nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒04‒12
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Direct-to-Consumer Sales by Manufacturers and Bargaining By Donna, Javier D.; Pereira, Pedro; Trindade, Andre; Yoshida, Renan C.
  2. Imperfect Competition with Costly Disposal By Severin Lenhard
  3. Collusion between two-sided platforms By Yassine Lefouili; Joana Pinho
  4. Cartel Stability in Times of Low Interest Rates By Severin Lenhard
  5. Per-unit versus ad-valorem royalty licensing in a Stackelberg market By Antelo, Manel; Bru, Lluís
  6. Optimal Product Design: Implications for Competition and Growth under Declining Search Frictions By Guido Menzio
  7. Price Discrimination in International Airline Markets By Gaurab Aryal; Charles Murry; Jonathan W. Williams
  8. Innovation Diffusion and Physician Networks: Keyhole Surgery for Cancer in the English NHS By Eliana Barrenho; Eric Gautier; Marisa Miraldo; Carol Propper; Christiern Rose
  9. On the Optimality of Outsourcing when Vertical Integration can Mitigate Information Asymmetries By Schmitz, Patrick W.
  10. The Pricing Strategies of Online Grocery Retailers By Diego Aparicio; Zachary Metzman; Roberto Rigobon
  11. Horizontal contracts in a dominant firm-competitive fringe model By Antelo, Manel; Bru, Lluís
  12. Market Concentration, Privatization Policies, and Heterogeneity among Private Firms in Mixed Oligopolies By Haraguchi, Junichi; Matsumura, Toshihiro
  13. On Policy Interventions and Vertical Price Transmission: the Italian Milk Supply Chain Case By Antonioli, Federico; Santeramo, Fabio Gaetano
  14. Competitive Nonlinear Pricing under Adverse Selection By Attar, Andrea; Mariotti, Thomas; Salanié, François
  15. Treating Symmetric Buyers Asymmetrically By Banerjee, Shraman
  16. Coordinated Capacity Reductions and Public Communication in the Airline Industry By Gaurab Aryal; Federico Ciliberto; Benjamin T. Leyden
  17. White certificates and competition By Claude Crampes; Thomas-Olivier Léautier
  18. La compétition dans la grande vitesse ferroviaire italienne : une innovation majeure pour un jeu « gagnant-gagnant » ? By Christian Desmaris
  19. Services ferroviaires à longue distance en France : un monopole peut-il cacher un duopole ? By Florent Laroche
  20. Measurement of Competitiveness and Market Concentration of Indonesian Banking Sharia By , Paulina
  21. Analysis of Completeness Products and Prices on the Decision of Buying ATK (Office Stationery) at UD. Pemancar Ilmu Store in Namlea City By Umanailo, M Chairul Basrun

  1. By: Donna, Javier D.; Pereira, Pedro; Trindade, Andre; Yoshida, Renan C.
    Abstract: Cutting out the intermediary and selling directly to consumers is an increasingly common strategy by manufacturers in many industries. We develop a structural model of vertical relations where manufacturers both bargain with retailers over wholesale prices and sell their products directly to consumers. We show that direct sales by manufacturers generate two effects that have opposing impact on welfare. First, direct sales generate potential welfare gains to consumers downstream due to additional competition and product variety. Second, in the upstream, there is an increase in the bargaining leverage of the manufacturers selling directly to consumers. Negotiated wholesale prices increase, thus increasing final prices to consumers and decreasing consumer welfare. We show how our model can be used to quantify the bargaining leverage and welfare effects of direct sales. We estimate our model using data from the outdoor advertising industry and use the estimated model to simulate counterfactual scenarios to isolate these effects. We conclude by discussing the relevance of the bargaining leverage effect for vertical merger evaluation.
    Keywords: Direct-to-consumer sales, bargaining, vertical mergers, advertising
    JEL: D43 L13 L42 L51 L81 M37
    Date: 2020–02–05
  2. By: Severin Lenhard
    Abstract: This paper studies the disposal costs’ effect on consumer surplus and firms’ profits. The costlier disposal, the less is disposed of, firms’ competition for market shares increases, thereby benefiting consumers. Yet firms decrease their produc- tion to mitigate costs, affecting consumer surplus negatively. We present a model with ex ante homogeneous firms producing inventories either early at low cost and with little information about demand, or later with more information yet at higher costs. Unsold products are disposed of. In equilibrium, firms may be asymmetric. Disposal goes down with costs but so do inventories. In our set-up, the negative effect on the trade volume dominates decreasing consumer surplus and firms’ profits. We show, however, that low disposal costs substitute infor- mation about demand. Increasing disposal costs improve a firm’s information advantage and may increase its profits.
