nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒02‒22
23 papers chosen by
Russell Pittman
United States Department of Justice

  1. Exclusive Data, Price Manipulation and Market Leadership By Yiquan Gu; Leonardo Madio; Carlo Reggiani
  2. Full Collusion with Entry and Incomplete Information By Ramakanta Patra; Tadashi Sekiguchi
  3. Optimal Vaccine Subsidies for Endemic and Epidemic Diseases By Matthew Goodkin-Gold; Michael Kremer; Christopher M. Snyder; Heidi L. Williams
  4. Are Unions Detrimental to Innovation? Theory and Evidence By Berton, Fabio; Dughera, Stefano; Ricci, Andrea
  5. Does Excellence Pay Off? Theory and Evidence from the Wine Market By Stefano Castriota; Alessandro Fedele
  6. Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry By Kory Kroft; Yao Luo; Magne Mogstad; Bradley Setzler
  7. Port integration and competition under public and private ownership By Xu, Lili; Lee, Sang-Ho
  8. Concentration and market power in the food chain By Koen Deconinck
  10. On the Economics of the Restructuring of World Railways, with a Focus on Russia By Russell Pittman
  11. Data Brokers Co-Opetition By Yiquan Gu; Leonardo Madio; Carlo Reggiani
  12. Aggregate Modeling and Equilibrium Analysis of the Crowdsourcing Market for Autonomous Vehicles By Xiaoyan Wang; Xi Lin; Meng Li
  13. Classroom experiments on technology licensing: Royalty stacking, cross-licensing and patent pools By Haugen, Atle; Juranek, Steffen
  14. A Retrospective Study of State Aid Control in the German Broadband Market By Tomaso Duso; Mattia Nardotto; Jo Seldeslachts
  15. Free licensing strategy and ex post privatization in a mixed oligopoly By Cho, Sumi; Kim, Doori; Lee, Sang-Ho
  16. Optimal Bundling: Characterization, Interpretation, and Implications for Empirical Work By Soheil Ghili
  17. Entry Deterrence and Free Riding in License Auctions: Incumbent Heterogeneity and Monotonicity By Biung-Ghi Ju; Seung Han Yoo
  18. Competing Mechanisms and Folk Theorems: Two Examples By Andrea Attar; Eloisa Campioni; Thomas Mariotti; Gwenaël Piaser
  19. Demand elasticities at the intensive and extensive margins for advertising mail traffic in the UK By Frédérique Fève; Thierry Magnac; Soterios Soteri
  20. Greenwashing and product market competition By Mohamed Arouri; Sadok El Ghoul; Mathieu Gomes
  21. Blockchain and Institutions (II): Is The Platform Economy The New Rentier Capitalism? Actualising Achille Loria’s Analysis Of Rent And Its Elision By Plinio Limata; Paolo Santori
  23. Competition in Signaling By Vaccari, Federico

  1. By: Yiquan Gu; Leonardo Madio; Carlo Reggiani
    Abstract: The unprecedented access of firms to consumer level data not only facilitates more precisely targeted individual pricing but also alters firms’ strategic incentives. We show that exclusive access to a list of consumers can provide incentives for a firm to endogenously assume the price leader’s role, and so to strategically manipulate its rival’s price. Prices and profits are non-monotonic in the length of the consumer list. For an intermediate size, price leadership entails an equilibrium outcome characterised by supra-competitive prices and low consumer surplus. In contrast, for short or long lists of consumers, exclusive data availability intensifies market competition.
