation, price discrimination under firm-optimal segmentation unambiguously reduces consumer surplus for all markets. Consumer-optimal segmentation divides the market into a maximal symmetric segment and the remainder, and yields the lowest producer surplus among all segmentations.
    Keywords: Price Discrimination, Market Segmentation, Information Design, Welfare
    JEL: D43 D82
    Date: 2020–12–25
  3. By: Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
    Abstract: We analyze firms' decisions on their vertical organization, taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains, where upstream sectors invest in R&D. Such investment determines the production costs of the downstream sector and has spillovers on the production and the investment costs of the rival. In a general setting, we show that the equilibrium organizational structure depends on whether the situation considered belongs to one of four possible cases. We study how final good market competition, R&D spillover, and R&D incentives interact to determine the equilibrium vertical structure.
    Date: 2019–11
  4. By: Akio Kawasaki (Faculty of Economics, Oita University); Tomomichi Mizuno (Graduate School of Economics, Kobe University); Kazuhiro Takauchi (Faculty of Business and Commerce,Kansai University)
    Abstract: This study considers the role of the upstream process research and development (R&D) when downstream develops new products. We build a model in which an upstream firm conducts cost-reducing investment and two downstream firms develop new products. We assume that all products are differentiated. We show that downstream product development promotes upstream investment. We also demonstrate that downstream product development is a strategic complement if upstream R&D efficiency is high, while it is a strategic substitute if it is low. This implies that the occurrence of complementary equilibrium does not need asymmetry in the differentiated final-product markets and is in sharp contrast to the previous study.
    Date: 2020–12
  5. By: Emmanuel LORENZON
    Abstract: We consider a departure from net neutrality by an Internet service provider (ISP) that financially discriminates among content providers through bilateral zero rating contracts. Zero rating is an instrument to distort competition between content providers and the way in which consumers value content. We analyze its implications for the incentives to provide quality in the market for content and to invest in broadband infrastructure. Zero rating makes content more expensive for consumers to access and implies a downward distortion of quality by increasing downward vertical differentiation. Content providers move from a minimal differentiation equilibrium to a downward vertical differentiation outcome. Next, we find that while zero rating happens to reduce congestion, a profit-maximizing ISP always underinvests in the broadband infrastructure in the discriminatory network. We highlight that this underprovision comes from a standard rent-extraction argument and a new cost-alleviation channel, which relates to the complementarity between network capacity and content quality. Finally, the ISP always implements zero rating, which is welfare reducing and detrimental to consumers.
    Keywords: Internet; Net-Neutrality; Zero-Rating; Network capacity; Content quality; Congestion; Three-part tariff
    JEL: D21 L12 L51 L96 R41
    Date: 2020
  6. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (President, Hellenic Competition Commission and Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London)
    Abstract: Dominant digital platforms such as Google and Facebook collect personal information of users by default precipitating a market failure in the market for personal information. We establish the economic harms from the market failure. We discuss conditions for eliminating the market failure and various remedies to restore competition.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; data dominance; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2021–01
  7. By: Juan Sebastian Vélez-Velásquez
    Abstract: Economic theory is inconclusive regarding the effects of banning third-degree price discrimination under imperfect competition because they depend on how the competing firms rank their market segments. When, relative to uniform pricing, all competitors want higher prices in the same market segments, a ban on price discrimination will reduce profits and benefit some consumers at the expense of others. If, instead, some firms want to charge higher prices in segments where their competitors want to charge lower prices, price discrimination increases competition driving all prices down. In this case, forcing the firms to charge uniform prices can increase their profits and reduce consumer surplus. We use data on Colombian broadband subscriptions to estimate the demand for internet services. Estimated preferences and assumptions about competition are used to simulate a scenario in which firms lose their ability to price discriminate. Our results show large effects on consumer surplus and large effects on firms’ profits. Aggregate profits increase but the effects for individual firms are heterogeneous. The effects on consumer welfare vary by city. In most cities, a uniform price regime causes large welfare transfers from low-income households towards high-income households and in a few cities, prices in all segments rise. Poorer households respond to the increase in prices by subscribing to internet plans with slower download speed. **** La teoría económica no es muy concluyente con respecto a los efectos de pasar de un régimen de discriminación de precios de tercer grado a un régimen de precio uniforme en un ambiente de competencia imperfecta, porque dichos efectos dependen de como las firmas que compiten ranquean los segmentos de mercado. Si las firmas coinciden en el ranking que hacen de los segmentos de mercado, un régimen de precio uniforme reduce los beneficios de la firma comparado con los beneficios que harían bajo discriminación. Si en cambio, las firmas tienen diferentes rankings para los segmentos de mercado, el precio uniforme puede ser más alto que los precios bajo discriminación, incrementando los beneficios de las firmas a expensas de los consumidores. En este articulo, usamos datos sobre suscripciones a servicios de internet en Colombia para estimar la demanda por dichos servicios. Además hacemos supuestos sobre la forma en que compiten las firmas lo que nos perimte simular equilibrios en los que las firmas cobran precios uniformes. Los resultados muestra grandes transferencias entre grupos de consumidores y moderados efectos sobre los beneficios de las firmas. Los beneficios agregados de las firmas aumentan ligeramente, pero los cambios en beneficios individuales son heterogéneos. Los efectos sobre el bienestar de los consumidores varían por ciudad. En la mayoría de las ciudades el precio uniforme causa transferencias desde hogares de bajos ingresos a hogares más ricos. Pero en unas cuantas ciudades los precios aumentan en todos los segmentos. Los hogares más pobres responden al aumento de precios sustituyendo por planes de menor calidad.
