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on Industrial Competition |
| By: | Pauline Affeldt; Tomaso Duso; Klaus Gugler; Joanna Piechucka |
| Abstract: | An increasing body of empirical evidence is documenting trends toward rising concentration, profits, and markups in many industries around the world since the 1980s. Two major criticisms of these studies is that concentration and market shares are poorly measured at the national industry level while firm level revenues are a poor indicator of product sales. We use a novel database that identifies over 20,000 product/geographic antitrust markets affected by over2,000 mergers scrutinized by the European Commission between 1995 and 2014. We show that concentration, as measured by the market-specific post-merger HHI, is larger than reported in the extant literature (at least) by a factor of ten. We also show that concentration has increased over time on average. Yet, there is a great deal of heterogeneity across geographic markets and within broader industries. In a regression analysis that exploits this within-industry variation, we show that barriers to entry are unambiguously positively related to concentration irrespective of time periods, sectors of activity, and geographical market dimension analyzed. Strict past merger enforcement negatively correlates with concentration. Yet, this effect is stronger in the earlier decade (1995-2004) than subsequently. Intangibility of investments consistently displays positive correlation with concentration only for EU wide and worldwide services markets. In contrast, the correlation is negative in national markets. This underscores the importance of the large heterogeneity present in concentration developments across markets. |
| Keywords: | Concentration, HHI, market definition, entry barriers, mergers, merger control, intangibles |
| JEL: | L24 L44 K21 O32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1930&r=all |
| By: | Charlson, G. |
| Abstract: | Product ratings are commonplace on large online platforms, like Airbnb and Amazon Marketplace. One use for these ratings is to order search results. Platform owners are able to choose the extent to which ratings can be used to determine the probability a given seller is observed by a sets of buyers. Since demand is higher for high quality products, there is an incentive to increase the probability that highly-rated sellers are observed by biasing search results towards them. However, biasing search results in this way results in competition being more concentrated, reducing prices. The extent to which it is profitable to use ratings as a means of ordering search results depends on the properties of the market(s) the platform operates in. |
| Keywords: | Networks, strategic interaction, network games, interventions, industrial organisation, platforms |
| JEL: | D40 L10 L40 |
| Date: | 2021–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2106&r=all |
| By: | Jidong Zhou (Cowles Foundation, Yale University) |
| Abstract: | This paper proposes a framework for studying competitive mixed bundling with an arbitrary number of ï¬ rms. We examine both a ï¬ rm’s incentive to introduce mixed bundling and equilibrium tariffs when all ï¬ rms adopt the mixed-bundling strategy. In the duopoly case, relative to separate sales, mixed bundling has ambiguous impacts on prices, proï¬ t and consumer surplus; with many ï¬ rms, however, mixed bundling typically lowers all prices, harms ï¬ rms and beneï¬ ts consumers. |
| Keywords: | Bundling, Multiproduct pricing, Price competition, Oligopoly |
| JEL: | D43 L13 L15 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2270&r=all |
| By: | Mark Armstrong (Department of Economics Oxford University); Jidong Zhou (Cowles Foundation, Yale University) |
| Abstract: | This paper studies competition between ï¬ rms when consumers observe a private signal of their preferences over products. Within the class of signal structures which induce pure-strategy pricing equilibria, we derive signal structures which are optimal for ï¬ rms and those which are optimal for consumers. The ï¬ rm-optimal policy ampliï¬ es underlying product differentiation, thereby relaxing competition, while ensuring consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal policy dampens differentiation, which intensiï¬ es competition, but induces some consumers to buy their less-preferred product. Our analysis sheds light on the limits to competition when the information possessed by consumers can be designed flexibly. |
| Keywords: | Information design, Bertrand competition, Product differentiation, Online platforms |
| JEL: | D43 D83 L13 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2269&r=all |
| By: | Andrew Sweeting; Dun Jia; Shen Hui; Xinlu Yao |
