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on Industrial Competition |
| By: | Büchel, Jan; Rusche, Christian |
| Abstract: | The Digital Age saw the rise of several rapidly growing digital platforms with substantial market shares. Europe is a large target market for these globally operating platforms, although the majority of the most successful platforms come from the USA or Asia. In general, platform ecosystems differ from regular market environments: platforms extend to several markets and user groups at the same time and there is an increased degree of dynamics in the allocation of market shares in platform ecosystems, which leads to a pressure to constantly innovate. Platform ecosystems vary among themselves, not least due to the different types of platform business models or their varying impact on the whole sector. Recent developments have included the emergence of particularly overwhelming platforms, known as "gatekeepers", that control entire platform ecosystems. A gatekeeper obtains durable and stable significant market power in the market for intermediation services, it has a large impact on the underlying market(s) and it is vital for users from all sides of the platform. In contrast to conventional platforms, for gatekeepers the ability to contest any of the markets is significantly reduced from the perspective of competing platforms, not least due to significant lock-in effects for consumers. But too tight regulation and pre-emptive intervention without any occasion is not preferable. Rash and untailored action negatively affects the development and growth opportunities for online platforms that do not intend to breach existing competition rules. Indirectly, that harms consumers, by restricting innovation and the availability of products and services. Tailored procedures for individual large online platforms with gatekeeper power on a case-by-case basis are more expedient. Thereby the current regulatory framework is capable of acting and builds on established legal pillars. However, tailored modernisation and adaption, for example in merger control, is helpful for ensuring fair competition. Merger control can be empowered by including data and other synergies between involved enterprises into assessments in order to prevent the formation of gatekeepers. |
| JEL: | G34 K21 L12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:262020&r=all |
| By: | Geoffrey Parker; Georgios Petropoulos; Marshall Van Alstyne |
| Abstract: | Digital platforms are at the heart of online economic activity, connecting multi-sided markets of producers and consumers of various goods and services. Their market power and their privileged ecosystem positions raise concerns that they may engage in anti-competitive practices that reduce innovation and consumer welfare. This paper deals with the role of market competition and regulation in addressing these concerns. Traditional (ex-post) antitrust intervention will be less effective in markets... |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:39891&r=all |
| By: | Geoffrey Parker; Georgios Petropoulos; Marshall Van Alstyne |
| Abstract: | Platform ecosystems rely on economies of scale, data-driven economies of scope, high-quality algorithmic systems and strong network effects that typically promote winner-take-most markets. Some platform firms have grown rapidly and their merger and acquisition strategies have been very important factors in their growth. Market dominance by big platforms has led to competition concerns that are difficult to assess with current merger policy tools. In this paper, we examine the acquisition... |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:40796&r=all |
| By: | Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London, and Hellenic Competition Commission) |
| Abstract: | We discuss how the acquisition of private information by default without compensation by digital platforms such as Google and Facebook creates a market failure and can be grounds for antitrust enforcement. To avoid the market failure, the default in the collection of personal information has to be changed by law to “opt-out.” This would allow the creation of a vibrant market for the sale of users’ personal information to digital platforms. Assuming that all parties are perfectly informed, users are better off in this functioning market and digital platforms are worse off compared to the default opt-in. However, just switching to a default opt-in will not restore competition to the but for world because of the immense market power and bargaining power towards an individual user that digital platforms have acquired. Digital platforms can use this power to reduce the compensation that a user would receive for his/her personal information compared to a competitive world. Additionally, it is likely that the digital platforms are much better informed than the user in this market, and can use this information to disadvantage users in the market for personal information. |
| Keywords: | personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-in; opt-out. |
| JEL: | K21 L1 L12 L4 L41 L5 L86 L88 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:2102&r=all |
| By: | He, Sherry; Hollenbeck, Brett; Proserpio, Davide |