    Keywords: Price discrimination, Regulation, Market structure, Discriminación de precios, Regulación, Estructura de mercado
    JEL: L10 L20 L50
    Date: 2020–12
  8. By: Arevik Gnutzmann-Mkrtchyan; Hoffstadt
    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: cartels, collusion, antitrust, antidumping, trade policy
    JEL: F13 F14 L41
    Date: 2020
  9. By: Rossella Ferrario (Università degli Studi di Milano-Bicocca); Elena Manzoni (Department of Economics (University of Verona))
    Abstract: In the paper we show how emotions may influence the effectiveness of policies, highlighting the need for an analysis of belief-dependent motivations in policy-making. We do so using an example of tacit collusion in an infinitely repeated duopoly. We find that which type of duopoly favours collusion the most depends on the level of guilt aversion. Specifically, it is easier to sustain collusion in a Bertrand duopoly for low levels of guilt and in a Cournot duopoly for intermediate levels of guilt. When the guilt parameter is high, collusion is sustained for any discount factor in both market structures. Moreover, we show how competition policies, such as the introduction of audits and fines, may be less effective in the presence of guilt.
    Keywords: guilt aversion, tacit collusion
    Date: 2020–12
  10. By: Dong Yan (Department of Environment and Resource Economics, Renmin University of China, Beijing); Christian A. Vossler (Department of Economics, University of Tennessee); Scott M. Gilpatric (Department of Economics, University of Tennessee)
    Abstract: This paper examines a seller’s incentives for investing in product quality when buyers have incomplete information on quality, and either the seller or the buyer can purchase quality certification from a credible third party. When the seller invests in quality before the certifier sets a price, we find that both seller effort and social welfare are higher in a setting where certification is available to the buyer relative to one where it is available to the seller. When the certifier instead moves first in the game, buyer certification continues to incentivize relatively more seller effort, although social welfare is not necessarily higher. In a complementary lab experiment, we find empirical support for some basic implications of the theory: certification improves market outcomes relative to when certification is not available, decreasing the price of certification increases its uptake, and making the certification process error-prone decreases seller effort and social welfare. Comparisons of seller and buyer certification settings suggest that differences are smaller than predicted by theory, which may be explained by behavioral factors that motivate buyers to over- or under-utilize certification. Our results also suggest that seller certification is a more robust tool for improving market efficiency.
    Keywords: Market transparency, Certification, Information and product quality, Asymmetric information, Endogenous quality, Experiments
    JEL: C91 D82 D83 L15
    Date: 2020–12
  11. By: Patrice Bougette (Université Côte d'Azur; GREDEG CNRS); Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS; OFCE, Sciences Po., Paris; CIRANO, Montréal)
    Abstract: During the 1920s, two different proposals of a regulated competition competed in the US. The first, inspired by trade associations, was advocated by Herbert Hoover. This approach echoes a managerialist view of a coordinated competition under state support. The second - promoted by Louis Brandeis - provides an alternative view of what a regulated competition should be: avoiding a ruinous competition through information exchange among small firms. From his involvement in the Wilson’s campaign team in 1912, to his dissent in the American Colum ruling of the US Supreme Court in 1923 and his position against the National Industrial Recovery Act in Schechter Poultry in 1935, we argue that Louis Brandeis was constant in his opposition to such a convergence between Big Business and Big Government. His intemporal coherence relies in his Jeffersonian approach advocating for a dispersion of economic powers for both efficiency and political purposes. At the opposite, both the trade associations’ movement and the NIRA experience pertain to a Hamiltonian perspective that is based on an equilibrium between the economic gains resulting from concentration or coordination and a strong political control.
    Keywords: Louis Brandeis, antitrust, information exchange, Federal Trade Commission (FTC), New Deal, National Industrial Recovery Act (NIRA)
    JEL: L40 K21 N12
    Date: 2020–12
  12. By: Mabrouk, R.; Kurtyka, O.
    Abstract: We analyze firms' choice of abatement technology in vertical chains. A downstream polluting monopoly can buy a license from an upstream supplier with mature end-of-pipe equipment (outsider) or develop an in-house clean technology. Insiders innovation may be undertaken only to increase bargaining power of the polluter. We put the light on the strategic role of environmental regulation to influence this choice. We find that the role of regulator as a technology forcing authority is confirmed in regions of under-investment. However, under certain conditions, an over-investment occurs that forces the regulator to become laxer. Paradoxically, the regulator may oppose innovation even if the resulting technology is used by the innovator. All these results rely upon the creation of total profits from the integrated vertical structure.
