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on Industrial Competition |
| By: | Zhuoqiong Charlie Chen; Christopher T. Stanton; Catherine Thomas |
| Abstract: | When experience goods compete, consuming one product can be informative about value for similar untried products. We study a two-period model of duopoly competition in markets that have this feature and where firms can price discriminate between consumers based on purchasing history. Price dynamics, firm profits, and consumer surplus depend on how information spillovers shape demand from the consumers who have trialed the rival product| the potential switchers. In the first period, rather than competing intensely for all future profits, firms compete only for the difference in future profits between repeat and switching consumers. Demand-side information spillovers offer an explanation of how competing firms in new product markets can be profitable in all periods even when selling products that are indistinguishable ex ante. |
| JEL: | D11 L1 L13 L15 L26 M21 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28584&r=all |
| By: | Jeffrey D. Michler; Benjamin M. Gramig |
| Abstract: | Previous research on two-dimensional extensions of Hotelling's location game has argued that spatial competition leads to maximum differentiation in one dimensions and minimum differentiation in the other dimension. We expand on existing models to allow for endogenous entry into the market. We find that competition may lead to the min/max finding of previous work but also may lead to maximum differentiation in both dimensions. The critical issue in determining the degree of differentiation is if existing firms are seeking to deter entry of a new firm or to maximizing profits within an existing, stable market. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.11051&r=all |
| By: | Andrew Sweeting; Xuezhen Tao; Xinlu Yao |
| Abstract: | We model differentiated product pricing by firms that possess private information about serially-correlated state variables, such as their marginal costs, and can use prices to signal information to rivals. In a dynamic game, signaling can raise prices significantly above static complete information Nash levels even when the privately observed state variables are restricted to lie in narrow ranges. We calibrate our model using data from the beer industry, and we show that our model can explain changes in price levels and price dynamics after the 2008 MillerCoors joint venture. |
| JEL: | D43 D82 L13 L41 L90 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28589&r=all |
| By: | Tina Oreski (Swiss Finance Institute) |
| Abstract: | Using textual analysis and the firm life-cycle theory to proxy for a company's competitive strategy, this paper empirically examines the strategic similarity hypothesis. The findings show that merger and acquisition transactions are more likely between firms with the same strategy. Moreover, when the acquirer and the target firm compete based on one strategy, the deal yields higher stock returns and stronger future asset growth. The effect is more pronounced in a highly competitive environment, consistent with the strategic misalignment acting as a constraint to the merged company's optimal response. Overall, the results reveal that synergies obtained from the overlapping strategies constitute an important determinant of public merger and acquisition deals. |
| Keywords: | mergers and acquisitions, competitive strategy, synergies, firm life-cycle, textual analysis |
| JEL: | L21 G34 M21 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2129&r=all |
| By: | Hernán Vallejo |
| Abstract: | This article presents a model of oligopsony. It considers different conjectural variations that cover the whole range between the extreme cases of monopsony and perfect competition, such as Collusion, Threat, Cournot, Stackelberg, and Bertrand, and compares them in terms of prices, quantities, profits, mark-down, price elasticity of supply and welfare. It also considers the impact of minimum wages, under the different conjectures analyzed. |
| Keywords: | Oligopsony, Collusion, Threat, Cournot, Stackelberg, Bertrand, mark-down, minimium wages |
| JEL: | C72 J21 J38 J48 |
| Date: | 2021–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:019140&r=all |
| By: | Hernán Vallejo |
| Abstract: | The economic literature acknowledges that labor markets can often be described by monopsonistic competition. In such a structure, employers have market power and in the long run, zero profits due to the free entry and exit of firms. This article builds a model to analyze the role of minimum wages when employment is differentiated. It shows that first best and second best minimum wages can increase employment and improve efficiency by reducing market power, at the expense of having firm exit, higher concentration among employers, and less employment variety. As such, this article can provide insights on the higher firm exit rates observed among new, small and lower productivity firms. |
| Keywords: | Employment differentiation, residual supply, firm exit, and minimum wage. |
| JEL: | D21 J21 J31 |
| Date: | 2021–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:019141&r=all |
| By: | Carl-Christian Groh |
| Abstract: | Price discrimination in real-world settings is likely based on imperfect information. I analyse a homogenous goods framework where firms receive binary and noisy signals about consumer valuations and consumers engage in sequential search. Firms have no information about consumers' search histories. In this framework, the existence of on-path search can be understood as an imperfect screening device that firms employ to the detriment of consumers. Firm profits and equilibrium prices are highest in the unique symmetric pure-strategy equilibrium with search on the equilibrium path, as compared to any other symmetric pure-strategy equilibrium. The equilibrium with on-path search can only be sustained when search costs are at an intermediate level. At low search costs, an equilibrium is played in which there is no on-path search, but consumers use the threat of searching to ensure low prices. High levels of signal precision are detrimental to consumers by facilitating existence of the equilibrium with on-path search. |
| Keywords: | search, competitive price discrimination, imperfect customer recognition |
