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on Industrial Competition |
| By: | Choné, Philippe; Linnemer, Laurent; Vergé, Thibaud |
| Abstract: | Asymmetric information in procurement entails double marginalization. The phenomenon is most severe when the buyer has all the bargaining power at the production stage, while it vanishes when the buyer and suppliers' weights are balanced. Vertical integration eliminates double marginalization and reduces the likelihood that the buyer purchases from independent suppliers. Conditional on market foreclosure, the probability that final consumers are harmed is positive only if the buyer has more bargaining power when selecting suppliers than when negotiating over prices and quantities. Otherwise, the buyer's and consumers' interests are aligned. |
| Keywords: | Asymmetric information; Bargaining; Double marginalization; Optimal procurement mechanism; Vertical merger |
| JEL: | D4 D8 L1 L4 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15849&r= |
| By: | Garcia, Daniel; Janssen, Maarten; Shopova, Radostina |
| Abstract: | In markets, such as those for airline tickets and hotel accommodations, firms sell time-dated products and have private information about unsold capacities. We show that competition under private information explains observed phenomena, such as increased price dispersion and higher expected prices towards the deadline, without making specific assumptions about demand. We also show that private information severely limits the market power of firms and that information exchange about capacity negatively affects consumers. Finally, we inquire into the incentives to unilaterally disclose information or to engage in espionage about rival's capacity and show that these activities are particularly harmful for consumers. |
| Keywords: | asymmetric information; capacity constraints; Disclosure; Dynamic pricing; industrial espionage |
| JEL: | D40 D83 L13 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15767&r= |
| By: | Paolo Bertoletti |
| Abstract: | We propose a novel approach to study competition among platforms. In particular, we consider representative consumer’s preferences over the services platforms provide and the commodities they intermediate. Platforms are assumed to be large, intermediating a variety of commodities offered by sellers under monopolistic competition and free entry, and competing à la Cournot. We use a duopoly setting to discuss the welfare implications of platform exchange commissions, which are typically significant in real-world cases. Our preliminary finding is that positive commission actually worsens consumer welfare by reducing the platform price-adjusted quality indexes. |
| Keywords: | platform competition, two-sided markets, market intermediation |
| JEL: | D11 L13 L41 L51 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:468&r= |
| By: | Johnson, Justin; Rhodes, Andrew |
| Abstract: | We investigate mergers in markets where quality differences between products are central and firms may reposition their product lines by adding or removing products of different qualities following a merger. Such mergers are materially different from those studied in the existing literature. Mergers without synergies may exhibit a product-mix effect which raises consumer surplus, but only when the pre-merger industry structure satisfies certain observable features. Post-merger synergies may lower consumer surplus. The level of, and changes in, the Herfindahl-Hirschman Index may give a misleading assessment of how a merger affects consumers. A merger may benefit some outsiders but harm others. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15830&r= |
| By: | Doval, Laura; Skreta, Vasiliki |
| 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. |
| Keywords: | Dynamic Mechanism Design; information design; Limited Commitment; price discrimination; product-line design |
| JEL: | D84 D86 L12 L13 L15 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15969&r= |
| By: | Elliott, Jonathan; Houngbonon, Georges Vivien; Ivaldi, Marc; Scott, Paul |
| Abstract: | We develop a model of competition in prices and infrastructural investment among mobile network providers. Market shares and service quality (download speed) are simultaneously determined, for demand affects the network load just as delivered quality affects consumer demand. While consolidation typically has adverse impacts on consumer surplus, economies of scale (which we derive from physical principles) push in the other direction, and we find that consumer surplus is maximized at a moderate number of firms, and that the optimal number of firms is higher for lower income consumers. Our modeling framework allows us to quantify the marginal social value of allocating more spectrum to mobile telecommunications, finding it is roughly five times an individual firm’s willingness to pay for a marginal unit of spectrum. |