    Keywords: Exclusive data, Personalised pricing, Price leadership, Strategic price manipulation
    JEL: D43 K21 L11 L13 L41 L86 M21 M31
    Date: 2021–01
  2. By: Ramakanta Patra (Department of Accounting, Economics and Finance, Cardiff Metropolitan University); Tadashi Sekiguchi (Institute of Economic Research, Kyoto University)
    Abstract: This paper studies an infinitely repeated duopoly game with incomplete information and with costly entry decisions. Every period, each player learns her private type and decides whether to pay a cost in order for her to enter or not. If she enters, she plays a game belonging to a class that includes Bertrand duopoly and some auction games as special cases, either as a monopolist or as a duopolist. The players can communicate before they make their entry decisions. We study full collusion (joint profit maximization) in this environment which requires a higher-quality player to solely enter and to choose an action maximizing the stage payoff. We present a condition on the stage game which is both necessary and sufficient in order for full collusion to be an equilibrium outcome for sufficiently patient players. The condition is more likely to hold when the entry cost increases, which signifies that the entry cost is an important factor facilitating full collusion. We also show that under some parameter restrictions, asymmetric equilibria where only one player reveals her type every period sustain full collusion for a wider range of discount factors. These asymmetric equilibria reduce the total amount of communication, which makes it harder for antitrust authorities to detect collusion.
    Keywords: Bertrand Competition; Fixed Costs; Unknown Costs; Private Information; Infinitely Repeated Game; Pre-play Communication; One-sided Communication; Full Collusion
    JEL: C73 D43 K21 L0
    Date: 2021–02
  3. By: Matthew Goodkin-Gold (Harvard University - Department of Economics); Michael Kremer (University of Chicago - Department of Economics; NBER); Christopher M. Snyder (Dartmouth College - Department of Economics; NBER); Heidi L. Williams (Stanford University - Department of Economics; NBER)
    Abstract: Vaccines exert a positive externality, reducing spread of disease from the consumer to others, providing a rationale for subsidies. We study how optimal subsidies vary with disease characteristics by integrating a standard epidemiological model into a vaccine market with rational economic agents. In the steady-state equilibrium for an endemic disease, across market structures ranging from competition to monopoly, the marginal externality and optimal subsidy are non-monotonic in disease infectiousness, peaking for diseases that spread quickly but not so quickly as to drive all consumers to become vaccinated. Motivated by the Covid-19 pandemic, we adapt the analysis to study a vaccine campaign introduced at a point in time against an emerging epidemic. While the nonmonotonic pattern of the optimal subsidy persists, new findings emerge. Universal vaccination with a perfectly effective vaccine becomes a viable firm strategy: the marginal consumer is still willing to pay since those infected before vaccine rollout remain a source of transmission. We derive a simple condition under which vaccination exhibits increasing social returns, providing an argument for concentrating a capacity-constrained campaign in few regions. We discuss a variety of extensions and calibrations of the results to vaccines and other mitigation measures targeting existing diseases.
    JEL: D4 I18 L11 L65 O31
    Date: 2020
  4. By: Berton, Fabio (University of Turin); Dughera, Stefano (University Paris Ouest-Nanterre); Ricci, Andrea (INAPP – Institute for Public Policy Analysis)
    Abstract: In this paper we study the effect of unions on product and process innovation both theoretically and empirically. We propose a Cournot duopoly model where labor productivity is allowed to differ across unionized and non-unionized sectors due to collective voice mechanism. Our findings suggest that the traditional hold-up view whereby unions discourage innovation does not necessarily survive. When the voice effect is neither too strong nor too low, the unionized sector outperforms the market in terms of process innovation, while the effect on product innovation is strictly increasing in the voice power. Our empirical analysis of a large representative sample of Italian firms supports the model's predictions in both pooled OLS, fixed effects and IV.
    Keywords: innovation, labor-unions
    JEL: J51 O31
    Date: 2021–02
  5. By: Stefano Castriota; Alessandro Fedele
    Abstract: We investigate the effect of product excellence on firm profiability in a competitive market with vertical and horizontal di¤erentiation. We develop a theoretical model and derive conditions under which the e¤ect of excellence on prontability, the latter defined as the ratio of equilibrium profits to the invested capital, can be either positive, zero, or negative. We test our theoretical predictions by examining a sample of 1,052 Italian wineries over the period 2006-2015. Using di¤erent econometric methodologies, we find that excellence, proxied by firm reputation for quality, has no significant impact on profitability, measured by the return on invested capital (ROIC).We conclude by discussing policy and managerial implications.