| JEL: | D43 D83 L13 L15 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_280&r=all |
| By: | Philippe Aghion; Reda Cherif; Fuad Hasanov |
| Abstract: | We provide an overview of the theories and empricial evidence on the complex relationship among innovation, competition, and inclusive growth. Competition and innovation-led growth are critical to drive productivity gains and support broad-based growth. However, new technologies and trends in market concentration are stifling future innovation while contributing to the marked increase in inequality. Beyond consumer welfare in a narrow market, competition policy should adapt to this new reality by considering the spillover and dynamic effects of market power, especially on firm entry, innovation, and inequality. Innovation policies should tackle not only government failures but also market failures. |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/080&r=all |
| By: | Volker Nocke; Roland Strausz |
| Abstract: | We develop a theory of collective brand reputation for markets in which product quality is jointly determined by local and global players. In a repeated game of imperfect public monitoring, we model collective branding as a pooling of quality signals generated in different markets. Such pooling yields a beneficial informativeness effect for the actions of a global player present in all markets, but also harmful free-riding by local, market-specific players. The resulting tradeoff yields a theory of optimal brand size and revenue sharing, applying to platform markets, franchising, licensing, umbrella branding, and firms with team production. |
| Keywords: | Collective branding, reputation, free riding, repeated games, imperfect monitoring |
| JEL: | L14 L15 D20 D82 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_281&r=all |
| By: | Cédric Clastres (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, Chaire EEM - Chaire European Electricity Markets - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres); Haikel Khalfallah (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) |
| Abstract: | Demand response programmes reduce peak-load consumption and could increase off-peak demand as a load-shifting effect often exists. In this research we use a three-stage game to assess the effectiveness of dynamic pricing regarding load-shifting and its economic consequences. We consider a retailer's strategic supplies on forward or real time markets, when demand is uncertain and with consumer disutility incurred from load-shedding or load-shifting. Our main results show that a retailer could internalize part of demand uncertainty by using both markets. A retailer raises the quantities committed to the forward market if energy prices or balancing costs are high. If the consumer suffers disutility, then the retailer contracts larger volumes on the forward market for peak periods and less off peak, due to a lower load-shifting effect and lower off-peak energy prices. |
| Keywords: | Dynamic and Stochastic Model,Electricity Markets,Load-Shifting,Disutility |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03167543&r=all |
| By: | Laura Doval; Vasiliki Skreta |
| Abstract: | Product personalization opens the door to price discrimination. A rich product line allows for higher consumer satisfaction, but the mere choice of a product carries valuable information about the consumer that the firm can leverage for price discrimination. Controlling the degree of product personalization provides the firm with an additional tool to curb ratcheting forces arising from consumers' awareness of being price discriminated. Indeed, a firm's inability to not engage in price discrimination introduces a novel distortion: The firm offers a subset of the products that it would offer if, instead, the firm could commit to not price discriminate. Doing so gives commitment power to the firm: By "pooling" consumers with different tastes to the same variety the firm commits not to learn their tastes. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.11504&r=all |
| By: | Crampes, Claude; Renault, Jérôme |
| Abstract: | The producers of electricity using dispatchable plants rely on partially flexible technologies to match the variability of demand and intermittent renewables. We analyse flexibility in a two-stage decision process where production decided at the last moment is more costly than if it is planned in advance. We first determine the first best outputs, prices and gains. We then consider a model where two partially flexible firms compete in quantities to supply a random residual demand. We determine the subgame perfect equilibria corresponding to two market designs: one where all trade occurs in a spot market with known demand, the other where a day-ahead market with random demand is added to the ex-post market, first in a general setting, then using a quadratic specification. We show that when all trade occurs ex post, the least flexible firm is not necessarily disadvantaged. We also show that adding a day-ahead market makes consumers better off and firms worse off by increasing total output. It increases welfare but it also transfers risks from firms to consumers. |
| Keywords: | Flexibility; electricity; market design; production costs; risk transfer |
| JEL: | C72 D24 D47 L23 L94 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125447&r=all |
| By: | Gorecki, Paul |
| Abstract: | In January 2021 the government department with responsibility for competition policy in Ireland proposed that for mergers notified to competition agency on a voluntarily (as opposed to mandatory) basis that the agency be empowered: (i) to make interim orders preventing the implementation of the transaction; and, (ii) to unwind a completed merger so as to restore pre-merger status quo. No rationale or justification was offered. This paper examines the proposed powers in relation to the record of the competition agency’s long standing procedure for dealing with non-notifiable mergers, and, the possible hypothetical use of the powers in a two-to-one merger notified on a voluntary basis in 2017. The competition agency procedure for dealing with non-notifiable mergers that raise competition concerns has worked well. The case study reinforces this conclusion. Government needs to furnish a compelling rationale for the proposals to go forward. |
| Keywords: | mergers; voluntary notification; non-notifiable mergers; and, Competition Act 2002. |
| JEL: | G34 K21 L44 |