| Abstract: | We study the market for fake product reviews on Amazon.com. These reviews are purchased in large private internet groups on Facebook and other sites. We hand-collect data on these markets to characterize the types of products that buy fake reviews and then collect large amounts of data on the ratings and reviews posted on Amazon for these products, as well as their sales rank, advertising, and pricing behavior. We use this data to assess the costs and benefits of fake reviews to sellers and evaluate the degree to which they harm consumers. The theoretical literature on review fraud shows that there exist conditions when they harm consumers and other conditions where they function as simply another type of advertising. Using detailed data on product outcomes before and after they buy fake reviews we can directly determine if these are low-quality products using fake reviews to deceive and harm consumers or if they are possibly high-quality products who solicit reviews to establish reputations. We find that a wide array of products purchase fake reviews including products with many reviews and high average ratings. Soliciting fake reviews on Facebook leads to a significant increase in average rating and sales rank, but the effect disappears after roughly one month. After firms stop buying fake reviews their average ratings fall significantly and the share of one-star reviews increases significantly, indicating fake reviews are mostly used by low quality products and are deceiving and harming consumers. We also observe that Amazon deletes large numbers of reviews and we document their deletion policy. |
| Keywords: | Online platforms, consumer protection, e-commerce, word-of-mouth |
| JEL: | K42 L15 L51 L81 M21 M31 |
| Date: | 2021–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:105507&r=all |
| By: | Matthew Backus; Christopher Conlon; Michael Sinkinson |
| Abstract: | Models of firm conduct are the cornerstone of both theoretical and empirical work in industrial organization. A recent contribution (Berry and Haile, 2014) has suggested the use of exclusion restrictions to test alternative conduct models. We propose a pairwise testing procedure based on this idea and show that the power of the test to discriminate between models is tied to the formulation of those restrictions as moments and how they reflect the nonlinearity of equilibrium markups. We apply this test to the ready-to-eat cereal market using detailed scanner and consumer data to evaluate the “common ownership” hypothesis, which has received significant attention. Although we show that the potential magnitude of common ownership effects would be large, our test finds that standard own-firm profit maximization is more consistent with the data. |
| JEL: | C52 L13 L21 L41 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28350&r=all |
| By: | Chen, Jiaqi; Lee, Sang-Ho; Muminov, Timur |
| Abstract: | This study considers a (partially privatized) semi-public firm in a mixed duopoly and examines the welfare effects of discriminatory output subsidies under R&D competition. We find that the government grants higher subsidies to the private firm than to the semi-public firm, which induces the private firm to invest more in R&D and to produce a higher output than the semi-public firm. We also show that optimal subsidy rates are higher (lower) than uniform subsidy rates for a sufficiently high (low) degree of privatization, which could decrease (increase) social welfare. This finding sharply contrasts to the case that the committed discriminatory output subsidy always yields the highest welfare compared to non-committed cases. |
| Keywords: | mixed ownership; time-consistency; discriminatory output subsidies; R&D competition |
| JEL: | D4 L1 L3 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:105015&r=all |
| By: | Thomas Grebel; Lionel Nesta (Université Côte d'Azur, CNRS, GREDEG (France)) |
| Abstract: | We investigate the determinants of the sign of Research and Development reaction functions of rival firms. Using a two-stage n-firm Cournot competition game, we show that this sign depends on four types of environments in terms of product rivalry and technology spillovers. We test the predictions of the model on the world's largest manufacturing corporations. Assuming that firms make R&D investments based on the R&D effort of the representative rival company, we develop a dynamic panel data model that accounts for the endogeneity of the decision of the rival firm. Empirical results thoroughly corroborate the validity of the theoretical model. |
| Date: | 2020–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03042941&r=all |
| By: | San Sau Fung (Competition and Markets Authority (CMA)); Simon Roberts (Centre for Competition, Regulation and Economic Development (CCRED), University of Johannesburg Centre for Competition Policy, University of East Anglia) |
| Abstract: | The CMA received a large number of complaints about price hikes during Covid-19. In this paper, we first review the economic framework of price gouging and identify the situations when intervention by competition authorities is justified. We then analyse the CMA’s consumer complaints data. We find that most complaints related to essential products sold by small local retailers, including many that operate in some of the most deprived areas of the UK, and their price hikes were particularly likely to harm vulnerable consumers. We also explain the CMA’s antitrust investigations into the pricing of hand sanitisers by retailers. This product, essential for reducing Covid-19 transmission, saw substantial and sustained price increases around March to June 2020. We conclude by discussing the merits of, and challenges for, competition authorities in responding to price gouging concerns and in playing a market observatory role more generally. |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaccp:2021_01&r=all |