| Keywords: | Market structure; scale efficiency,;antitrust policy; infrastructure; endogenous; quality; queuing, mobile telecommunications |
| JEL: | D21 D22 L13 L40 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125551&r= |
| By: | Karle, Heiko; Schumacher, Heiner; Volund, Rune |
| Abstract: | We consider a model of Bertrand competition where consumers are uncertain about the qualities and prices of firms' products. Consumers can inspect all products at zero cost. A share of consumers is expectation-based loss averse. For these consumers, a purchase plan, which involves buying products of varying quality and price with positive probability, creates scale-dependent disutility from gain-loss sensations. Even if their degree of loss aversion is modest, they may refrain from inspecting all products and choose an individual default that is first-order stochastically dominated. Firms' strategic behavior can exacerbate the scope for this "uncertainty effect", and sellers of inferior products may earn positive profits despite Bertrand competition. We find suggestive evidence for the predicted association between consumer behavior and loss aversion in new survey data. |
| Keywords: | Competition; consumer search; loss aversion |
| JEL: | D21 D83 L41 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15967&r= |
| By: | Saruta, Fuyuki |
| Abstract: | This study examines zero-rating (ZR), a commercial method implemented by Internet service providers (ISPs) that treat particular content providers' (CPs) data as free content. In this study, a model is constructed in which an end-user uses content from two CPs within a data cap, and the ISP chooses an optimal ZR plan which maximizes its profit. We show that the ISP zero-rates one or both CPs in equilibrium depending on (1) the ISP's marginal cost to deliver content, (2) the difference between the quality of the content provided by the two CPs, and (3) the two CPs' advertising power. We demonstrate that an increase in the ISP's marginal cost makes it more likely that a ZR plan resulting in heavy traffic will be implemented, and an increase in the difference between the content quality makes it less likely that a ZR plan in favor of the higher quality CP will be implemented. |
| Keywords: | Mobile Internet; Zero-rating; Sponsored-data; Net Neutrality; Vertical integration |
| JEL: | D21 L11 L96 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107505&r= |
| By: | Duso, Tomaso; Nardotto, Mattia; Seldeslachts, Jo |
| 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: | Broadband; Competition; Coverage; Entry; Ex-Post Evaluation; prices; state aid |
| JEL: | C23 D22 L1 L4 L64 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15779&r= |
| By: | Rostam-Afschar, Davud; Unsorg, Maximiliane |
| Abstract: | We examine a deregulation of German pharmacists to assess its effects on retail and labor markets. From 2004 onward, the reform allowed pharmacists to expand their single-store firms and to open or acquire up to three affiliated stores. This partial deregulation of multi-store prohibition reduced the cost of firm expansion substantially and provides the basis for our analysis. We develop a theoretical model that suggests that the general limitation of the total store number per firm to four is excessively restrictive. Firms with high managerial efficiency will open more stores per firm and have higher labor demand. Our empirical analysis uses very rich information from the administrative panel data on the universe of pharmacies from 2002 to 2009 and their affiliated stores matched with survey data, which provide additional information on the characteristics of expanding firms before and after the reform. We find a sharp immediate increase in entry rates, which continues to be more than five-fold of its pre-reform level after five years for expanding firms. Expanding firms can double revenues but not profits after three years. We show that the increase of the number of employees by 50% after five years and the higher overall employment in the local markets, which increased by 40%, can be attributed to the deregulation. |
| Keywords: | egulation,acquisitions,entry,market concentration,wages,employment,pharmacists |
| JEL: | L4 L5 L2 J44 J23 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:836&r= |
| By: | Bighelli, Tommaso; Di Mauro, Filippo; Melitz, Marc J.; Mertens, Matthias |
| Abstract: | This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power. |
| Keywords: | allocative efficiency,European market structure,firm concentration,market power,productivity |
| JEL: | D24 E25 F15 L11 L25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:52021&r= |
| By: | Jiang, Helu; Zheng, Yu; Zhu, Lijun |