| Date: | 2021–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:106640&r=all |
| By: | Bart J. Bronnenberg; Jean-Pierre H. Dubé; Joonhwi Joo |
| Abstract: | We conduct an empirical case study of the U.S. beer industry to analyze the disruptive effects of locally-manufactured, craft brands on market structure, an increasingly common phenomenon in CPG industries typically attributed to the emerging generation of adult Millennial consumers. We document a generational share gap: Millennials buy more craft beer than earlier generations. We test between two competing mechanisms: (i) persistent generational differences in tastes and (ii) differences in past experiences, or, consumption capital. Our test exploits a novel database tracking the geographic differences in the diffusion of craft breweries across the U.S.. Using a structural model of demand with endogenous consumption capital stock formation, we find that heterogeneous consumption capital accounts for 85% of the generational share gap between Millennials and Baby Boomers, with the remainder explained by intrinsic generational differences in preferences. We predict the beer market structure will continue to fragment over the next decade, over-turning a nearly century-old structure dominated by a small number of national brands. The attribution of the share gap to consumption capital shaped through availability on the supply side of the market highlights how barriers to entry, such as regulation and high traditional marketing costs, sustained a concentrated market structure. |
| JEL: | D12 L1 M31 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28618&r=all |
| By: | Justus Haucap; Nima Moshgbar; Wolfgang Benedikt Schmal |
| Abstract: | The German DEAL agreements between German universities and research institutions on the one side and Springer Nature and Wiley on the other side facilitate easy open access publishing for researchers located in Germany. We use a dataset of all publications in chemistry from 2016 to 2020 and apply a difference-in-differences approach to estimate the impact on eligible scientists’ choice of publication outlet. We find that even in the short period following the conclusion of these DEAL agreements, publication patterns in the field of chemistry have changed, as eligible researchers have increased their publications in Wiley and Springer Nature journals at the cost of other journals. From that two related competition concerns emerge: First, academic libraries may be, at least in the long run, left with fewer funds and incentives to subscribe to non-DEAL journals published by smaller publishers or to fund open access publications in these journals. Secondly, eligible authors may prefer to publish in journals included in the DEAL agreements, thereby giving DEAL journals a competitive advantage over non-DEAL journals in attracting good papers. Given the two-sided market nature of the academic journal market, these effects may both further spur the concentration process in this market. |
| Keywords: | DEAL, open access, academic journals, STM journals, academic publishing |
| JEL: | D43 I23 L86 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8963&r=all |
| By: | Hiroshi Kitamura; Noriaki Matsushima; Misato Sato |
| Abstract: | We construct a two-period model of the supply chain's openness in a durable goods market by introducing two marketing modes: leasing and selling. Given a marketing mode, at the beginning of the first period, an incumbent supplier and the downstream monopolist choose one of the trading modes: (i) a two-period exclusive supply chain or (ii) an open supply chain, allowing the downstream monopolist to trade with an efficient supplier in the second period. We show that the downstream monopolist always chooses the open supply chain in the leasing mode, although the exclusive supply chain is attainable in the selling mode if the incumbent supplier's efficiency is high. Moreover, when we allow the downstream monopolist to choose the marketing mode endogenously before the first period, it chooses the selling mode if the incumbent supplier's efficiency is low; otherwise, it chooses the leasing mode. Regardless of the chosen marketing mode, the open supply chain always occurs on the equilibrium path, implying that the recent advancement of ICT to enhance leasing may discourage choosing the exclusive supply chain. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1127&r=all |
| By: | Bos, Iwan; Marini, Marco A.; Saulle, Riccardo D. |
| Abstract: | This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set stability concept and establish the existence of a unique pure-strategy price solution for any given level of capacity. This solution is shown to coincide with the set of pure-strategy Nash equilibria when capacities are large or small. For an intermediate range of capacities, it predicts a price interval that includes the mixed-strategy support. This stability concept thus encompasses all Nash equilibria and offers a pure-strategy solution when there is none in Nash terms. In particular, it provides a behavioral rationale for different types of pricing dynamics, including real-world economic phenomena such as Edgeworth-like price cycles, price dispersion and supply shortages. |
| Keywords: | Demand and Price Analysis |
| Date: | 2021–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:310282&r=all |
| By: | John Asker; Mariagiovanna Baccara; SangMok Lee |
| Abstract: | Auctioneers of patents are observed to allow joint bidding by coalitions of buyers. These auctions are distinguished by the good for sale being non-rivalrous, but still excludable, in consumption{that is, they auctions of club goods. This affects how coalitional bidding impacts auction performance. We study the implications of coalitions of bidders on second-price (or equivalently, ascending-price) auctions. Although the formation of coalitions can benefit the seller, we show that stable coalition profiles tend to consist of excessively large coalitions, to the detriment of both auction revenue and social welfare. Limiting the permitted coalition size increases efficiency and confers benefits on the seller. Lastly, we compare the revenues generated by patent auctions and multi-license auctions, and we find that the latter are superior in a large class of environments. |
| JEL: | D44 D47 K21 L14 L24 L4 O34 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28602&r=all |