    Keywords: Disposal, Inventory, Uncertain Demand, Market Structure
    JEL: D43 L11 L13 L50
    Date: 2021–04
  3. By: Yassine Lefouili (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); Joana Pinho (Universidade Católica Portuguesa)
    Abstract: We study the price and welfare effects of collusion between two-sided platforms and show that they depend on whether collusion occurs on both sides or a single side of the market, and whether users single-home or multi-home. Our most striking result is that one-sided collusion leads to lower (resp. higher) prices on the collusive (resp. competitive) side if the cross-group externalities exerted on the collusive side are positive and sufficiently strong. One-sided collusion may, therefore, benefit the users on the collusive side and harm the users on the competitive side. Our findings have implications regarding cartel detection and damages actions.
    Keywords: Cross-group externalities,Collusion,Two-sided markets
    Date: 2020–09
  4. By: Severin Lenhard
    Abstract: We study the interest rate’s effect on the stability of cartels. A low interest rate implies a high discount factor and thus increases cartel stability. If firms access the capital market, an additional effect comes into play: a low interest rate lowers investment costs, resulting in more profitable deviations from the collusive agreement. We propose a new measure for a cartel’s stability regarding the two opposing effects. Stability is U-shaped in the interest rate. We test our theory using a dataset of 615 firms and find supporting evidence. We conclude that the current unusually low interest rate facilitates collusion.
    Keywords: Collusion, Interest Rate, Repeated Game, Survival Analysis
    JEL: C41 D43 K21 L40
    Date: 2021–03
  5. By: Antelo, Manel; Bru, Lluís
    Abstract: We consider licensing of a non-drastic innovation by a patentholder who interacts with a potential licensee in a Stackelberg duopoly. We compare per-unit and ad-valorem royalty contracts, showing why and when each licensing deal should be observed. We find that ad-valorem royalty is preferred by a licensor that plays as the leader, but per-unit royalty is more profitable if the licensor is the follower. We also find that only innovations that do not hurt consumers are socially beneficial. Finally, licensor’s leadership or followership and innovation size determine licensing impact on the incentive to disseminate an innovation.
    Keywords: Licensing, leader and follower, welfare
    JEL: D43 D45
    Date: 2020–12
  6. By: Guido Menzio
    Abstract: As search frictions become smaller in the market for a consumer product, buyers are able to locate and access more sellers per unit of time. In response, sellers choose to design varieties of the product that are more specialized in order to exploit differences in the buyers' preferences. I find mild conditions on the fundamentals under which the decline in search frictions and the increase in specialization have exactly offsetting effects on the extent of competition in the market. Under these conditions, price dispersion remains constant over time even though search frictions are vanishing. Buyer's surplus and seller's profit, however, grow at a constant endogenous rate, as the endogenous increase in specialization allows sellers to cater better and better to the heterogeneous desires of buyers.
    JEL: D43 E23 L13 O40
    Date: 2021–04
  7. By: Gaurab Aryal; Charles Murry; Jonathan W. Williams
    Abstract: We develop a model of inter-temporal and intra-temporal price discrimination by monopoly airlines to study the ability of different discriminatory pricing mechanisms to increase efficiency and the associated distributional implications. To estimate the model, we use unique data from international airline markets with flight-level variation in prices across time, cabins, and markets, as well as information on passengers' reasons for travel and time of purchase. We find that the ability to screen passengers across cabins every period increases total surplus by 35% relative to choosing only one price per period, with both the airline and passengers benefiting. However, further discrimination based on passenger's reason to traveling improve airline surplus at the expense of total efficiency. We also find that the current pricing practice yields approximately 89% of the first-best welfare. The source of this inefficiency arises mostly from dynamic uncertainty about demand, not private information about passenger valuations.