    Keywords: product excellence, firm prontability; vertical and horizontal di¤erentiation; reputation for quality; wine market
    JEL: L15 L14 L66 L13 Q1 D21 D22
    Date: 2021–02–01
  6. By: Kory Kroft (University of Toronto - Department of Economics; NBER); Yao Luo (University of Toronto - Department of Economics); Magne Mogstad (University of Chicago- Department of Economics; Statistics Norway; NBER; IFS); Bradley Setzler (University of Chicago - Becker Friedman Institute for Economics)
    Abstract: The primary goal of our paper is to quantify the importance of imperfect competition in the U.S. construction industry by estimating the size of rents earned by American firms and workers. To obtain a comprehensive measure of the total rents and to understand its sources, we take into account that rents may arise both due to markdown of wages and markup of prices. Our analyses combine the universe of U.S. business and worker tax records with newly collected records from U.S. procurement auctions. We first examine how firms respond to a plausibly exogenous shift in product demand through a difference-in-differences design that compares first-time procurement auction winners to the firms that lose, both before and after the auction. Motivated and guided by these estimates, we next develop, identify, and estimate a model where construction firms compete with one another for projects in the product market and for workers in the labor market. The firms may participate both in the private market and in government projects, the latter of which are procured through first-price sealed-bid auctions. We find that American construction firms have significant wage- and price-setting power. This imperfect competition generates a considerable amount of rents, two-thirds of which is captured by the firms. Lastly, we use the estimated model to perform counterfactual analyses which reveal how increases in the market power of firms, in the product market or the labor market, would affect the outcomes and behavior of workers and firms in the construction industry.
    Keywords: Imperfect competition; monopsony; market power; rents; rent sharing; auction; procurement
    JEL: J31 J42 D44 L11
    Date: 2020
  7. By: Xu, Lili; Lee, Sang-Ho
    Abstract: This study investigates the effect of port integration in a mixed oligopoly framework where a public port compete with private ports under price competition. We formulate two integration models, A-integration and B-integration, in which the public port integrates with its neighboring private port or with a non-adjacent private port, respectively. We demonstrate that the effects of A-integration (B-integration) will (not) depend on the gross consumer benefit of the cargo shipment B-integration always makes society better off. We then examine an endogenous port integration game and show that both integration and competition are Nash equilibria under the appropriate government side payments, while B-integration can be socially desirable under public finances.
    Keywords: Port integration; Mixed oligopoly; Public ownership; Private ownership; Endogenous port integration
    JEL: D43 L44 L91 R48
    Date: 2021–02
  8. By: Koen Deconinck (OECD)
    Abstract: Concerns about market power and competition in the agri-food sector are widespread, with commentators regularly suggesting that farmers are in a structurally weaker position than other actors, who therefore benefit at their expense. The evidence reviewed in this paper indicates that downstream segments of agri-food chains are indeed typically more concentrated than farm-level production. Nevertheless, while competition problems were found in some instances, the current evidence does not support the claim that stronger actors in the chain systematically abuse their stronger position at the expense of farmers. An in-depth understanding of how value chains are organised is essential, as many widely used indicators provide little relevant information. In many areas, further research would be welcome, as current evidence does not cover all countries and sectors equally well.
    Keywords: Buyer power, Competition, Profit margins, Unfair trading practices
    JEL: L1 L2 L66 Q13
    Date: 2021–02–17
  9. By: Ashita Allamraju (Bennett University, India); Palakh Jain (Bennett University, India); Chavi Asrani (Indian Council of Research on International Relations, India)
    Abstract: SMEs contribute around 35-40% of the GDP of India and are key to employment generation, sustainable development and poverty reduction. This sector is largely unorganised and vulnerable to the dynamic external business environment. On one hand, small size of the SMEs makes them vulnerable to anti-competitive acts of bigger enterprises including abuse of dominant position and on the other hand, cooperation agreements amongst SMEs assist them to compete with large enterprises. Competition Act, 2002 deals with anti-competitive agreements and abuse of dominant position, amongst other things. The Competition Act of India is size and type neutral. This paper thus, looks at whether SMEs are perpetrators or victims of anti-competitive conduct. This study analyses the recent anti-trust cases in India which involved SMEs and develops a typology of anticompetitive conduct and abuse of dominance activities employed by large corporations against SMEs and also anti-competitive conduct that SMEs may engage in.