| By: | Indranil Chakraborty; Fahad Khalil; Jacques Lawarree |
| Abstract: | Unlike standard auctions, we show that competitive procurement may optimally limit competition or use inefficient allocation rules that award the project to a less efficient firm with positive probability. Procurement projects often involve ex post moral hazard after the competitive process is over. A procurement mechanism must combine an incentive scheme with the auction to guard against firms bidding low to win the contract and then cutting back on effort. While competition helps reduce the rent of efficient firms, it exacerbates the problem due to moral hazard. If allocative efficiency is a requirement, limiting the number of participants may be optimal. Alternatively, the same incentives can be optimally provided using inefficient allocation rules. |
| Keywords: | competitive procurement, auctions, moral hazard |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8863&r=all |
| By: | Jens-Uwe Franck; Martin Peitz |
| Abstract: | The article addresses the role market definition can play for EU competition practice in the platform economy. The focus is on intermediaries that bring together two (or more) groups of users whose decisions are interdependent and which therefore are commonly referred to as “two-sided platforms”. We address challenges to market definition that accompany these cross-group network effects, assess current practice in a number of cases with the European Commission and Member States’ competition authorities, and provide guidance on how practice is to be adapted to properly account for the economic forces shaping markets with two-sided platforms. Owing to the complementarities of services provided to the user groups the platforms cater to, the question arises whether and when a single market can be defined that encompasses both sides. We advocate a multi-markets approach that takes account of cross-market linkages, acknowledges the existence of zero-price markets, and properly accounts for the homing behaviour of market participants. |
| Keywords: | antitrust law, EU competition practice, market definition, market power, Market Definition Notice, two-sided platforms, digital markets, network effects, matching platforms, zero-price markets, homing decisions, SSNIP test |
| JEL: | K21 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_259&r=all |
| By: | Thanh Doan (Centre for Competition Policy and School of Economics, University of East Anglia); Fabio Maria Manenti (Department of Economics and Management, University of Padua); Franco Mariuzzo (Centre for Competition Policy and School of Economics, University of East Anglia) |
| Abstract: | Apple iOS is a closed platform; Google Android is open. In this paper, we combine data on iOS and Android tablet sales with dat a on the top 1000 mobile applications from both platforms for five European countries and estimate a structural demand model. We find that the quality of applications affects tablet demand. We then run two counterfactuals. In line with our theory, the exclusion of low-quality applications is beneficial to tablet producers in both platforms but is more pronounced for Apple. Tablet producers in the plat form with lower quality applications gain most from cross-platform app interoperability. |
| Keywords: | Android, indirect quality effect, iOS, mobile application, tablet demand |
| JEL: | L13 L15 L51 L63 |
| Date: | 2020–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaccp:2020_08&r=all |
| By: | C. Luke Watson; Oren Ziv |
| Abstract: | We investigate the sources, scope, and implications of landowner market power. We show how zoning regulations generate spillovers through increased markups and derive conditions under which restricting landownership concentration reduces rents. Using newbuilding-level data from New York City, we find that a 10% increase in ownership concentration in a Census tract is correlated with a 1% increase in rent. Market power is substantial: on average, markups account for nearly a third of rents in Manhattan. Furthermore, pecuniary spillovers between zoning constraints and markups at other buildings are appreciable. Up-zoning that results in 417 additional housing units at zoning-constrained buildings reduces markups on policy-unconstrained units and generates between 5 and 19 additional units through increased competition. |
| Keywords: | monopolistic competition, market power, concentration, rent, housing demand, zoning |
| JEL: | R31 R38 L13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8864&r=all |
| By: | Gerard Hoberg; Yuan Li; Gordon M. Phillips |
| Abstract: | Using new measures of expanded Internet access in China and internet-based search, we examine how competitive shocks from China impact U.S. innovation through the markets for innovation and existing products. We identify shocks to innovation competition using the geography of Chinese internet penetration and Chinese import data. Increases in the ability of Chinese industry peers to gather knowledge through the internet are followed by reductions in U.S. R&D investment and subsequent patents, and increased patenting by Chinese firms. The new Chinese patents also cite the U.S. firms patents at a high rate, consistent with increased intellectual property competition. |