    Date: 2021–02
  8. By: Eliana Barrenho (Paris and Imperial College Business School.); Eric Gautier (Toulouse School of Economics); Marisa Miraldo (Imperial College Business School,); Carol Propper (Imperial College Business School); Christiern Rose (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: We examine the effect of a physician network on medical innovation using novel matched patient-physician-hospital panel data. The data include every relevant physician and all patients in the English NHS for 15 years and physicians’ workplace histories for more than 20. The dynamic network arising from physician mobility between hospitals over time allows us to separate unobserved physician and hospital heterogeneity from the effect of the network. We build on standard peer-effects models by adding cumulative peer behaviour and allow for particularly influential physicians (‘key players’), whose identities we estimate. We find positive effects of peer innovation take-up, number of peers, and proximity in the network to both pioneers of the innovation and key players. Counterfactual estimates suggest that early intervention targeting young, connected physicians with early take-up can significantly increase aggregate take-up.
    Keywords: Innovation, medical practice, networks, peer-effects
    Date: 2020–12–03
  9. By: Schmitz, Patrick W.
    Abstract: Consider a buyer and a seller who have agreed to trade an intermediate good. It is ex-post efficient to adapt the good to the prevailing state of the world. The seller has private information about the costs of adapting the good. In the case of non-integration, the buyer has no possibility to verify claims that the seller makes about her costs. In the case of vertical integration, the buyer can verify evidence about the costs that the seller might be able to provide. Even though we assume no further differences between the ownership structures, it turns out that the parties may prefer non-integration.
    Keywords: Incomplete contracts; Make-or-buy decision; Property rights approach; Private information; Outsourcing
    JEL: D23 D82 D86 L24 M11
    Date: 2021–03
  10. By: Diego Aparicio; Zachary Metzman; Roberto Rigobon
    Abstract: Matched product data is collected from the leading online grocers in the U.S. The same exact products are identified in scanner data. The paper documents pricing strategies within and across online (and offline) retailers. First, online retailers exhibit substantially less uniform pricing than offline retailers. Second, online price differentiation across competing chains in narrow geographies is higher than offline retailers. Third, variation in offline elasticities, shipping distance, pricing frequency, and local demo- graphics are utilized to explain price differentiation. Surprisingly, pricing technology (across time) magnifies price differentiation (across locations). This evidence motivates a high-frequency study to unpack the patterns of algorithmic pricing. The data shows that algorithms: personalize prices at the delivery zipcode level, update prices very frequently and in tiny magnitudes, reduce price synchronization, exhibit lower menu costs, constantly explore the price grid, and often match competitors’ prices.
    JEL: D9 L1 L2 M31 O33
    Date: 2021–04
  11. By: Antelo, Manel; Bru, Lluís
    Abstract: This paper offers a rationale for production subcontracting by a market power firm from smaller firms despite the latter’s ability to sell the good for themselves. Particularly, in a dominant firm (DF) model in which the good can be sold through linear pricing or through nonlinear two-part tariff (2PT) contracts, we demonstrate that the DF finds it optimal, whenever it sells its own production plus outsourced production, to subcontract production from fringe firms by setting nonlinear 2PT contracts.
    Keywords: Dominant firm model, linear prices, nonlinear 2PT contracts, horizontal subcontracting, welfare
    JEL: L11 L14
    Date: 2021
  12. By: Haraguchi, Junichi; Matsumura, Toshihiro
    Abstract: Mixed oligopolies are characterized by the coexistence of private and public enterprises. The literature on mixed oligopolies indicates that, assuming all private firms are identical, the optimal degree of privatization increases with the number of private firms. In other words, the more concentrated the market is, the more the government should privatize public firms. We revisit this problem by introducing cost-heterogeneity among private firms. We show that under the assumption of constant marginal costs, a new entry by a private firm will not reduce the optimal degree of privatization, regardless of the cost differences among private firms. However, under the assumption of increasing marginal costs, we show that a new entry will reduce the optimal degree of privatization when the new entrant is significantly less efficient than the private firms already present. Our results imply that the relationship between competition and privatization policies are more complicated than the literature suggests, and they depend on the cost structure of private firms.
    Keywords: privatization and competition policies, market concentration index, partial privatization, new entry, production substitution
    JEL: D43 H44 L33
    Date: 2021–04–03
  13. By: Antonioli, Federico; Santeramo, Fabio Gaetano
    Abstract: During the last two decades, the EU dairy sector has been interested by considerable changes and two policy reforms, the Fischler Reform and the Common Market Organization Reform, pushing toward economic liberalization. These changes affected the EU supply chains at different levels, altering the mechanisms of vertical price transmission. Against this background, we apply error correction models to assess how price signals are passed through, before and after the Italian milk supply chain reforms. In particular, we study the degree of price transmission asymmetries and conclude that market sluggishness has increased in the post-reform period, but the asymmetric dynamics are less evident. Reflections on future research needs are discussed.