| Abstract: | Exploiting the gradualism of the Chinese economic reforms and cross-sectional variations in entry rates, we show empirical evidence from firm-level data that industries with higher entry rates achieve higher growth and a more competitive market structure in subsequent years. We then embed firm entry into a model of endogenous productivity and market structure with heterogeneous firms and sectors, and calibrate it to the Chinese manufacturing sector in 2004-7. We find the positive impact of entry on growth is achieved primarily through a pro-competitive effect, whereby entry induces endogenously a larger fraction of industries to be more competitive in the economy. We quantify the contribution on growth from the reduction of entry barriers associated with the state-owned enterprise reforms in the late 1990s and early 2000s and find it explains 20% of the aggregate growth of the manufacturing sector from 2004-7. More generally, we highlight the critical role of reducing entry barriers in promoting competition and growth in developing countries. |
| Keywords: | Endogenous Growth; Entry Barriers; Firm Dynamics; Firm entry |
| JEL: | D22 D43 O11 O30 O47 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15763&r= |
| By: | Bronnenberg, Bart; Huang, Yufeng |
| Abstract: | Why do consumers value shopping online? We decompose the value of e-commerce to individual consumers and highlight the role of convenience, i.e., the avoidance of transportation costs. We complement household purchase panel data with precise locations of consumers and stores, and show that travel distance is a strong driver of consumer store choice and the substitution to the online channel. Using a structural model of retailer and channel choice, we report that during 2016-2018 the total value from e-commerce to consumers is equivalent to a 23% discount on all prices. Of this value, a quarter comes from convenience in the form of lower transportation costs, a quarter from intensified price competition, and the remaining half from new online retailers and online channels of existing offline retailers. We further demonstrate that consumer gains are heterogeneous. Consumers far from offline stores or experienced in online shopping will benefit more from e-commerce, whereas consumers who likely do not shop online still benefit indirectly from price competition. Finally, our results show that, as consumers gain more online shopping experience, substantial additional gains from e-commerce are yet to materialize in the future. |
| Keywords: | convenience; E-commerce; online/offline; retail; Transportation Costs |
| JEL: | D12 L81 M31 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15707&r= |
| By: | Jacopo De Tullio; Giuseppe Puleio |
| Abstract: | The present work generalizes the analytical results of Petrikaite (2016) to a market where more than two firms interact. As a consequence, for a generic number of firms in the oligopoly model described by Janssen et al (2005), the relationship between the critical discount factor which sustains the monopoly collusive allocation and the share of perfectly informed buyers is non-monotonic, reaching a unique internal point of minimum. The first section locates the work within the proper economic framework. The second section hosts the analytical computations and the mathematical reasoning needed to derive the desired generalization, which mainly relies on the Leibniz rule for the differentiation under the integral sign and the Bounded Convergence Theorem. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.02094&r= |
| By: | Fulghieri, Paolo; Sevilir, Merih |
| Abstract: | This paper presents a theory of post-merger human capital integration where successful integration depends on the willingness of employees of the merging firms to collaborate and share knowledge. In our model, employees in the post-merger firm choose between collaboration to create synergies, and competition to extract greater resources from the corporate headquarters. We show that incentives to collaborate are stronger in mergers between firms with greater human capital complementarity. In such mergers the post-merger firm has a greater reliance on employee human capital in internalizing the benefut of collaboration, increasing the likelihood that employees will be retained in the post-merger firm and receive higher wages. Anticipating the importance of their human capital, employees become more willing ex ante to choose collaboration over competition, resulting in a greater likelihood of successful human capital integration. Consistent with recent empirical evidence, our model suggests that mergers between firms with greater human capital complementary lead to better merger performance. In addition, our model generates novel predictions such as post-merger wages increasing, and layoffs decreasing in the level of human capital complementarity between merging firms. |
| Keywords: | Human Capital; mergers |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15865&r= |
| By: | C. Lanier Benkard; Ali Yurukoglu; Anthony Lee Zhang |
