nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒01‒18
twenty-two papers chosen by
Russell Pittman
United States Department of Justice

  1. Collusion in Quality-Segmented Markets By Bos, Iwan; Marini, Marco A.
  2. Vertical Integration of Healthcare Providers Increases Self-Referrals and Can Reduce Downstream Competition: The Case of Hospital-Owned Skilled Nursing Facilities By David M. Cutler; Leemore Dafny; David C. Grabowski; Steven Lee; Christopher Ody
  3. Post-Cartel Behavior: ssessing the effects of antitrustpolicy on Brazilian fuel market By Pedro Cavalcanti G. Ferreira
  4. A Dynamic Analysis of Collusive Action: The Case of the World Copper Market, 1882-2016 By Rausser, Gordon; Stuermer, Martin
  5. Markups on Drop-Downs: Prominence in Pharmaceutical Markets∗ By Hauschultz, Frederik Plum; Munk-Nielsen, Anders
  6. Mimetic Dominance and the Economics of Exclusion: Private Goods in Public Context By Alex Imas; Kristóf Madarász
  7. Entry Threat, Entry Delay, and Internet Speed: The Timing of the U.S. Broadband Rollout By Wilson, Kyle; Xiao, Mo; Orazem, Peter F.
  8. E?cient policy with ?rm heterogeneity and variable markups By Atsushi Tadokoro
  9. The effects of online disclosure about personalised pricing on consumers: Results from a lab experiment in Ireland and Chile By OECD
  10. A Note on Antitrust, Labor, and “No Cold Call” Agreements in Silicon Valley By Pittman, Russell
  11. Competition and Coordination in the Mexican Retail Market for Gasoline By Benjamín Contreras Astiazarán; René Leal Vizcaíno; Jordán Mosqueda; Alejandrina Sacelcedo
  12. Mothballing in a Duopoly: Evidence from a (Shale) Oil Market By Comincioli, Nicola; Hagspiel, Verena; Kort, Peter M.; Menoncin, Francesco; Miniaci, Raffaele; Vergalli, Sergio
  13. Geographic Variation in the Consolidation of Physicians into Health Systems, 2016–18 By Laura Kimmey; Michael F. Furukawa; David Jones; Rachel Machta; Jing Guo; Eugene Rich
  14. A Survey of Separately Branded Online-Only Banks and Their Role in the Banking System By Dasha Basnakian; Neil Wiggins
  15. Should they avoid the middleman? An analysis of fish processing firms in India By Meenakshi Rajeev; Pranav Nagendran
  16. Structure and strategy of supermarkets of fruits and vegetables retailing in Karnataka: Gains for whom? By Kedar Vishnu; Parmod Kumar
  17. Standard-Essential Patents and Incentives for Innovation By Wipusanawan, Chayanin
  18. Inequality in models with a competition for market shares By Andreas Hefti; Julian Teichgräber
  19. Les compétences de l’Autorité de la concurrence (nationale) ne l’autorisent pas à trancher dans l’affaire polynésienne des frigos By Florent Venayre
  20. La libre concurrencia en la economía digital: las micro, pequeñas y medianas empresas (mipymes) en América Latina y el impacto del COVID-19 By Da Silva, Filipe; De Furquim, Júlia; Núñez, Georgina
  21. Market Power, Growth, and Inclusion: The South African Experience By Vimal V Thakoor
  22. Consequences of a Massive Refugee Influx on Firm Performance and Market Structure By Akgündüz, Yusuf Emre; Bağır, Yusuf Kenan; Cilasun, Seyit Mümin; Kirdar, Murat G.

  1. By: Bos, Iwan; Marini, Marco A.
    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-fixing 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 effect on market shares and welfare. Partial cartels operating in a sufficiently 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 beneficial for society as a whole.