    Keywords: Asymmetries; CAP reform; dairy sector; error correction model; Fischler reform; structural break
    JEL: L16 Q13 Q18
    Date: 2021–01–10
  14. By: Attar, Andrea; Mariotti, Thomas; Salanié, François
    Abstract: This article surveys recent attempts at characterizing competitive allocations under adverse selection when each informed agent can privately trade with several uninformed parties: that is, trade is nonexclusive. We rst show that requiring market outcomes to be robust to entry selects a unique candidate allocation, which involves cross-subsidies. We then study how to implement this allocation as the equilibrium outcome of a game in which the uninformed parties, acting as principals, compete by making oers to the informed agents. We show that equilibria typically fail to exist in competitive- screening games, in which these oers are simultaneous. We nally explore alternative extensive forms, and show that the candidate allocation can be implemented through a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets.
    Keywords: Adverse Selection; Entry-Proofness; Discriminatory Pricing; Nonexclusive; Markets; Ascending Auctions
    JEL: D43 D82 D86
    Date: 2021–04
  15. By: Banerjee, Shraman
    Abstract: We investigate a finite-horizon dynamic pricing problem of a seller under limited commitment. Even when the buyers are ex-ante symmetric to the seller, the seller can charge different prices to different buyers. We show that under the class of posted-price mechanisms this asymmetric treatment of symmetric buyers strictly revenue-dominates symmetric treatment. The seller im- plements this by using a priority-based deterministic tie-breaking rule instead of using a random tie-breaking rule. The effect of asymmetric treatment on revenue increment increases monotonically as we increase the time horizon of the game.
    Keywords: Dynamic Pricing, Asymmetric Mechanism, Non-Anonymity
    JEL: C70 D42 D44 D82
    Date: 2021–01–11
  16. By: Gaurab Aryal; Federico Ciliberto; Benjamin T. Leyden
    Abstract: We investigate the allegation that legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. To this end, we first use text analytics to build a novel dataset on communication among airlines about their capacity choices. Estimates from our preferred specification show that the number of offered seats is 2% lower when all legacy airlines in a market discuss the concept of "capacity discipline." We verify that this reduction materializes only when legacy airlines communicate concurrently, and that it cannot be explained by other possibilities, including that airlines are simply announcing to investors their unilateral plans to reduce capacity, and then following through on those announcements.
    Date: 2021–02
  17. By: Claude Crampes (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); Thomas-Olivier Léautier (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)
    Abstract: Tradable certificates are a good tool to promote economic activities when they increase the social surplus. White certificates are counterproductive, because although they encourage activities aimed at reducing energy consumption, these activities are ‘credence goods', i.e. goods whose real quality cannot be verified. They therefore lead to opportunistic behavior by professionals of building renovation and heating system installation. In order to make the system virtuous, certificates should guarantee the results actually measured, instead of ex ante technical evaluations. Given the cost of controls, the accuracy of the declarations should be ensured by heavy penalties for infringements, which is not feasible when companies are too small. Concentration in the building renovation sector should therefore be encouraged, respecting a trade-off between the collective benefit of having large companies responsible for energy performance and the risk of abuse of a dominant position or collusion by these same companies
    Abstract: Les certificats négociables sont un bon outil de promotion des activités économiques quand celles-ci permettent d'améliorer le surplus social. Les certificats blancs, parce qu'ils encouragent les activités destinées à réduire la consommation d'énergie et parce que ces activités sont des "biens de confiance", c'est-à-dire des biens dont la qualité réelle ne peut pas être vérifiée, sont contreproductifs. Ils suscitent des comportements opportunistes de la part des professionnels de la rénovation des bâtiments et de l'installation des systèmes de chauffage. Pour rendre le système vertueux, il faudrait que les certificats garantissent les résultats effectivement mesurés et non des évaluations techniques faites ex ante. Compte tenu du coût des contrôles, la sincérité des déclarations devrait être assurée par de lourdes sanctions en cas d'infractions, ce qui n'est pas réalisable quand les entreprises sont trop petites. Il faudrait donc encourager une concentration dans le secteur de la rénovation des bâtiments en respectant un arbitrage entre avantage collectif d'avoir de grosses entreprises responsables des performances énergétiques et risques d'abus de position dominante ou de collusion sur le marché par ces mêmes entreprises.