| Abstract: | This paper uses new data to reexamine trends in concentration in U.S. markets from 1994 to 2019. The paper's main contribution is to construct concentration measures that reflect narrowly defined consumption-based product markets, as would be defined in an antitrust setting, while accounting for cross-brand ownership, and to do so over a broad range of consumer goods and services. Our findings differ substantially from well established results using production data. We find that 42.2% of the industries in our sample are “highly concentrated” as defined by the U.S. Horizontal Merger Guidelines, which is much higher than previous results. Also in contrast with the previous literature, we find that product market concentration has been decreasing since 1994. This finding holds at the national level and also when product markets are defined locally in 29 state groups. We find increasing concentration once markets are aggregated to a broader sector level. We argue that these two diverging trends are best explained by a simple theoretical model based on Melitz and Ottaviano (2008), in which the costs of a firm supplying adjacent geographic or product markets falls over time, and efficient firms enter each others' home product markets. |
| JEL: | L1 L4 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28745&r= |
| By: | de Haas, Ralph; Ongena, Steven; Qi, Shusen; Straetmans, Stefan |
| Abstract: | We study how information sharing between banks influences the geographical clustering of branches. A spatial oligopoly model first explains why branches cluster and how information sharing impacts price competition and equilibrium clustering. With data on 56,555 branches of 614 banks in 19 countries between 1995 and 2012, we test key model hypotheses. We find that information sharing increases branch clustering as banks open branches in localities that are new to them but that are already served by other banks. This branch clustering is associated with less spatial credit rationing as information sharing allows firms to borrow from more distant banks. |
| Keywords: | Branch clustering; information sharing; spatial oligopoly model |
| JEL: | D43 G21 G28 L13 R51 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15829&r= |
| By: | Baldwin, Elizabeth; Bichler, Martin; Fichtl, Maximilian; Klemperer, Paul |
| Abstract: | We show the Strong Substitutes Product-Mix Auction (SSPMA) bidding language provides an intuitive and geometric interpretation of strong substitutes as Minkowski differences between sets that are easy to identify.We prove that competitive equilibrium prices for agents with strong substitutes preferences can be computed by minimizing the difference between two linear programs for the positive and the negative bids with suitably relaxed resource constraints. This also leads to a new algorithm for computing competitive equilibrium prices which is competitive with standard steepest descent algorithms in extensive experiments. |
| Keywords: | Algorithms; Auction Theory; Competitive Equilibrium; DC programming; Envy-free prices; Equilibrium computation; indivisible goods; product-mix auction; strong substitutes; Walrasian Equilibrium |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15831&r= |
| By: | Fernández-Villaverde, Jesús; Mandelman, Federico; Yu, Yang; Zanetti, Francesco |
| Abstract: | This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms' output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong ``Matthew effect'' that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality. |
| Keywords: | Market concentration; Monopsony Power; search complementarities; Superstar Firms |
| JEL: | C63 C68 E32 E37 E44 G12 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15788&r= |
| By: | Hans-Theo Normann (Heinrich Heine University, Düsseldorf); Martin Sternberg (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | We investigate collusive pricing in laboratory markets when human players interact with an algorithm. We compare the degree of (tacit) collusion when exclusively humans interact to the case of one firm in the market delegating its decisions to an algorithm. We further vary whether participants know about the presence of the algorithm. We find that threefirm markets involving an algorithmic player are significantly more collusive than human-only markets. Firms employing an algorithm earn significantly less profit than their rivals. For four-firm markets, we find no significant differences. (Un)certainty about the actual presence of an algorithm does not significantly affect collusion. |
| Keywords: | algorithms, collusion, human-computer interaction, laboratory experiments |
| JEL: | C90 L41 |
| Date: | 2021–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2021_11&r= |
| By: | Bronnenberg, Bart; Dube, Jean-Pierre; Joo, Joonhwi |
