nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒01‒11
nine papers chosen by
Russell Pittman
United States Department of Justice

  1. Designing Advance Market Commitments for New Vaccines By Michael Kremer; Jonathan D. Levin; Christopher M. Snyder
  2. Digital Platforms' Information Concentration: From Keystone Players to Gatekeepers By Frédéric Marty; Thierry Warin
  3. Price matching and platform pricing By Bottasso, Anna; Marocco, Paolo; Robbiano, Simone
  4. Towards the Effects-based Approach in EU Competition Law: the Assessment of Single Branding Agreements By Hsieh, Chang-Chiang
  5. Cooperative R&D with Differentiated Products in Vertically Related Industries By Gamal Atallah; Parisa Pourkarimi
  6. The Impact of Organizational Boundaries on Healthcare Coordination and Utilization By Leila Agha; Keith Marzilli Ericson; Xiaoxi Zhao
  7. Storing Power: Market Structure Matters By Andrés-Cerezo, D., Fabra, N.; Fabra, N.
  8. Do Stronger Patents Lead to Faster Innovation? The Effect of Duplicative Search By Kaustav Das; Nicolas Klein
  9. Persuasion Produces the (Diamond) Paradox By Mark Whitmeyer

  1. By: Michael Kremer; Jonathan D. Levin; Christopher M. Snyder
    Abstract: Advance market commitments (AMCs) provide a mechanism to stimulate investment by suppliers of products to low-income countries. In an AMC, donors commit to a fund from which a specified subsidy is paid per unit purchased by low-income countries until the fund is exhausted, strengthening suppliers' incentives to invest in research, development, and capacity. Last decade saw the launch of a $1.5 billion pilot AMC to distribute pneumococcal vaccine to the developing world; in the current pandemic, variations on AMCs are being used to fund Covid-19 vaccines. This paper undertakes the first formal analysis of AMCs. We construct a model in which an altruistic donor negotiates on behalf of a low-income country with a vaccine supplier after the supplier has sunk investments. We use this model to explain the logic of an AMC—as a solution to a hold-up problem—and to analyze alternative design features under various economic conditions (cost uncertainty, supplier competition). A key finding is that optimal AMC design differs markedly depending on where the product is in its development cycle.
    JEL: D02 I18 O19 O31
    Date: 2020–12
  2. By: Frédéric Marty; Thierry Warin
    Abstract: This article demonstrates the inner relationship between gatekeepers and their complementors and the impact of information sharing on the overall market competition intensity and the economic surplus allocation. Several competition law-based cases are grounded on the incompleteness and information asymmetry in which complementors have to make their decisions. In this article, the situation of the complementors is all the more unfavourable when their partnership with the gatekeeper is a durable one. We use a game theory-based model to explain this trajectory. The informational imperfections undermine the bargaining power of the complementors and raise the potential cost of the exit option out of the ecosystem. In this perspective, we envisage regulatory remedies as data portability as proposed by the E.U. Commission Digital Markets Act.
    Keywords: Gatekeeper,Keystone Player,Market Dominance,Innovation,Kill Zones,
    JEL: L12 L41 L86
    Date: 2020–12–22
  3. By: Bottasso, Anna; Marocco, Paolo; Robbiano, Simone
    Abstract: In this study we investigate the effects of Price Matching Guarantees (PMGs) commercial policies on U.S. online consumer electronics daily prices. By applying a Diff-in-Diff identification strategy we find evidence in favor of price reductions occurring after the PMG policy is repealed. We further investigate if such effect is heterogeneous according to products characteristics, by exploiting User Generated Contents (UGCs, as products popularity and quality) and online search visibility measures (Google Search Rank). Estimates suggest that for high quality (visibility) products PMGs policies harms competition by keeping prices high, while for low quality (visibility) products, prices decrease during the policy validity period.
    Keywords: online platforms; price matching guarantees; platform pricing; user generated contents; policy evaluation; counterfactual evaluation
    JEL: L00 L10 L11 L41 L81
    Date: 2020–10
  4. By: Hsieh, Chang-Chiang
    Abstract: This article compares the economic assessments conducted by judicial practice on single branding/exclusive dealing cases between the EU and the U.S. in order to gain insights on how to improve the effects-based approach to competition law. Generally speaking, the U.S. judicial practice presented a more integrated approach to examine the practical effects caused by exclusive dealing arrangements than its EU as well as Taiwanese counterpart. The U.S. cases Tampa and Standard Stations laid down the requirement to weigh the anti-competitive effect with all relevant factors taken into account. More recent cases exemplified the incorporation of the theory of Raising Rivals’ Cost (RRC) into assessment of contested conducts, which enriched the analysis of the practical effects on barriers to entry. In contrast, the EU case law has still been taking a more formalistic approach. Though it is widely acknowledged that analysis of effects on restriction of competition is required as to single branding agreements under Art. 101 TFEU, Delimitis as the leading case failed to clarify the economic logic behind and the economic relationship between the factors required to be examined. The application of Art. 102 TFEU before Intel is close to a per se standard. However, the turn of Van den Bergh and Intel to more consideration of the effect on cost of existing or potential competitors deserves more observation as to future developments. It is argued that the U.S. practice can shed light on EU competition law in two perspectives. Firstly, the test of Delimitis needs to be restructured to examine and weigh the effect of the contested agreements. Secondly, the approach for Art. 102 TFEU could be developed through adoption of similar tests with those conducted in application of Art. 101 TFEU, where assessment of barriers to entry is crucial.