| Abstract: | We generalize recent models of dynamic price competition where sellers benefit from learning-by-doing by allowing for long-lived strategic buyers, with a single parameter capturing the extent to which each buyer internalizes future buyer surplus. Many of the equilibria that exist when buyers are atomistic or myopic are eliminated when buyers internalize even a modest share of their effects on future surplus. The equilibria that survive tend to be those where long-run market competition is preserved. |
| JEL: | C73 D21 D43 L13 L41 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28272&r=all |
| By: | Marta Montinaro (University of Salento); Rupayan Pal (Indira Gandhi Institute of Development Research (IGIDR)); Marcella Scrimitore (University of Salento) |
| Abstract: | In a context of product innovation, we study two-part tariff licensing between a patentee and a potential rival which compete in a differentiated product market characterized by network externalities. The latter are shown to crucially affect the relative profitability of Cournot vs. Bertrand when a per unit royalty is applied. By contrast, we find that Cournot yields higher profits than Bertrand under ad valorem royalties, regardless of the strength of network effects. |
| Keywords: | Licensing, Product Innovation, Bertrand, Cournot, Network Effects |
| JEL: | L13 L20 D43 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2020.14&r=all |
| By: | Choi, Pak-Sing (Washington State University); Espinola-Arredondo, Ana (Washington State University); Munoz, Felix (Washington State University) |
| Abstract: | This paper considers firms’ incentives to merge under duopoly, where we allow for product differentiation, cost asymmetries, and pollution intensities (green and brown goods). We first analyze mergers in the absence of environmental regulation, showing that mergers induce an output shift towards the lowest cost firm. When emission fees are introduced, however, firms also consider their relative pollution intensities, potentially reverting the above output shift. We show that firms have stronger incentives to merge when goods are more differentiated, costs are more symmetric, and products generate similar environmental damages. However, socially excessive mergers can arise when firms shift output to the more cost-efficient firm after the merger, which may cause more pollution. In contrast, socially insufficient mergers can arise if output shifts after the merger would have reduced pollution. |
| Keywords: | socially excessive/insufficient mergers; product differentiation; cost asymmetry; pollution intensity; emission fees; antitrust authorities; environmental regulation losses; Policy uncertainty. |
| JEL: | G34 H23 L41 Q50 |
| Date: | 2020–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:ris:wsuwpa:2020_001&r=all |
| By: | Louis Kaplow |
| Abstract: | Economic analysis of competition regulation is most developed in the domain of horizontal mergers, and modern agency guidelines reflect a substantial consensus on the appropriate template for merger assessment. Nevertheless, official protocols are understood to rest on a problematic market definition exercise, to use HHIs and ΔHHIs in ways that conflict with standard models, and more broadly to diverge with how economic analysis of proposed mergers should be and often is conducted. These gaps, unfortunately, are more consequential than is generally appreciated. Moreover, additional unrecognized errors and omissions are at least as important: analysis of efficiencies, which are thought to justify a permissive approach, fails to draw on the most relevant fields of economics; entry is often a misanalyzed afterthought; official information collection and decision protocols violate basic tenets of decision analysis; and single-sector, partial equilibrium analysis is employed despite the presence of substantial distortions (many due to imperfect competition) in many sectors of the economy. This article elaborates these deficiencies, offers preliminary analysis of how they can best be addressed, and identifies priorities for further research. |
| JEL: | D43 K21 L13 L41 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28189&r=all |
| By: | ; Rajdeep Sengupta |