| JEL: | D43 F13 L21 L26 O31 O34 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28231&r=all |
| By: | Bolatto, Stefano; Naghavi, Alireza; Ottaviano, Gianmarco I. P.; Zajc Kejzar, Katja |
| Abstract: | This paper introduces the concept of intangible assets in a property rights model of sequential supply chains. Firms transmit knowledge to their suppliers to facilitate input customization. Yet, to avoid knowledge dissipation, they must protect the transmitted intangibles, the cost of which depends on the knowledge intensity of inputs and the quality of institutions protecting intellectual property rights (IPR) in supplier locations. When input knowledge intensity increases (decreases) downstream and suppliers' investments are complements, the probability of integrating a randomly selected input is decreasing (increasing) in IPR quality and increasing (decreasing) in the relative knowledge intensity of downstream inputs. Opposite but weaker predictions hold when suppliers' investments are substitutes. Comprehensive trade and FDI data on Slovenian firms' value chains provide evidence in support of our model's predictions. They also suggest that, in line with our model, better institutions may have very different effects on firm organization depending on whether they improve the protection of tangible or intangible assets. |
| Keywords: | sequential production; intellectual property; intangible assets; appropriability; stage complementarity; usptreamness; firm organization; outsourcing; vertical integration; 822390-MICROPROD-H2020-SC6- TRANSFORMATIONS-2018 |
| JEL: | F12 F14 F21 F23 D23 L22 L23 L24 O34 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108228&r=all |
| By: | Hiroaki Ino (Kwansei Gakuin University); Norimichi Matsueda (Kwansei Gakuin University); Toshihiro Matsumura (The University of Tokyo) |
| Abstract: | This study investigates how the introduction of a competitor affects the behavior of an incumbent electricity producer who is a former local monopolist. We especially focus on its implications for the incumbent's capacity choice between two different electric power sources: one technology with a relatively high production cost (peak-load technology), which is represented by gas-fired power generation, and the other with a relatively high capacity-building cost (base-load technology), which is represented by nuclear power generation. We assume that the entrant does not have access to the latter technology and also that demand fluctuates over time, as is typically the case with an electricity market. Surprisingly, the introduction of a competitor increases the capacity of nuclear power generation if and only if the nuclear technology is sufficiently inefficient. This result also implies that the introduction of a competitor competition tends to decrease the nuclear capacity when the level of carbon tax, which tends to raise the relative production cost of gas-fired power generation, is sufficiently high. |
| Keywords: | ;technology choice, carbon-free energy, carbon tax, deregulation, demand uncertainty, capacity commitment, imperfect competition |
| JEL: | Q41 Q42 L13 L43 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:223&r=all |
| By: | Minton, Bernadette A. (Ohio State U); Taboada, Alvaro G. (Mississippi State U); Williamson, Rohan (Georgetown U) |
| Abstract: | Using a sample of 3,964 bank mergers during the 1999-2016 period, we examine the effects of merger and local market characteristics on local small business lending through banks' dependence on soft information acquisition relative to technology driven lending. Mergers involving small or in-state acquirers are positively associated with small business loan (SBL) originations in counties where the target bank has a presence, particularly in counties with a larger number of small firms. In contrast, mergers involving large acquirers are associated with fewer SBL originations while those involving out-of-state acquirers have no impact on SBL originations. Analyses of acquirer bank SBL origination activity post-merger corroborate our county-level results. Post-merger, small bank acquirers increase in SBL originations, while large acquirers do not. Examining the behavior of local competitor banks shows that competitors of small acquirers decrease SBL originations, partially offsetting the positive effect associated small bank acquirers. Taken together, our findings underscore the importance of soft information acquisition in small business lending and suggest one-size-fits-all policy solutions are not likely to lead to common outcomes at the local level. Encouraging mergers by small banks and by in-state acquirers can positively affect small business lending and community investment, particularly in counties with a large fraction of small firms. |
| JEL: | G20 G21 G34 O16 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2020-12&r=all |
| By: | Bertin Martens (European Commission - JRC); Bo Zhao (Tilburg University - Netherlands) |