    Date: 2020–12–21
  5. By: Gamal Atallah (Department of Economics, University of Ottawa, Ottawa, ON); Parisa Pourkarimi (Department of Economics, Carleton University)
    Abstract: This paper studies the impact of cooperative R&D on innovation, welfare, and profitability in vertically related industries where products are differentiated. The model incorporates two vertically related industries, with horizontal spillovers within each industry and vertical spillovers between the two industries. Upstream firms produce a homogeneous intermediate good, while downstream firms provide differentiated products. Three types of R&D cooperation are studied: no cooperation, horizontal cooperation, and vertical cooperation. The comparison of cooperation settings in terms of R&D and of profitability shows that although vertical cooperation yields higher innovation and welfare, it may lead firms to over–invest in R&D.
    Keywords: Vertical spillovers, Horizontal spillovers, Product differentiation, R&D Cooperation.
    Date: 2020
  6. By: Leila Agha; Keith Marzilli Ericson; Xiaoxi Zhao
    Abstract: Patients often receive healthcare from providers spread across different firms. Transaction costs, imperfect information, and other frictions can make it difficult to coordinate production across firm boundaries, but we do not know how these challenges affect healthcare. We define and measure organizational concentration: the distribution across organizations of a patient's healthcare. Medicare claims show that organizational concentration varies substantially across physicians and regions, and that patients who move to more concentrated regions have lower healthcare utilization. Further, we show that when primary care physicians (PCPs) with higher organizational concentration exit the local market, their patients switch to more typical PCPs with lower organizational concentration and then have higher healthcare utilization. Patients who switch to a PCP with 1 SD higher organizational concentration have 10% lower healthcare utilization. This finding is robust to controlling for the spread of patient care across providers. Increases in organizational concentration have no detectable effect on emergency department utilization or hospitalization rates, but do predict improvements in diabetes care.
    JEL: D23 I11 L14
    Date: 2020–12
  7. By: Andrés-Cerezo, D., Fabra, N.; Fabra, N.
    Abstract: We asses how firms' incentives to operate and invest in energy storage depend on the market structure. For this purpose, we characterize equilibrium market outcomes allowing for market power in storage and/or production, as well as for vertical integration between storage and production. Market power reduces overall efficiency through two channels: it induces an inefficient use of the storage facilities, and it distorts investment incentives. The worst outcome for consumers and total welfare occurs under vertical integration. We illustrate our theoretical results by simulating the Spanish wholesale electricity market for different levels of storage capacity. The results are key to understand how to regulate energy storage, an issue which is critical for the deployment of renewables.
    Keywords: Storage, electricity, market structure, investment, vertical relations
    JEL: L22 L94
    Date: 2020–12–15
  8. By: Kaustav Das; Nicolas Klein
    Abstract: We analyse a model of two firms that are engaged in a patent race. Firms have to choose in continuous time between a traditional and an innovative method of pursuing the decisive breakthrough. They share a common belief about the likelihood of the innovative method being good. The unique Markov perfect equilibrium coincides with the cartel solution if and only if firms are symmetric in their abilities of leveraging a good innovative method or there is no patent protection. Otherwise, equilibrium will entail excessive duplication of efforts in the innovative method, as compared to the cartel benchmark, for any level of patent protection. We show that the expected time to a breakthrough is minimised at an interior level of patent protection, providing a possible explanation for the decrease in R&D productivity sometimes associated with stronger patent protections.
    Keywords: R&D competition, Duplication, Two-armed Bandit, Learning
    JEL: C73 D83 O31
    Date: 2020–03
  9. By: Mark Whitmeyer
    Abstract: This paper extends the sequential search model of Wolinsky (1986) by allowing firms to choose how much match value information to disclose to visiting consumers. This restores the Diamond paradox (Diamond 1971): there exist no symmetric equilibria in which consumers engage in active search, so consumers obtain zero surplus and firms obtain monopoly profits. Modifying the scenario to one in which prices are advertised, we discover that the no-active-search result persists, although the resulting symmetric equilibria are ones in which firms price at marginal cost.
    Date: 2020–11

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