nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒02‒15
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Environmental preferences and technological choices: is market competition clean or dirty? By Phillipe Aghion; Roland Bénabou; Ralf Martin; Alexandra Roulet
  2. Cartel formation in Cournot competition with asymmetric costs: A partition function approach By Takaaki Abe
  3. Generalized linear competition: from pass-through to policy By Genakos, Christos; Grey, Felix; Ritz, Robert A.
  4. Won't Get Fooled Again: A Supervised Machine Learning Approach for Screening Gasoline Cartels By Douglas Silveira; Silvinha Vasconcelos; Marcelo Resende; Daniel O. Cajueiro
  5. Capping Commissions in the Presence of Price Competition By Schuler, Sebastian
  6. Globalization and workforce composition in Indian formal manufacturing: New evidence on product market competition channel By Ritabrata Bose; K.V. Ramaswamy
  7. Intellectual property and the organization of the global value chain By Stefano Bolatto; Alireza Naghavi; Gianmarco Ottaviano; Katja Zajc Kejzar
  8. Stricter patent regime, scientist mobility and innovation By Madhuparna Ganguly
  9. FinTech in the Financial Market By Maxime Delabarre
  10. How Does Competition by Informal and Formal Firms Affect the Innovation and Productivity Performance in Peru? A CDM Approach By Alvarez, Lourdes; Huamaní, Edson; Coronado, Yngrid
  11. Strategic use of environmental innovation in vertical chains and regulatory attitudes By Rania Mabrouk; Oliwia Kurtyka
  12. Competition and Bank Risk the Role of Securitization and Bank Capital By Yener Altunbas; David Marques‐Ibanez; Michiel van Leuvensteijn; Tianshu Zhao
  13. Language, Internet and Platform Competition By Doh-Shin Jeon; Bruno Jullien; Mikhail Klimenko

  1. By: Phillipe Aghion; Roland Bénabou; Ralf Martin; Alexandra Roulet
    Abstract: This paper investigates the joint effect of consumers' environmental concerns and product-market competition on firms' decisions whether to innovate "clean" or "dirty". We first develop a step-by-step innovation model to capture the basic intuition that socially responsible consumers induce firms to escape competition by pursuing greener innovations. To test and quantify the theory, we bring together patent data, survey data on environmental values, and competition measures. Using a panel of 8,562 firms from the automobile sector that patented in 42 countries between 1998 and 2012, we indeed find that greater exposure to environmental attitudes has a significant positive effect on the probability for a firm to innovate in the clean direction, and all the more so the higher the degree of product market competition. Results suggest that the combination of historically realistic increases in prosocial attitudes and product market competition can have the same effect on green innovation as major increase in fuel prices.
    Keywords: environment, product market competition, innovation
    Date: 2020–03
  2. By: Takaaki Abe (School of Political Science and Economics, Waseda University)
    Abstract: In this paper, we use a partition function form game to analyze cartel formation among firms in Cournot competition. We assume that a firm obtains a certain cost advantage that allows it to produce goods at a lower unit cost. We show that if the level of the cost advantage is “moderate”, then the firm with the cost advantage leads the cartel formation among the firms. Moreover, if the cost advantage satisfies another condition, then the formed cartel can also be stable in the sense of the core of a partition function form game. We also show that if the technology for the low-cost production can be copied, then the cost advantage may prevent a cartel from splitting.
    Keywords: cartel formation; Cournot competition; partition function form game; stability
    JEL: C71 L13
    Date: 2019–07
  3. By: Genakos, Christos; Grey, Felix; Ritz, Robert A.
    Abstract: Economic policy and shifts in input market prices often have significant effects on the marginal costs of firms and can prompt strategic responses that make their impact hard to predict. We introduce "generalized linear competition" (GLC), a new model that nests many existing theories of imperfect competition. We show how firm-level cost pass-through is a sufficient statistic to calculate the impact of a cost shift on an individual firm's profits. GLC sidesteps estimation of a demand system and requires no assumptions about the mode of competition, rivals' technologies and strategies, or "equilibrium". In an empirical application to the US airline market, we demonstrate GLC's usefulness for ex ante policy evaluation and identify the winners and losers of climate-change policy. We also show how GLC's structure, under additional assumptions, can be used for welfare analysis and to endogenize the extent of regulation.