    JEL: D43 H23 L13 Q42 Q58
    Date: 2020
  13. By: James A. Schmitz
    Abstract: U.S. government concerns about great disparities in housing conditions are at least 100 years old. For the first 50 years of this period, U.S. housing crises were widely considered to stem from the failure of the construction industry to adopt new technology -- in particular, factory production methods. The introduction of these methods in many industries had already greatly narrowed the quality of goods consumed by low- and high-income Americans. It was widely known why the industry failed to adopt these methods: Monopolies in traditional construction blocked and sabotaged them. Very little has changed in the last 50 years. The industry still fails to adopt factory methods, with monopolies, like HUD and NAHB, blocking attempts to adopt them. As a result, the productivity record of the construction industry has been horrendous. One thing has changed. Today there is very little discussion of factory-built housing; of the very few that recognize the industry's failure to adopt factory methods, there is no realization that monopolies are blocking the methods. That these monopolies, in particular, HUD and NAHB, can cause so much hardship in our country, and through misinformation and deceit cover it up, seems almost beyond belief. But, unfortunately, it's a history that is not uncommon. There are many other industries where monopolies have inflicted great harm on Americans, like the tobacco industry, yet through misinformation and deceit cover up the great harm.
    Keywords: Monopoly; Competition; Inequality; Cournot; Sabotage; Harberger; Thurman Arnold; Henry Simons; Housing; Modular housing; Manufactured homes; Factory-built housing; HUD; NAHB; Nimbyism; Tobacco industry; Fossil fuel industry
    JEL: D22 D42 K0 L0 L12
    Date: 2020–12–11
  14. By: Wipusanawan, Chayanin (Tilburg University, Center For Economic Research)
    Keywords: standardisation; standard-essential patents; FRAND; innovation incentives
    Date: 2020
  15. By: Elisabetta Raguseo (Polito - Politecnico di Torino [Torino]); Claudio Vitari (AMU - Aix Marseille Université); Federico Pigni (GEM - Grenoble Ecole de Management)
    Abstract: Big data has gained momentum as an Information Technology that is capable of supporting organizational efforts to generate new and better business value. We here contribute to the emerging literature on big data analytic (BDA) solutions by investigating the moderating roles of firm size and industry concentration in the relationship between BDA solutions and firm profitability. Using a unique panel data set that covers 13 years, from 2004 to 2016, which contains information about 176 firms, we provide robust econometric empirical evidence of the negative moderating effects of industry concentration and the positive moderating effects of firm size on the relationship between the use of BDA solutions and firm profitability. Our findings provide strong empirical evidence on the business value of BDA as well as the essential role played by contextual conditions that managers should consider.
    Keywords: IT business value,big data analytics,firm profitability,econometric analysis,industry concentration,firm size
    Date: 2020–11
  16. By: Cassidy, Daniel; Hanley, Nick
    Abstract: This article examines the integration of regional Scottish grain markets from the early seventeenth century until the end of the long eighteenth century in 1815. The Scottish economy developed rapidly in this period, with expansion driven by improvements in market structures and specialisation in agricultural production. We test for price convergence and market efficiency using grain prices collected from Scotland's fiars courts' records. Our results suggest that price convergence increased across the seventeenth and eighteenth centuries but experienced a number of setbacks in times of famine and war. The civil war and Cromwellian occupation of the Scottish Lowlands in the 1640s and 1650s, the famine years of the 1690s, the American War of Independence, and the French/Napoleonic wars all caused declines in price convergence. Using a dynamic factor model, we find that market efficiency increased substantially in regional Scottish markets from the late seventeenth century. This analysis suggests that sub-national markets existed in the late seventeenth century, in the east and west of the country, but merged in the eighteenth century to form a unified national grain market.
    Keywords: market integration,development,prices
    JEL: N13 F15
    Date: 2020
  17. By: Mérel, Pierre; Ortiz-Bobea, Davis Ariel; Paroissien, Emmanuel
    Abstract: This paper provides empirical evidence on the welfare losses associated with asymmetric information about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses amount to more than 7% of total market value, suggesting an important role for credible certification schemes.
    Keywords: Institutional and Behavioral Economics, Marketing
    Date: 2021–01
  18. By: ; ; Fumiko Hayashi; Joanna Stavins
    Abstract: Using data from the United States and Canada, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the merchant cost of accepting payments that is passed on to consumers as higher retail prices. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout, but instead pass through their costs to all consumers. As a result, credit card transactions are cross-subsidized by cheaper debit and cash payments. Card rewards and consumer fees paid to financial institutions are additional sources of cross-subsidies. We find that consumers in the lowest-income cohort pay the highest net pecuniary cost as a percentage of transaction value, while consumers in the highest-income cohort pay the lowest. This result is robust under various scenarios and assumptions, suggesting payment card pricing and merchant cost pass-through have regressive distributional effects in the United States and Canada.
    Keywords: regressive effects; rewards; credit cards; interchange fees; pass-through
    JEL: D12 D31 G21 L81
    Date: 2020–12–01

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