    Keywords: Demand and Price Analysis
    Date: 2020–12–16
  2. By: David M. Cutler; Leemore Dafny; David C. Grabowski; Steven Lee; Christopher Ody
    Abstract: The landscape of the U.S. healthcare industry is changing dramatically as healthcare providers expand both within and across markets. While federal antitrust agencies have mounted several challenges to same-market combinations, they have not challenged any non-horizontal affiliations – including vertical integration of providers along the value chain of production. The Clayton Act prohibits combinations that “substantially lessen” competition; few empirical studies have focused on whether this is the source of harm from vertical combinations. We examine whether hospitals that are vertically integrated with skilled nursing facilities (SNFs) lessen competition among SNFs by foreclosing rival SNFs from access to the most lucrative referrals. Exploiting a plausibly exogenous shock to Medicare reimbursement for SNFs, we find that a 1 percent increase in a patient’s expected profitability to a SNF increases the probability that a hospital self-refers that patient (i.e., to a co-owned SNF) by 2.5 percent. We find no evidence that increased self-referrals improve patient outcomes or change post-discharge Medicare spending. Additional analyses show that when integrated SNFs are divested by their parent hospitals, independent rivals are less likely to exit. Together, the results suggest vertical integration in this setting may reduce downstream competition without offsetting benefits to patients or payers.
    JEL: I18 L22 L40
    Date: 2020–12
  3. By: Pedro Cavalcanti G. Ferreira
    Abstract: Papers assessing the antitrust effect on cartel cases usually take the form of a quantifying approach, measuring the impact on prices with methods like before-and-after dummyregressions, difference-in-difference, or synthetic controls designs. However, these approaches have some downsides (notably, the requirement of establishing an exogenous date or breakthrough event, based on assumptions that may not be accurate). To over-come this weakness, we applied Structural Break Analysis (Bai and Perron Test) and Markov Switching Regressions to four cases in the Brazilian fuel market (Brasilia, Belo Horizonte, São Luís and Londrina) to analyze the effectiveness of competition policies. As a comparative test between MSR and Bai Perron procedures, our paper shows that the former was more sensible to transitions between regimes, without missing breaks,and exhibited precise results. From the point of view of the antitrust policy evaluation, our findings indicate a low capacity of the antitrust authorities to extinguish price-fixing practices in targeted markets.
    Keywords: collusion, antitrust policy, Brazil, fuel market, structural breaks, markov switch, policy evaluation.
    Date: 2020–12
  4. By: Rausser, Gordon; Stuermer, Martin
    Abstract: We advance a new framework for investigating the dynamic effects of collusion. In contrast to the standard reduced-form workhorse model, a structural vector auto-regressive model with sign restrictions allows us to endogenize cartel action and to distinguish unexpected market manipulations from other types of shocks. Utilizing a newly constructed monthly data set for the copper market from 1882 to 2016, we find that cartel action shocks have strong effects on price and output during collusive periods. More notably, these shocks have lessening, yet quite persistent impacts over the subsequent unwinding periods in which output damages dominate price damages.
    Keywords: Collusion, market distortions, economic damages, structural time series, commodity markets
    JEL: K2 L1 N5 Q02
    Date: 2020–12
  5. By: Hauschultz, Frederik Plum; Munk-Nielsen, Anders
    Abstract: We study the effect of product prominence in consumer search on demand and equilibrium prices using data from Danish pharmaceutical markets. Variation in prominence comes from alphabetical ordering in physician IT-systems. We find that both prescriptions, prices, market shares and revenue decrease in alphabetical rank. We estimate a structural ordered search model which confirms that physicians actively search. They react to patient expenditures, albeit less than patients, and increase search effort for low-income and female patients. Sorting products by price would reduce equilibrium expenditures by 5%, which is more than a removal of search frictions would achieve.
    Keywords: Ordered search, pharmaceuticals, market power, prominence.
    JEL: D12 D83 L13
    Date: 2020–12–01
  6. By: Alex Imas (Booth School of Business); Kristóf Madarász (London School of Economics)
    Abstract: We propose that a person’s valuation from consuming an object or possessing an attribute is increasing in others’ unmet excess desire for it. Such mimetic dominance-seeking helps explain a host of market anomalies and generates novel predictions in a variety of domains. In bilateral exchange, there is a reluctance to trade, and people exhibit a ‘social’ endowment effect. The value of consuming a good increases in its scarcity, which generates a motive for exclusion. Randomly excluding potential consumers from the opportunity to acquire a product will increase profits for a classic monopolist producing at zero marginal cost and a seller’s rents in first-price auctions. We test the predictions of the model empirically. When auctioning a private good, all else equal, randomly excluding people from the opportunity to bid substantially increases bids amongst those who retain this option. Exclusion leads to bigger gains in expected revenue than increasing competition through inclusion. Such effects are absent when those excluded are known to have lower valuations. In basic exchange, a person’s willingness to pay for a good increases substantially when others are excluded from the opportunity of buying the same kind of good. Mimetic preferences have implications for both non-price and price based methods of exclusion: the model generates "Veblen effects," rationalizes attitudes against redistribution, immigration, and trade, and provides a novel motive for social stratification and discrimination
    Keywords: mimetic preferences, objects of desire, exclusion, Trade, auctions, competition, Inequality