| Abstract: | We conduct an empirical case study of the U.S. beer industry to analyze the disruptive effects of locally-manufactured, craft brands on the market structures, an increasingly common phenomenon in CPG industries typically attributed to the emerging generation of adult Millennial consumers. We document a substantial gap in the shares of craft beer consumption across generations. To understand the determinants of this generational share gap, we test between two competing mechanisms: (i) intrinsic generational differences in tastes and (ii) the role of availability on the formation of consumption capital. Our test exploits a novel database tracking the geographic differences in the diffusion of craft brewers across the U.S., dating back to the deregulation of home brewing in 1979 that initialized the launch of craft breweries. Using a structural model of demand with endogenous consumption capital stock formation, we find that consumption capital accounts for 85% of the generational share gap between Millennials and Baby Boomers, with the remainder explained by intrinsic preferences. Through the lens of our model, we predict the beer market structure will continue to fragment over the next decade, with craft beer reaching almost 30% of the market as the distribution of adult consumers shifts increasingly towards young adults with a wide variety of craft beer available as they turn 21 and begin forming a preference. |
| Keywords: | brand equity; Branding; craft beer; formation of preferences |
| JEL: | D12 L11 M31 M37 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15706&r= |
| 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; Outsourcing; private information; Property rights approach |
| JEL: | D23 D82 D86 L24 M11 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15970&r= |
| By: | Affeldt, Pauline; Duso, Tomaso; Gugler, Klaus; Piechucka, Joanna |
| Abstract: | An increasing body of empirical evidence is documenting trends toward rising concentration, profits, and markups in many industries around the world since the 1980s. Two major criticisms of these studies is that concentration and market shares are poorly measured at the national industry level while firm level revenues are a poor indicator of product sales. We use a novel database that identifies over 20,000 product/geographic antitrust markets affected by over 2,000 mergers scrutinized by the European Commission between 1995 and 2014. We show that concentration, as measured by the market-specific post-merger HHI, is larger than reported in the extant literature (at least) by a factor of ten. We also show that concentration has increased over time on average. Yet, there is a great deal of heterogeneity across geographic markets and within broader industries. In a regression analysis that exploits this within-industry variation, we show that barriers to entry are unambiguously positively related to concentration irrespective of time periods, sectors of activity, and geographical market dimension analyzed. Strict past merger enforcement negatively correlates with concentration. Yet, this effect is stronger in the earlier decade (1995-2004) than subsequently. Intangibility of investments consistently displays positive correlation with concentration only for EU wide and worldwide services markets. In contrast, the correlation is negative in national markets. This underscores the importance of the large heterogeneity present in concentration developments across markets. |
| Keywords: | Concentration; Entry Barriers; HHI; Intangibles; Market Definition; Merger Control; mergers |
| JEL: | K21 L24 L44 O32 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15699&r= |
| By: | Asker, John; Baccara, Mariagiovanna; Lee, SangMok |
| Abstract: | Auctioneers of patents are observed to allow joint bidding by coalitions of buyers. These auctions are distinguished from standard ones by the patents being non-rivalrous, but still excludable, in consumption--that is, they are club goods. This affects the way 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 per se 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. We show that 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. |
| Keywords: | asymmetric auctions; Club goods; Intellectual Property; patents |
| JEL: | D44 D47 K1 L14 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15703&r= |
| By: | Gehrig, Thomas; Ritzberger, Klaus |
| Abstract: | This paper analyses the role of intermediaries in providing immediacy in fast markets. Fast markets are modelled as contests with the possibility of multiple winners where the probability of casting the best quote depends on prior technology investments. Depending on the market design, equilibrium pricing by intermediaries involves a trade-off, between monopolistic price distortion and excess volatility. Since equilibrium at the pricing stage generates an externality, investments into faster trading technologies are necessarily asymmetric in equilibrium, akin to markets with vertical product differentiation. Further, equilibrium is not necessarily effcient, since it is possible that a high-cost intermediary ends up investing excessively and thus trades more frequently than low-cost rivals. |