    Keywords: Regulations,Consumer welfare,Economic analysis,Economic efficiency,Concentration (unilateral effects),Dominant position (abuse),Relevant market,Price,Energy,Bien-être du consommateur,Analyse économique,Efficience économique,Concentration (effets unilatéraux),Position dominante (abus),Marché pertinent,Prix,Energie
    Date: 2021
  18. By: Christian Desmaris (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique, IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon - Université de Lyon)
    Abstract: La politique ferroviaire européenne promeut la concurrence afin de permettre à ce secteur de regagner en compétitivité et en attractivité. Depuis 2012, l'Italie tient une place toute particulière dans ce processus. Elle est le seul pays européen à connaître sur son réseau ferroviaire à grande vitesse une concurrence frontale, de type « open access », entre l'opérateur historique public, Trenitalia, et Italo, un train opéré par un nouvel entrant totalement privé, NTV (« Nuovo Trasporto Viaggiatori »). A l'heure de l'ouverture généralisée du transport ferroviaire de voyageurs en France, cette innovation de marché majeure pourrait donner des idées pour bousculer le « statu quo » maintenu par l'opérateur national.
    Keywords: Grande vitesse ferroviaire,Italie,Ouverture à la concurrence,Transport ferroviaire de voyageurs,Part de marché
    Date: 2020
  19. By: Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Après avoir fait l'objet de spéculations pendant des décennies, la concurrence arrive en France dans le transport ferroviaire national interurbain. Dans quelques mois, les usagers pourront voyager dans des trains autres que ceux de la SNCF. Un tour d'horizon des expériences européennes peut permettre de comprendre ce qui pourrait changer pour eux. Sachant que dans la quasi majorité des cas, le monopole a cédé la place à un duopole où, si la concurrence a pu se faire à un moment par les prix, elle s'exerce principalement par les volumes. L'opérateur historique maintenant l'essentiel de son offre pour conserver sa clientèle, et le nouvel entrant réalisant un effort en termes de fréquences pour capter des parts de marché.
    Keywords: Transport ferroviaire national interurbain,France,Ouverture à la concurrence,Expériences européennes
    Date: 2020
  20. By: , Paulina
    Abstract: This study aims: (1) The extent of competitiveness of sharia banking in Indonesia's current economic development; (2) How far the strength of the sharia banking market in Indonesia today. The research conducted to measure the competitiveness of sharia banking in Indonesia and market forces encountered, using the observation period 2010-2016, and the data used is time series and cross section data. The research design used in research is quantitative research, by using model Lerner Index, PR-H Statistics Model, and multiple regression. Based on the results of the study, 1. Using the Lerner index model, for 10 Indonesian sharia banks, especially murabahah products with observation period 2010 - 2016, shows that the competitiveness of Indonesian sharia banks is still very low. The Lerner index for each sharia banks with competitiveness of murabahah products is Bank Mega Sharia, Bank BRI Sharia, Maybank and BSM. As for other sharia banks is still very low; 2. The measurement of market forces using the PR-H Statistics model, murabahah products of Indonesian sharia banks during 2010-2016 fall into the category of the monopolistic competition market. This indicates that, the murabahah product of each sharia banks is basically almost the same, only slightly differentiated by the deficited products in such a way between one bank and another bank; 3. Regression result model of factors affecting competitiveness, only ROA variable that influence to competitiveness, it shows that ROE variable, capitalization and efficiency not become determinant of competitiveness of a bank, especially for murabahah product.
    Date: 2021–04–04
  21. By: Umanailo, M Chairul Basrun (Universitas Iqra Buru)
    Abstract: This study aims to determine the effect of product completeness and price on purchasing decisions for office stationery at UD. Pemancar Ilmu Store in Namlea. This research is descriptive correlation research. The object of this research is consumers who represent personal and institutional / both government and private institutions who have been or have become customers and make purchases of stationery products at UD. Pemancar Ilmu Store in Namlea City. This research took place from April to May 2020. The type of data in this study was qualitative data and quantitative data. Data collection techniques in this study using observation and questionnaires. The data analysis in this study used multiple linear regression analysis. The results showed that there was a positive influence between product completeness on purchasing decisions, and there was a positive influence between product completeness on purchasing decisions at UD. Pemancar Ilmu Store in Namlea City. This shows that the availability of goods in a store including variations in brands, product sizes, types, and variations in the quality of products sold in a store will affect consumer purchasing decisions. The more complete a store, the more it meets the needs and desires of consumers.
    Date: 2021–03–10

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