    JEL: L12 D44 D63 F12 D40
    Date: 2021–01
  7. By: Wilson, Kyle; Xiao, Mo; Orazem, Peter F.
    Abstract: In a rapidly growing industry, potential entrants strategically choose which local markets to enter. Facing the threat of additional entrants, a potential entrant may lower its expectation of future profits and delay entry into a local market, or it may accelerate entry due to preemptive motives. Using the evolution of local market structures of broadband Internet service providers from 1999 to 2007, we find that the former effect dominates the latter after allowing for spatial correlation across markets and accounting for endogenenous market structure. On average, it takes two years longer for threatened markets to receive their first broadband entrant. Moreover, this entry delay has long-run negative implications for the divergence of the U.S. broadband infrastructure: one year of entry delay translates into an 11% decrease in average present-day download speeds.
    Date: 2020–10–27
  8. By: Atsushi Tadokoro (Graduate School of Economics, Osaka University)
    Abstract: This study analyzes policy instruments to make the market outcome achieve the e?cient outcome in a model of monopolistic competition with ?rm heterogeneity and variable markups. In this model, ?rm heterogeneity and the markup pricing create distortions in the market equilibrium. Ad valorem and per-unit production taxes/subsidies work di?erently to improve these distortions. I show that by combining an ad valorem production tax and a per-unit production subsidy, these distortions are removed without adopting a ?rm-speci?c tax/subsidy.
    Keywords: Variable markups, Misallocation, Firm heterogeneity, Monopolistic competition
    JEL: D4 D6 F1 L0 L1
    Date: 2021–01
  9. By: OECD
    Abstract: Online personalised pricing is a form of price discrimination that involves charging different prices to different consumers, often based on a consumer’s personal data. Policymakers are currently discussing ways to protect consumers from potential adverse effects of personalised pricing. One option involves displaying disclosures on the websites of retailers that use personalised pricing, in order for consumers to make informed purchase decisions. This paper summarizes findings from a laboratory experiment on the effects that online disclosures about personalised pricing have on consumers. Results from the experiment suggest that online disclosures have only limited effects on consumers’ ability to identify and comprehend online personalised pricing, and cannot confirm a significant effect on participants’ purchasing behaviour. Results from a questionnaire distributed to participants reveal that on average personalised pricing is considered an unfair practice that should be prohibited.
    Date: 2021–01–18
  10. By: Pittman, Russell
    Abstract: Firms that provide training to their labor force may risk ex post opportunistic behavior on the part of their workers or of competing firms. Some arguably restrictive firm practices that have been justified by this concern include employment contracts restricting the freedom of workers to seek employment from the firm’s competitors and agreements among competing firms not to solicit or hire certain of each other’s workers – sometimes termed “non-compete” and “no poach” agreements, respectively. This Note considers these two categories of practices in the context of recent public discussions and enforcement actions by the US competition law enforcement agencies.
    Keywords: antitrust, competition, labor markets, non-compete agreements, no-poach agreements
    JEL: J2 J24 L4 L41 L86
    Date: 2020–11–24
  11. By: Benjamín Contreras Astiazarán; René Leal Vizcaíno; Jordán Mosqueda; Alejandrina Sacelcedo
    Abstract: We document the following stylized facts for the Mexican retail market for gasoline using data for 2018-2019: (1) consumer prices adjust slower than wholesale prices; (2) more competition, in the form of a higher density of stations, implies lower markups and lower prices; and (3) more competition implies faster pass-through. However, we find geographical differences in the speed of pass-through that cannot be explained by differences in station density. We conjecture that coordination on high prices could be offsetting competitive pressure in some locations. We build a classifier that separates municipalities into two categories depending on whether the relative price concentration is on “high” prices or “low” prices. In the first type of municipalities, the price concentration is correlated positively with the price level and negatively with pass-through. For concentration in "low" prices the signs of the correlations are reversed.