    Keywords: SMEs, Competition Law, anti-competitive, large corporations
    JEL: K21 D22 D40
    Date: 2020–04
  10. By: Russell Pittman (U.S. Department of Justice)
    Abstract: This lecture, delivered at the Higher School of Economics in 2020, opens with a discussion of the modern history of economists’ treatment of network industries: from cost-of-service regulation through incentive regulation to vertical restructuring. This history is then applied to the freight railways sector, followed by a discussion of the current state of the debate on rail restructuring – what we term the European versus the American model, or vertical versus horizontal separation – first generally and then in the Russian Federation. Finally, we seek to derive lessons relevant to Russia from both the empirical literature and the results of recent reform policies implemented in the United States and the European Union.
    Date: 2021–01
  11. By: Yiquan Gu; Leonardo Madio; Carlo Reggiani
    Abstract: Data brokers share consumer data with rivals and, at the same time, compete withthem for selling. We propose a “co-opetition” game of data brokers and characterisetheir optimal strategies. When data are “sub-additive” with the merged value netof the merging cost being lower than the sum of the values of individual datasets,data brokers are more likely to share their data and sell them jointly. When data are“super-additive”, with the merged value being greater than the sum of the individualdatasets, competition emerges more often. Finally, data sharing is more likely whendata brokers are more efficient at merging datasets than data buyers.
    Keywords: data brokers, consumer information, co-opetition, data sharing
    JEL: D43 L13 L86 M31
    Date: 2021–01
  12. By: Xiaoyan Wang; Xi Lin; Meng Li
    Abstract: Autonomous vehicles (AVs) have the potential of reshaping the human mobility in a wide variety of aspects. This paper focuses on a new possibility that the AV owners have the option of "renting" their AVs to a company, which can use these collected AVs to provide on-demand ride services without any drivers. We call such a mobility market with AV renting options the "AV crowdsourcing market". This paper establishes an aggregate equilibrium model with multiple transport modes to analyze the AV crowdsourcing market. The modeling framework can capture the customers' mode choices and AV owners' rental decisions with the presence of traffic congestion. Then, we explore different scenarios that either maximize the crowdsourcing platform's profit or maximize social welfare. Gradient-based optimization algorithms are designed for solving the problems. The results obtained by numerical examples reveal the welfare enhancement and the strong profitability of the AV crowdsourcing service. However, when the crowdsourcing scale is small, the crowdsourcing platform might not be profitable. A second-best pricing scheme is able to avoid such undesirable cases. The insights generated from the analyses provide guidance for regulators, service providers and citizens to make future decisions regarding the utilization of the AV crowdsourcing markets for serving the good of the society.
    Date: 2021–02
  13. By: Haugen, Atle (Dept. of Business and Management Science, Norwegian School of Economics); Juranek, Steffen (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We present two classroom experiments on technology licensing. The first classroom experiment introduces the concept of royalty stacking. The students learn that non-cooperative pricing of royalties for complementary intellectual property rights leads to a double-marginalization effect. Cooperation solves the problem and is welfare improving. The second classroom experiment introduces students to cross-licensing. It shows that reciprocal royalty payments dampen competition. The classroom experiments stimulate discussions of technology licensing, intellectual property rights, different royalty structures, patent pools and technology standards. We present the experimental procedures, and suggests routes for the discussion.