| Abstract: | Using a workhorse model of bank competition and risk-taking, we show that increased competition from market integration affects bank risk-taking in ways beyond a simple increase in the number of competitor banks. Research has shown that increased competition in the form of an increase in the number of competitor banks can reduce risk-taking—the bank-competitor effect. Market integration not only increases the number of banks, but also the number of potential customers (depositors and borrowers) available to each bank. Increases in the potential customer base induces banks to behave more like price-takers in both deposit and loan markets. We show that increased competition in the form of convergence toward banks’ price-taking behavior can either increase or decrease bank risk-taking—the bank customer effect. When these effects oppose each other, increased competition from market integration can potentially increase, rather than decrease, bank risk-taking. Even in the absence of the bank-customer effect, we show that market integration also affects risk-taking by facilitating bank mergers. By increasing concentration, bank mergers can potentially reverse the bank-competitor effect. |
| Keywords: | Bank Competition; Market Integration |
| JEL: | D82 G21 L13 |
| Date: | 2020–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:89533&r=all |
| By: | Budzinski, Oliver; Gänßle, Sophia; Lindstädt-Dreusicke, Nadine |
| Abstract: | The paper analyses the economics behind algorithmic search and recommender services, based upon personalized user data. Such services play a paramount role for online services such as marketplaces (e.g. Amazon), audio streaming (e.g. Spotify), video streaming (e.g. Netflix, YouTube), app stores, social networks (e.g. Instagram, Tik Tok, Facebook, Twitter) and many more. We start with a systematic analysis of search and recommendation services as a commercial good, highlighting the changes to these services by the systematic use of algorithms. Then we discuss benefits and risk for welfare arising from the widespread employment of algorithmic search and recommendation systems. In doing so, we summarize the existing economics literature and go beyond its insights, including highlighting further research desires. Eventually, we derive regulatory and managerial implications drawing on the current state of academic knowledge. |
| Keywords: | algorithmic search and recommender services,data economics,media economics,internet economics,digital economy,cultural economics,competition,antitrust,industry regulation,digital business ecosystems |
| JEL: | L86 L40 K21 K23 K24 L13 L51 L82 M21 Z10 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:148&r=all |
| By: | Jin Quan Zhou; Wen Jin He |
| Abstract: | The industrial life cycle theory has proved to be helpful for describing the evolution of industries from birth to maturity. This paper is to highlight the historical evolution stage of Atlantic City's gambling industry in a structural framework covered by industrial market, industrial organization, industrial policies and innovation. Data mining was employed to obtain from local official documents, to verify the module of industrial life cycle in differential phases as introduction, development, maturity and decline. The trajectory of Atlantic City's gambling sector evolution reveals the process from the stages of introduction to decline via a set of variables describing structural properties of this industry such as product, market and organization of industry under a special industry environment in which industry recession as a result of theory of industry life cycle is a particular evidence be proved again. Innovation of the gambling industry presents the ongoing recovering process of the Atlantic City gambling industry enriches the theory of industrial life cycle in service sectors. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.14999&r=all |
| By: | Nicola Comincioli (University of Brescia and Fondazione Eni Enrico Mattei); Verena Hagspiel (Norwegian University of Science and Technology); Peter M. Kort (Tilburg University and University of Antwerp); Francesco Menoncin (University of Brescia); Raffaele Miniaci (University of Brescia); Sergio Vergalli (University of Brescia and Fondazione Eni Enrico Mattei) |
| 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 e ect 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: | Crude Oil, Shale Oil, Mothballing, OPEC, Output Game |
| JEL: | L12 L71 Q41 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2020.18&r=all |
| By: | Carlos Suarez (Department of Econometrics, Statistics and Applied Economics, Research Group on Governments and Markets, University of Barcelona, Avinguda Diagonal 690, 08034 Barcelona, Tower 6 Floor 3. Engineering Department, Research Group on Energy, Environment and Development, Jorge Tadeo Lozano University.) |
| Abstract: | Using information on price bids in wholesale electricity pools and empirical techniques described in the literature on electricity markets, this study identifies the market power mitigation effect of public firms in the Colombian market. The results suggest that while private firms exercise less market power than is predicted by a profit-maximization model, there are marked differences between private and public firms in their exercise of unilateral market power. These findings support the hypothesis of the market power mitigation effect of public firms. |