    JEL: L4 L5 L13 D4 H25
    Date: 2020–12
  12. By: Comincioli, Nicola; Hagspiel, Verena; Kort, Peter M.; Menoncin, Francesco; Miniaci, Raffaele; Vergalli, Sergio
    Abstract: The mothballing option has been studied in the literature, but mainly in decision theoretic frameworks. This paper looks at it from a strategic point of view and applies it to an incumbent-entrant framework. In particular, based on the recent strategic interactions between OPEC and the shale oil industry, we conduct a case study where the incumbent OPEC is a exible producer that competes with a representative shale oil firm. Upon entry, the latter produces a fixed amount but it can apply the mothballing option in times of low demand. Our main results are threefold. First, we find that under low demand uncertainty, the mothballing option has a negative effect on the value of the entrant. Second, a large market share of the entrant will stimulate mothballing, caused by a so-called squeeze strategy of the incumbent. Third, our empirical analysis of the (shale) oil market learns that a higher demand elasticity induces mothballing.
    Keywords: Resource /Energy Economics and Policy
    Date: 2020–12–16
  13. By: Laura Kimmey; Michael F. Furukawa; David Jones; Rachel Machta; Jing Guo; Eugene Rich
    Abstract: We found physician consolidation into health systems increased in nearly all metropolitan statistical areas (MSAs) from 2016 to 2018. Of 382 MSAs, 113 had more than half of their physicians in systems in 2018. Consolidation was most notable in the Midwest and Northeast and in small-to-midsize MSAs.
    Keywords: health systems, physicians, geographic variation, vertical integration, consolidation
  14. By: Dasha Basnakian; Neil Wiggins
    Abstract: This second article explores the emergence of online-only subsidiaries of traditional brick-and-mortar banks.
    Date: 2020–08
  15. By: Meenakshi Rajeev; Pranav Nagendran (Institute for Social and Economic Change)
    Abstract: The supply chain of fish and seafood products in India involves a vast network of intermediaries (primarily distributors) who retain a large share of the price spread between what is paid to fishermen and what is paid by consumers. This results in high fish prices and losses due to spoilage (MOFPI Report 2017). It is deemed beneficial both for producer and consumer to have fish processing firms internalise some of the intermediaries’ activities. These firms will undertake such activities only if they get adequate incentive. By considering Indian fish processing firms over three consecutive years, we examine the viability of internalising distribution and other activities using a 2SLS regression. We show that firms, which undertake the responsibility of distribution themselves, raise better returns to the factors of production (within the firm), and enjoy higher profit. These results indicate that policy support aimed at reducing the length of supply chain, for example, by forming fishermen cooperatives and linking them to the processing firms that undertake the responsibility for distribution activity, can be beneficial for both firms as well as consumers.
    Keywords: Seafood products; Fisheries; Fish processing firms
    Date: 2019
  16. By: Kedar Vishnu; Parmod Kumar (Institute for Social and Economic Change)
    Abstract: Indian Modern Food Retail Chains (MFRC) have been growing the fastest in developing countries for the last two decades. What impact will it have on existing fruit and vegetable (F&Vs) supply chains, procurement price offered to farmers and consumers’ purchase prices? How do the MFRC expand their business and what strategy do they adopt? This paper analyses the evolution of MFRC, particularly during the last two decades. Further, the paper traces the current structure and expansion of retailing through supermarkets in India and discerns the strategy of the retail chains and price spread in F&Vs. The paper is based on primary survey and data were collected in 2016-17 in Bangalore, Karnataka. Field findings show that domestic modern retailers resort to joint ventures with other international companies mainly for utilising their international experience, expertise in brand development and retail led technological development. The authors noted that the MFRC have shifted away from the use of spot markets towards purchasing directly from the farmers for differentiating their product from traditional retailers, maintaining higher product quality, consistency and cutting costs in order to compete with the traditional players and wet markets. The paper concludes that most of the F&Vs and MFRC offer higher prices to the farmers as compared with traditional and spot market prices.