    Keywords: Licensing; royalty stacking; cross-licensing; patent pools; classroom experiment
    JEL: A20 L24 O30
    Date: 2021–02–11
  14. By: Tomaso Duso; Mattia Nardotto; Jo Seldeslachts
    Abstract: We provide an evaluation of the impact of public subsidy schemes that aimed to support the development of basic broadband infrastructure in rural areas of Germany. Such subsidies are subject to state aid control by the European Commission (EC). While the EC increasingly recognises the role of economic analysis in controlling public aid to companies, there are to date no full retrospective studies performed on state aid control, especially assessing the so-called balancing test. In this study, we do not only analyse whether the aid was effective in solving a market failure – low broadband coverage in rural areas – but also study its impact on competitive outcomes, on both rival firms and consumers. We adopt a difference-in-differences framework after using a matching procedure to account for selection on observables. We find that the aid significantly increased broadband coverage. More importantly, we find that the number of internet providers has significantly increased in the municipalities receiving aid. This additional entry decreased average prices. Therefore, the subsidies complied with EU state aid rules, both in terms of effectiveness and competition.
    Keywords: State aid, ex-post evaluation, broadband, coverage, entry, competition, prices
    JEL: C23 D22 L1 L4 L64
    Date: 2021
  15. By: Cho, Sumi; Kim, Doori; Lee, Sang-Ho
    Abstract: This paper investigates free licensing strategy with a flexible privatization policy in a mixed oligopoly in which licensing contracts are observable before the government chooses its optimal degree of ex post privatisation. We examine and compare foreign and public licensors and explore the strategic relationship between the foreign share of passive ownership in domestic firms and the cost efficiency gap between licensor and licensee. We show that licensing strategies always yield more privatization and higher welfare, but the incentive for free licensing between the foreign licensor and public licensor differ. We also consider open technology, where all firms have the same technology and find a contrasting result. The optimal degree of privatization under open technology is the lowest (highest) under foreign (public) licensing contracts.
    Keywords: free licensing; foreign licensing; public licensing; technology gap; passive ownership; flexible privatization; optimal privatization; open technology
    JEL: D21 F68 L24
    Date: 2021–02
  16. By: Soheil Ghili
    Abstract: This paper studies pure bundling. Specifically, I show that, under some conditions, a firm optimally chooses to sell only the full bundle of a given set of products if and only if the optimal sales volume of the full bundle is weakly larger than the optimal sales volume for any smaller bundle. I argue that this characterization can be interpreted as follows: pure bundling is sub-optimal when there is considerable variation across consumers in how complementary they find disjoint sub-bundles, and/or when this variation correlates negatively with their price sensitivity. I then demonstrate--using simulated data and a random-coefficient discrete choice demand model--that capturing these two variations is indeed crucial for model selection in the empirical analysis of bundling decisions.
    Date: 2021–01
  17. By: Biung-Ghi Ju (Department of Economics, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul, Republic of Korea, 08826); Seung Han Yoo (Department of Economics, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul, Republic of Korea, 02841)
    Abstract: We examine free riding for entry deterrence in license auctions with heterogeneous incumbents. We establish the monotonicity of randomized preemptive bidding equilibria: an incumbent with a higher entry-loss rate has greater free-riding incentive, choosing a lower deterring probability. We then identify conditions for the existence of a series of fully or partially participating equilibria such that two or more incumbents with bounded heterogeneity in their entry-loss rates participate in randomized preemptive bidding. As an application, we examine a simple case of a bipartite group of participating incumbents consisting of one "leader" and many "followers". We show that the policy of limiting the leader's participation (set-asides for entrants, limiting participation of incumbents with excessive market shares, etc.) may or may not increase entry probability.