    Keywords: pass-through; imperfect competition; regulation; carbon pricing; airlines; political economy; ES/J500033/1
    JEL: D43 H23 L51 L93
    Date: 2020–07
  4. By: Douglas Silveira; Silvinha Vasconcelos; Marcelo Resende; Daniel O. Cajueiro
    Abstract: In this article, we combine machine learning techniques with statistical moments of the gasoline price distribution. By doing so, we aim to detect and predict cartels in the Brazilian retail market. In addition to the traditional variance screen, we evaluate how the standard deviation, coefficient of variation, skewness, and kurtosis can be useful features in identifying anti-competitive market behavior. We complement our discussion with the so-called confusion matrix and discuss the trade-offs related to false-positive and false-negative predictions. Our results show that in some cases, false-negative outcomes critically increase when the main objective is to minimize false-positive predictions. We offer a discussion regarding the pros and cons of our approach for antitrust authorities aiming at detecting and avoiding gasoline cartels.
    Keywords: cartel screens, price dynamics, fuel retail market, machine learning
    JEL: C21 C45 C52 K40 L40 L41
    Date: 2021
  5. By: Schuler, Sebastian
    Abstract: This paper analyzes the welfare impact of a cap on commissions paid by product providers to intermediaries who advise consumers. In contrast to the extant literature, with a downward sloping demand capped commissions have a direct impact on product providers' margins and consumers' prices. I show that a general ban is not welfare optimal as higher commissions do not necessarily lead to higher consumer prices. Starting from a general ban, allowing (marginally) higher commissions leads to lower prices as positive commissions make intermediaries wary to recommend more expensive products to consumers, thus making demand more elastic with respect to price.
    Keywords: Advice; Cheap Talk;, Commissions; Regulation
    JEL: D21 D82 D83 L15
    Date: 2020–10–20
  6. By: Ritabrata Bose (Indira Gandhi Institute of Development Research); K.V. Ramaswamy (Indira Gandhi Institute of Development Research)
    Abstract: A variety of mechanisms linking globalization and margins of adjustments in the labour markets have been empirically tested in recent years. How globalization could affect workforce composition of industries and thereby the quality of jobs, a key labour market indicator is much less studied and the econometric evidence is sparse. This study contributes to filling the gap by studying India's formal manufacturing sector that experienced deep trade and industrial reforms since the 1990s. Industrylevel panel data are analysed to establish the indirect link between product market structure (concentration) and workforce composition of firms (usage of contract workers). We explicitly measure changes in market concentration using a newly constructed trade-adjusted concentration ratio, profitability (price-cost mark-up) and workforce composition (usage of contract workers) to show how the effect of globalization is mediated indirectly through the product market structure. Our sample includes 46 three-digit formal manufacturing industries spanning from 1998 to 2014. The findings provide significant evidence that Indian manufacturing firms responded to globalization by hiring relatively more contract workers a key margin of labour market flexibility. This finding underlines the importance of understanding the indirect ways in which globalization could affect labour market conditions and workers welfare in developing countries.
    Keywords: market concentration, price cost mark-up, contract labour, globalisation
    JEL: D22 F60 F66 F16 D22 L16
    Date: 2020–11
  7. By: Stefano Bolatto; Alireza Naghavi; Gianmarco Ottaviano; Katja Zajc Kejzar
    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, upstreamness, firm organization, outsourcing, vertical integration
    JEL: F12 F14 F21 F23 D23 L22 L23 L24 O34
    Date: 2020–01
  8. By: Madhuparna Ganguly (Indira Gandhi Institute of Development Research)
    Abstract: We model a patent regime in which an innovating firm can partially recover its damage due to scientist movement from the infringing rival. The strength of the patent system, which is a function of litigation success probability and recovery proportion, stipulates expected indemnification. We show that stronger patents fail to reduce the likelihood of infringement and further, decrease the innovation's expected profitability. Higher potential reparation also reduces the scientist's expected return on R&D knowledge, entailing greater R&D investment. The expected effects manifest when the market for the new product is moderately competitive. Our results suggest important considerations for patent reforms.
    Keywords: Competition intensity, Damage rules, Patent strength, Scientist mobility
    JEL: J60 K40 L11 L13 O34
    Date: 2020–11
  9. By: Maxime Delabarre (Sciences Po - Sciences Po)
    Abstract: This essay argues that the common competition framework is not to be applied to the financial sector. If traditionally competition brings efficiency and diversity in a market, financial regulators must also ensure the stability of the financial market. Henceforth, some limits and entry barriers have to exist. This is particularly true for FinTech companies. If the potential of those new actors is not to be contested, the risk they can bring is also quite obvious. If regulators want the market to be disrupted and to see consumers benefiting from the power of innovation of technology-based companies, they need to adapt their regulatory framework. Only under this condition will the benefits outweigh the potential risks.