    Keywords: Food retail chain; Supermarkets; Fruits and vegetables; Spot markets
    Date: 2019
  17. By: Wipusanawan, Chayanin (Tilburg University, School of Economics and Management)
    Date: 2020
  18. By: Andreas Hefti; Julian Teichgräber
    Abstract: This paper develops a framework to systematically study how changes in market conditions affect the equilibrium inequality between heterogeneous agents. By stating our setting as a "competition for market shares", we can derive inequality predictions for vastly different competition models. This approach allows us to identify a common structure, e.g., in monopolistic competition, perfect competition, or competition for prizes, that explains why these models deliver similar inequality predictions. We apply our results to problems from trade, competition theory, consumption inequality, political economics and marketing, and relate some of the predicted inequality patterns to empirical evidence.
    Keywords: Inequality analysis, market shares, power functions, monopolistic competition, perfect competition competition for prizes
    JEL: C65 D30 D41 E10 L11 M37
    Date: 2021–01
  19. By: Florent Venayre (GDI - Gouvernance et développement insulaire - UPF - Université de la Polynésie Française)
    Abstract: En dépit de sa désignation par la cour d'appel de Paris pour statuer dans l'affaire des boissons réfrigérées de la distribution polynésienne (ordonnance n° 20/08122 du 29 juillet 2020), l'Autorité de la concurrence se déclare incompétente sur ce dossier, tant pour une question territoriale que pour une question d'attribution (Autorité de la concurrence, décision n° 20-D-18 du 18 novembre 2020).
    Date: 2020–11–24
  20. By: Da Silva, Filipe; De Furquim, Júlia; Núñez, Georgina
    Abstract: En este documento se analiza el papel de la política de competencia en la economia digital. Se hace hincapié en la relación entre las estrategias de negocios, las tecnologías, las innovaciones y la concentración de mercado, y se analiza la viabilidad de los marcos legales y regulatorios e institucionales en materia de competencia para enfrentar los nuevos desafíos de la economia digital.
    Date: 2020–12–31
  21. By: Vimal V Thakoor
    Abstract: Before the pandemic, the South African economy remained stuck in low gear, with anemic growth, stagnant private investment, and a shrinking tradable sector. Subdued growth has raised unemployment, poverty, and inequality, hindering inclusion efforts. The pandemic has worsened economic and social vulnerabilities. Economic recovery and social inclusion hinge critically on structural reforms to boost competiveness and growth. Product markets represent a cornerstone of the reform strategy. Firms have used their market power to drive up prices and limit competition. Important state-owned monopolies provide low-quality services, while representing a fiscal drag. Existing regulations inhibit the entry of both domestic and foreign firms. Addressing product markets constraints could boost per capita growth by 1 percentage point—adding about 2½ percentage points to headline growth—and foster greater inclusion.
    Keywords: Competition;Commodity markets;Private investment;Labor markets;Job creation;WP,market power,product market,firm,market concentration,mark-up
    Date: 2020–09–25
  22. By: Akgündüz, Yusuf Emre (Sabanci University); Bağır, Yusuf Kenan (Central Bank of the Republic of Turkey); Cilasun, Seyit Mümin (Central Bank of the Republic of Turkey); Kirdar, Murat G. (Bogazici University)
    Abstract: This study combines an administrative dataset of the full population of Turkish firms and the setting of the sudden mass migration of Syrian refugees to Turkey to identify the effect of migrants on firm performance and market structure. As a result of the migrant shock, existing firms expand and new firms are established. Quantitatively, a 10 percentage-point rise in migrant-to-native ratio increases average firm sales by 4% and the number of registered firms by 5%. While the number of firms rises, new firms are more likely to be small. The resulting market structure shows less concentration and firms reduce the share of workers formally employed. We further document an increased propensity to export and an increase in the variety of exported products. The impact on exports is driven by a rise in competitiveness of firms in regions hosting Syrians as a decline in export prices is observed. We also uncover evidence for an effect of migrants' skills and networks on exports, as the export value and variety of products to the Middle East and North Africa (MENA) region increase more than those to the EU region among exporters while the prices of products exported to the two regions show similar changes.
    Keywords: refugees, firm performance, market structure, sales, informality, exports, migrant business networks
    JEL: J15 J61 F16 L11
    Date: 2020–12

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