| Keywords: | High-frequency trading; intermediation; market design; Price volatility |
| JEL: | D43 D47 G14 L13 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15848&r= |
| By: | Gauger, Felix; Pfnür, Andreas; Strych, Jan-Oliver |
| Date: | 2021–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:126262&r= |
| By: | Willem Pieter De Groen |
| Abstract: | Debit and credit cards have gradually increased in importance as instruments for retail payments. This has prompted anti-trust authorities at both national and European levels to investigate and limit the interchange fee-based revenue model of four-party schemes. These moves were followed in 2015 by the introduction of the Interchange Fee Regulation (IFR), which introduced price rules to nurture a competitive, innovative and secure payments environment for all stakeholders. The IFR caps the interchange fees on consumer debit and credit cards and prohibits restrictions on co-badging and certain requirements to honour all cards for merchants. This paper assesses the impact of the IFR. Based on a literature review and data analysis, it concludes that the IFR has led to a drop in interchange fees – in some cases below the maximum defined in the legislation in all EU member states. The decrease in the interchange fee is largely reflected in lower charges for merchants, although the reduction is – at least partially – offset by higher scheme fees charged by international four-party card schemes and by higher fees for cardholders. The policy recommendations aim to increase transparency for a fuller understanding of the functioning of the market and to enhance competitiveness in both the market for card payments and other payment instruments. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:eps:ecriwp:26316&r= |
| By: | Thoresson, Anna (IFAU - Institute for Evaluation of Labour Market and Education Policy) |
| Abstract: | This paper studies how wages respond to a sudden change in employer concentration. It exploits a reform that deregulated the Swedish pharmacy market, which until 2009 was a monopoly. The reform involved a substantial increase in the number of employers on the pharmacy labor market. However, the change in employer concentration was not geographically uniform: certain areas experienced large changes while others were largely unaffected. Exploiting this geographical variation, elasticities of wages with respect to labor market concentration are estimated to be between -0.02 and -0.05. The empirical approach relies only on the variation in concentration controlled by the policymaker to remedy the concern that actual labor market concentration is endogenous. The positive wage effects from reduced labor market concentration are found to be most prevalent for stayers, rather than new hires, as well as those with more industry experience and longer tenure. Overall, the paper adds to a growing literature that finds that market concentration matters for workers' wages, in a context where labor is highly industry-specific. |
| Keywords: | Wages; Competition; Market concentration |
| JEL: | J31 J42 J45 |
| Date: | 2021–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifauwp:2021_006&r= |
| By: | Chung, Wanyu; Perroni, Carlo |
| Abstract: | We study how regional content requirements in Free Trade Areas (FTAs) affect market power and market structure in concentrated intermediate goods markets. We show that content requirements increase oligopolistic markups beyond the level that would obtain under an equivalent import tariff, and we document patterns in Canadian export data and US producer price data that align with the model's predictions: producers of intermediate goods charge comparatively higher prices when the associated final goods producers are more constrained by FTA origin requirements and by Most Favoured Nation (MFN) tariffs for both intermediate and final non-FTA goods. |
| Keywords: | Content Requirements; Free Trade Areas; market power |
| JEL: | D43 F12 F13 F14 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15897&r= |
| By: | Janssen, Maarten; Williams, Cole |
| Abstract: | We show that in search markets a social influencer who recommends certain products to her followers improves consumer surplus and total welfare despite firms paying for her recommendation. The key fact that we employ is that individuals who follow an influencer have preferences that are correlated with, but not identical to, those of the influencer. A recommended firm may charge higher prices, but even so consumers follow the recommendation by first searching the recommended firm. If upon inspecting the good, their match value turns out to be sufficiently low, consumers continue to search. The threat of search is important as it provides the firm an incentive to offer the influencer a financial contract that involves a positive commission and it provides the influencer the incentive to be honest in her recommendation as honesty generates most sales. Finally, we also show that provided that the influencer's search cost is not too high, the influencer has an incentive to acquire information and give informative recommendations. |