    Keywords: Financial regulations,financial stability,competition,financial market,innovation
    Date: 2021–01–12
  10. By: Alvarez, Lourdes; Huamaní, Edson; Coronado, Yngrid
    Abstract: Innovation is one of the main determinants to stimulate productivity. However, incentives to innovate may be affected by the level of competition. In particular, in developing countries, where informality is highly prevalent, formal firms have to face both types of competition: formal and informal. Previous studies have acknowledged a negative impact from competition (schumpeterian effect) but also, several recent studies have shown that competition could spur innovation (escape-competition effect). Given the importance of informal competition in developing countries, as Peru, where almost three out of four firms are informal and the intensity of investment in R&D+i activities is pretty low, this study aims to evaluate the impact of formal and informal competition, at the industrial level, on the whole innovation process and, expressly, on productivity for Peru. By using a CDM model, this study analyses how the intensity of formal and informal competition affects every stage of the innovation process. The CDM model makes possible to study four interrelated stages of the innovation process: i) the firms’ choice to engage with innovation, ii) the amount of resources invested in R&D+i activities, iii) the effects of R&D+i investments on innovation output, and iv) the impacts of innovation outcome on firms’ productivity. The model is estimated using firm-level data collected by the Peruvian National Innovation Survey 2018 and the National Business Survey 2018. Our main findings indicate that competition, both formal and informal, affects negatively the decision to engage in innovation. However, the relationship changes throughout the remaining stages of the innovation process. Whereas the informal competition affects negatively the whole innovation process (engage in innovation, intensity of R&D+I activities spending, innovation output and firms’ productivity) satisfying the Schumpeterian theory; formal competition seems to affect positively the intensity of R&D+i activities spending and also firms’ productivity, which can be explained as an escape-competition effect within the formal firms. In conclusion, meanwhile it is found that informal competition affects negatively the whole innovation process, formal competition could, instead, encourage formal firms’ willingness to invest more in R&D+i activities, increasing their productivity.
    Keywords: Competition, CDM model, informality, innovation, productivity
    JEL: D4 E26 M11 O17 O32
    Date: 2020–09
  11. By: Rania Mabrouk (GAEL - Laboratoire d'Economie Appliquée de Grenoble - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes, UGA UFR FEG - Université Grenoble Alpes - Faculté d'Économie de Grenoble - UGA - Université Grenoble Alpes); Oliwia Kurtyka (GAEL - Laboratoire d'Economie Appliquée de Grenoble - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes, Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)
    Abstract: We analyze firms' choice of abatement technology in vertical chains. A downstream polluting monopoly can buy a license from an upstream supplier with mature end-of-pipe equipment (outsider) or develop an in-house clean technology. Insiders innovation may be undertaken only to increase bargaining power of the polluter. We put the light on the strategic role of environmental regulation to influence this choice. We find that the role of regulator as a technology forcing authority is confirmed in regions of under-investment. However, under certain conditions, an over-investment occurs that forces the regulator to become laxer. Paradoxically, the regulator may oppose innovation even if the resulting technology is used by the innovator. All these results rely upon the creation of total profits from the integrated vertical structure.
    Keywords: Environmental innovation,Abatement technology,Clean technology,End-of-pipe equipment,Vertical chain,Regulation,Bargaining,Bargaining.
    Date: 2020–12
  12. By: Yener Altunbas; David Marques‐Ibanez; Michiel van Leuvensteijn; Tianshu Zhao
    Abstract: We examine how bank competition in the run-up to the 2007–2009 crisis affects banks’ systemic risk during the crisis. We then investigate whether this effect is influenced by two key bank characteristics: securitization and bank capital. Using a sample of the largest listed banks from 15 countries, we find that greater market power at the bank level and higher competition at the industry level lead to higher realized systemic risk. The results suggest that the use of securitization exacerbates the effects of market power on the systemic dimension of bank risk, while capitalization partially mitigates its impact.
    Keywords: Banking;Systemic risk;Securitization;Financial crises;Competition;WP,bank risk,capital ratio,bank competition variable
    Date: 2019–07–02
  13. By: Doh-Shin Jeon (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Bruno Jullien (CNRS - Centre National de la Recherche Scientifique, TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Mikhail Klimenko (Unknown)
    Abstract: The dominance of English language content on the Internet raises a question of how consumer bilingualism in a given country a§ects the amount of home language content and the countryís welfare. We address this question by studying two-sided market competition between a foreign and a domestic content distribution platform in a small open economy. On the one hand, bilingualism has the beneÖt of increasing cross-side network externalities by increasing consumer concentration on the foreign platform, which increases the amount of home language content. On the other hand, bilingualism exposes home language content to competition from foreign language content and softens platform competition, which reduces the amount of home language content. We Önd that bilingualism mostly increases consumer surplus but can reduce domestic producer surplus. The welfare e§ect of taxing the foreign platform is also analyzed.
    Date: 2021

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