    Keywords: entry deterrence, free-rider problem, asymmetric auctions
    JEL: D44 D47 L13
    Date: 2021
  18. By: Andrea Attar (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); Eloisa Campioni (Unknown); Thomas Mariotti (Unknown); Gwenaël Piaser (Unknown)
    Abstract: We study competing-mechanism games under exclusive competition: principals first simultaneously post mechanisms, after which agents simultaneously choose to participate and communicate with at most one principal. In this setting, which is common to competing-auction and competitive-search applications, we develop two complete-information examples that question the relevance of the folk theorems for competing-mechanism games documented in the literature. The first example shows that there can exist pure-strategy equilibria in which some principal obtains a payoff below her min-max payoff, computed over all principals' decisions. Thus folk-theoremlike results may have to involve a bound on principals' payoffs that depends on the spaces of messages available to the agents, and not only on the players' actions. The second example shows that even this nonintrinsic approach is misleading when agents' participation decisions are strategic: there can exist incentive-feasible allocations in which principals obtain payoffs above their min-max payoffs, computed over arbitrary spaces of mechanisms, but which cannot be supported in equilibrium.
    Date: 2021
  19. By: Frédérique Fève (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); Thierry Magnac (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); Soterios Soteri (Royal Mail Group - Partenaires INRAE)
    Date: 2020
  20. By: Mohamed Arouri; Sadok El Ghoul; Mathieu Gomes (CleRMa - Clermont Recherche Management - Clermont Auvergne - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne)
    Abstract: This study examines the relationship between corporate greenwashing and product market competition (PMC). Using an unbalanced panel of 324 US fi rms over the 2005-2015 period, we fi nd that the negative impact of PMC on greenwashing is conditional on the level of environmental costs. Our results suggest that PMC is an effective disciplinary mechanism for achieving economic efficiency --in the case of fi rms featuring a high level of environmental costs-- through an increase in the disclosure of reliable and material information.
    Keywords: Greenwashing,Product market competition,Environmental cost
    Date: 2021
  21. By: Plinio Limata (LUMSA University); Paolo Santori (LUMSA University)
    Abstract: Today there is a growing consensus on the benefits of the platform economy. All the stakeholders are fairly remunerated, and the market sphere is grounded on the parties’ mutual advantage; points of equilibria are reached more efficiently, and costs of production and transaction are lowered thanks to the channels created by the platforms. We question this idyllic picture highlighting their role as value extractors in current market societies, which parallels the role of rent in the modern era’s economic system. Therefore, we employ Achille Loria’s (1857–1943, dubbed ‘the Italian Marx’) philosophical and economic categories to understand whether the platform economy is a form of contemporary rent-seeking and, if so, to suggest steps to avoid its continued, yet hidden, value extraction.
    Keywords: platform economy; rent; Achille Loria; value extraction
    Date: 2021–01
  22. By: Arzu Hajiyeva (World Economy, Azerbaijan State Economics University, Baku, Azerbaijan)
    Abstract: Modern trends in economic development, characterized by increased competition and globalization of markets, lead to a significant increase in mergers and acquisitions (M&A). Companies from emerging capital markets are beginning to play an increasingly significant role in these processes. It is very necessary to identify whether M&A deals create value for companies or are they just a convenient way for management to expand and strengthen its position. The article presents the results of a study of the effectiveness of transactions for the transfer of corporate control on a sample of companies from the BRICS countries in the period from 2009 to 2012. Based on the method of analysis of financial statements, we found an increase in the operating indicators of companies (EBITDA / Sales) as a result of mergers and acquisitions two years after their completion. The main determinants of the effectiveness of transactions initiated by companies from the BRICS countries are: deal size of acquitting company, friendly focus of the transaction and the stake share.
    Keywords: Mergers and acquisitions, BRICS, capital movement, emerging markets
    JEL: G34 F21
    Date: 2020–12
  23. By: Vaccari, Federico
    Abstract: I study a multi-sender signaling game between an uninformed decision maker and two senders with common private information and opposed interests. Senders can misreport information at a cost that is tied to the size of the misrepresentation. The main results concern the amount of information that is transmitted in equilibrium and the language used by senders to convey such information. Fully revealing and pure strategy equilibria exist but are not plausible. I identify sufficient conditions under which equilibria always exist, are plausible, and essentially unique, and deliver a complete characterization of such equilibria. As an application, I study the informative value of different judicial procedures.
    Keywords: signaling, multi-sender, competition, misreporting, communication
    JEL: C72 D72 D82
    Date: 2021–02–12

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