| Abstract: | We study the case of a Chinese industrial policy, implemented in Shanghai, that makes it mandator for car manufacturers to share electro-mechanical performance and real time navigation data from their entire fleet of electric and hybrid vehicles with local and central government authorities. This policy seeks to reduce emissions, assess the performance of New Energy Vehicles (NEVs), prevent fraud in state subsidies and strengthen the competitiveness of Chinese manufacturers of these vehicles. We argue that economies of scope in data aggregation may provide traditional market failure arguments for government intervention and mandatory data pooling. Our paper also illustrates how data access regulation could be used for economic regime competition. The EU and China pursue very similar data policy goals that hinge on economies of scope in data aggregation. However, they follow very different political processes to achieve these goals. |
| Keywords: | China, data governance, data sharing and access rights, regime competition, industrial policy |
| JEL: | L11 L41 L43 L62 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:decwpa:202008&r=all |
| By: | Germán Gutiérrez; Callum Jones; Thomas Philippon |
| Abstract: | We combine a structural model with cross-sectional micro data to identify the causes and consequences of rising concentration in the US economy. Using asset prices and industry data, we estimate realized and anticipated shocks that drive entry and concentration. We validate our approach by showing that the model-implied entry shocks correlate with independently constructed measures of entry regulations and M&As. We conclude that entry costs have risen in the U.S. over the past 20 years and have depressed capital and consumption by about seven percent. |
| Keywords: | Zero lower bound;Consumption;Corporate sector;Competition;Stocks;WP,concentration ratio,fed funds rate,time series |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/233&r=all |
| By: | Franz Hackl; Michael Hölzl-Leitner; Dieter Pennerstorfer |
| Abstract: | In this article, we provide a novel measure of product differentiation by observing consumer search behavior directly. We track individual consumers in a price search engine and generate a measure of distance in product space, based on goods surveyed conjointly within individual search episodes. This metric performs well in an application to digital cameras as an example of complex products. Regression results show that differences in product characteristics are correlated with our measure of distance to a surprisingly high degree, and that prices are significantly lower if products have to compete with a larger number of close substitutes. |
| Keywords: | product differentiation, characteristic space, consumer search, price search engine, clickstream. |
| JEL: | D83 D43 L13 L63 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2021-01&r=all |
| By: | Françeska Tomori (Universitat Rovira i Virgili); Erik Ansink (Vrije Universiteit Amsterdam); Harold Houba (Vrije Universiteit Amsterdam); Nick Hagerty (Montana State University); Charles Bos (Vrije Universiteit Amsterdam) |
| Abstract: | We estimate market power in California's thin water market. Market frictions may distort the potential welfare gains from water marketing. We use a Nash-Cournot model and derive a closed-form solution for the extent of market power in a typical water market setting. We then use this solution to estimate market power in a newly assembled dataset on California's water economy. We show that, under the assumptions of the Cournot model, market power in this thin market is limited. |
| Keywords: | Water markets, Market power, California, Cournot-Nash |
| JEL: | C72 D43 Q25 |
| Date: | 2021–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210011&r=all |
| By: | Philippe Mahenc (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Alexandre Volle (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We explore the interplay between price signaling and independent monitoring for communicating information about the credence attribute of a good, such as environmental quality. We augment the standard model of price signaling allowing consumers to use the results of noisy monitoring as a complementary source of information. We show that monitoring restores the credibility of price signaling by saving partly or fully the signaling cost borne by green rms to deter cheating. A key reason for this is that monitoring compensates for the lack of information resulting from arbitrary beliefs based on surprising prices. The more accurate monitoring, the cheaper price signaling. The signaling behavior of green rms also depends on their number. We determine which proportion of rms choose to improve environmental quality. |
| Keywords: | credence good,fraud,monitoring,signaling. |
| Date: | 2021–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03098440&r=all |
| By: | Gorodnichenko, Yuriy (University of California, Berkeley); Talavera, Oleksandr (University of Birmingham); Vu, Nam (University of Birmingham) |
| Abstract: | This paper investigates the link between product quality and price setting for central processing units (CPUs). Using thousands of price quotes from a popular price-comparison website, we find that market fundamentals, such as the number of sellers, median price, share of convenient prices and level of seller stability, are important factors for explaining price stickiness and price dispersion. We demonstrate that calculations of price inflation require conditioning not only on CPU quality, but also on market fundamentals to ensure that CPU attributes are priced correctly. Failing to do so can result in an understatement of CPU price deflation in the sample period. |
| Keywords: | price setting, e-commerce, product quality, hedonic pricing, inflation |
| JEL: | E31 L11 L81 L86 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14058&r=all |