| Keywords: | Electricity Markets, Market Power, Privatization, Mixed Oligopoly, Regulatory Intervention. JEL classification: L13, L94, C10. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202101&r=all |
| By: | Badruddoza, Syed (Washington State University); Amin, Modhurima (Washington State University); McCluskey, Jill (Washington State University) |
| Abstract: | Firms can prioritize among the product attributes based on consumer valuations using market-level data. However, a structural estimation of market demand is challenging, especially when the data are updating in real-time and instrumental variables are scarce. We find evidence that Random Forests (RF)—a machine-learning algorithm—can detect consumers’ sensitivity to product attributes similar to the structural framework of Berry-Levinsohn-Pakes (BLP). Sensitivity to an attribute is measured by the absolute value of its coefficient. We check the RF’s capacity to rank the attributes when prices are endogenous, coefficients are random, and instrumental or demographic variables are unavailable. In our simulations, the BLP estimates correlate with the RF importance factor in ranking (68%) and magnitude (79%), and the rates increase with the sample size. Consumer sensitivity to endogenous variables (price) and variables with random coefficients are overestimated by the RF approach, but ranking of variables with non-random coefficients match with BLP’s coefficients in 96% cases. These estimates are pessimistically derived by RF without parameter-tuning. We conclude that machine-learning does not replace the structural framework but provides firms with a sensible idea of consumers’ ranking of product attributes. |
| Keywords: | Machine-Learning; Random Forests; Demand Estimation; BLP; Discrete Choice. |
| JEL: | C55 D11 Q11 |
| Date: | 2019–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:wsuwpa:2019_005&r=all |
| By: | Spray, J. |
| Abstract: | I develop a model of firm-to-firm search and matching to show that the impact of falling trade costs on firm sourcing decisions and consumer welfare depends on the relative size of search externalities in domestic and international markets. These externalities can be positive if firms share information about potential matches, or negative if the market is congested. Using unique firm-to-firm transaction-level data from Uganda, I show empirical evidence consistent with positive externalities in international markets and negative externalities in domestic markets. I then build a dynamic quantitative version for the model and show that, in Uganda, a 25% reduction in trade costs led to a 5.2% increase in consumer welfare, 15% of which was due to search externalities. |
| Keywords: | Firm-to-Firm Trade, VAT Data, Search-and-Matching, Importing |
| JEL: | F14 F15 O19 |
| Date: | 2101–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2108&r=all |
| By: | Budzinski, Oliver; Gänßle, Sophia; Lindstädt-Dreusicke, Nadine |
| Abstract: | Dieser Beitrag fasst die ökonomischen Besonderheiten von Unterhaltungsmärkten zusammen und legt dabei einen besonderen Fokus auf Digitalisierungseffekte. Dabei werden die Aspekte Erfahrungsgüter und Qualität, Fixkostendegression & Güterheterogenität, Super-stareffekte, die Rolle (digitaler) Medien, sowie Preis- und Geschäftsmodelle diskutiert. Ein wesentliches Ergebnis der Betrachtung ist, dass Unterhaltungsmärkte im digitalen Zeitalter anfällig werden für typische Wettbewerbsbeschränkungen in digitalen Ökosystemen. Die Autoren unterstreichen diesen Befund mit einer Auswahl an relevanten und aktuellen Wettbewerbsproblemen und -fällen. Dabei zeigt sich, dass (i) die prowettbewerbliche Wirkung der Digitalisierung auf Medienmärkte fragil ist und des aktiven wettbewerbspolitischen Schutzes bedarf, (ii) nicht-horizontale Verflechtungen in digitalen Ökosystemen erhebliche Anreize zu behinderungswettbewerblichen Strategien wie Selbstbevorzugung, Monopolisierung und Raising Rivals Costs mit sich bringen und (iii) bisher funktionierende Abhilfemaßnahmen unter den Rahmenbedingungen digitalisierter Medien- und Unterhaltungsmärkte wohlfahrtssenkende Wirkungen entfalten können. Daher bedarf es einer Modernisierung der Wettbewerbsordnung für die Unterhaltungsindustrien. |
| Keywords: | Wettbewerb,Antitrust,Unterhaltungsindustrien,Entertainment,Wettbewerbsordnung,digitale Medienmärkte,Medienökonomik,Kulturökonomik,Streaming,Sport und Medien |
| JEL: | L82 Z10 L40 K21 L83 L86 L10 Z20 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:147&r=all |
| By: | Carlos Suarez (Department of Econometrics, Statistics and Applied Economics, Research Group on Governments and Markets, University of Barcelona, Avinguda Diagonal 690, 08034 Barcelona, Tower 6 Floor 3. Engineering Department, Research Group on Energy, Environment and Development, Jorge Tadeo Lozano University.) |
| Abstract: | In this paper I undertake a policy evaluation of the impact of the switch from public to private management of electricity generation units on their price bidding strategies. I draw on information about the bidding strategies of units in the Colombian electricity market to perform a double difference analysis. The evidence observed is coherent with theoretical behavioral predictions for profit maximizing agents facing short positions in forward contracts. |
| Keywords: | Electricity Markets, Market Power, Privatization, Mixed Oligopoly, Double Differences. JEL classification: L13, L94, C10. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202102&r=all |
| By: | Thomas Størdal Gundersen; Even Soltvedt Hvinden |
| Abstract: | We develop a model of oligopolistic competition under imperfect monitoring and dynamic observable demand. Efficient symmetric equilibria feature disciplined cooperative regimes interrupted by rare but severe price wars. The model predicts that the frequency, duration, and supply schedule associated with each regime may persistently deviate from average behavior. We find evidence for the theoretical predictions of our model in historical Organization of Petroleum Exporting Countries (OPEC) output using a Markov-switching Bayesian vector autoregressive model of the global oil market. The evidence suggests that conventional models without regime-switching of oil supply underestimates the linkages between quantities supplied and oil prices. |
| Keywords: | Regime-switching, OPEC, cartel, price war, crude oil demand and supply |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0096&r=all |
| By: | Elliott, M.; Galeotti., A.; Koh., A. |
| Abstract: | Prodigious amounts of data are being collected by internet companies about their users' preferences. We consider the information design problem of how to share this information with traditional companies which, in turn, compete on price by offering personalised discounts to customers. We provide a necessary and sufficient condition under which the internet company is able to perfectly segment and monopolise all such markets. This condition is surprisingly mild, and suggests room for regulatory oversight. |
| Keywords: | Information design, market segmentation, price discrimination |
| JEL: | D43 D83 L13 |
| Date: | 2021–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2105&r=all |
| By: | Luis Aguiar (UZH - University of Zürich [Zürich]); Philippe Gagnepain (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We attempt to identify and measure potential knowledge spillovers in the French urban transport sector, which is strongly regulated and where a few large corporations are in charge of operating several urban networks simultaneously. We build and estimate a structural cost model where the service is regulated by a local government and is provided by a single operator. Knowledge spillovers are directly linked to the know-how of a specific corporation, but they also depend on the incentive power of the regulatory contract which shapes the effort of the local managers. Exerting an effort in a specific network allows a cost reduction in this network, but it also benefit other networks that are members of the same corporation. Our model provides us with estimates of the operators' absorptive capacity, which is their in-house knowledge power in order to optimally benefit from spillovers. We find that diversity of knowledge across operators of a same corporation improves absorptive capacity and increases the flow of spillovers. Simulation exercises provide evidence of significant reductions in total operating cost following the enlargement of industrial groups. |
| Keywords: | Knowledge spillovers,Absorptive capacity,Cost incentives,Effort,Diversity of knowledge,Public transport |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03110851&r=all |
| By: | Marie-Hélène Felt; Fumiko Hayashi; Joanna Stavins; Angelika Welte |
| 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 higher retail prices passed on to consumers to cover merchants’ payment processing costs. 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 net cost. 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; Credit Cards; Rewards; Interchage Fees; Pass-through |
| JEL: | D12 D31 G21 L81 |
| Date: | 2020–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:89530&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03032504&r=all |