| Keywords: | consumer search; product differentiation; social media influencers |
| JEL: | D40 D83 L10 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15811&r= |
| By: | Asker, John; Fershtman, Chaim; Pakes, Ariel |
| Abstract: | The behavior of artificial intelligences algorithms (AIAs) is shaped by how they learn about their environment. We compare the prices generated by AIAs that use different learning protocols when there is market interaction. Asynchronous learning occurs when the AIA only learns about the return from the action it took. Synchronous learning occurs when the AIA conducts counterfactuals to learn about the returns it would have earned had it taken an alternative action. The two lead to markedly different market prices. When future profits are not given positive weight by the AIA, synchronous updating leads to competitive pricing, while asynchronous can lead to pricing close to monopoly levels. We investigate how this result varies when either counterfactuals can only be calculated imperfectly and/or when the AIA places a weight on future profits. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15880&r= |
| By: | Mohsen Foroughifar; David Soberman |
| Abstract: | Consumers often resort to third-party information such as word of mouth, testimonials and reviews to learn more about the quality of a new product. However, it may be difficult for consumers to assess the precision of such information. We use a monopoly setting to investigate how the precision of third-party information and consumers' ability to recognize precision impact firm profits. Conventional wisdom suggests that when a firm is high quality, it should prefer a market where consumers are better at recognizing precise signals. Yet in a broad range of conditions, we show that when the firm is high quality, it is more profitable to sell to consumers who do not recognize precise signals. Given the ability of consumers to assess precision, we show a low quality firm always suffers from more precise information. However, a high quality firm can also suffer from more precise information. The precision range in which a high quality firm gains or suffers from better information depends on how skilled consumers are at recognizing precision. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.01040&r= |
| By: | Cabral, Luís M B; Duerr, Niklas; Schober, Dominik; Woll, Oliver |
| Abstract: | On May 27, 2015, the Shell network of gas stations in Germany introduced a Price Matching Guarantee (PMG) available to its card-carrying members. In the ensuing weeks, a series of attempts at tacit collusion took place, typically with stations increasing prices at around 12 noon by 3 cents. In this paper, we argue that the juxtaposition of these two events is not a mere coincidence. We first present a theoretical model to argue that a PMG can be a collusion enacting practice. We then test various predictions of our theoretical model. Our source of identification is geographical variation in the presence of Shell stations (the chain that enacted the PMG) as well consumer demographics. Our empirical tests are consistent with the theoretical predictions, showing effects that are both statistically and economically significant. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15823&r= |
| By: | Baqaee, David Rezza; Farhi, Emmanuel |
| Abstract: | How does an increase in the size of the market, say due to fertility, immigration, or globalization, affect welfare? We study this question using a model with heterogeneous firms, Kimball preferences, fixed costs, and monopolistic competition. We decompose changes in welfare from increased scale into changes in technical efficiency and changes in allocative efficiency due to reallocation. We non-parametrically identify residual demand curves with firm-level data from Belgian manufacturing firms and, using these estimates, quantify our theoretical results. We find that around 80% of the aggregate returns to scale are due to changes in allocative efficiency. As markets get bigger, competition intensifies and triggers Darwinian reallocations: socially-valuable firms expand, small firms shrink and exit, and new firms enter. However, important as they are, improvements in allocative efficiency are not driven by reductions in markups or deaths of unproductive firms. Instead, they are caused by a composition effect that reallocates resources from low- to high-markup firms. |
| Keywords: | Allocative Efficiency; Incomplete pass-through; increasing returns; Market Size Effect; monopolistic competition |
| JEL: | E0 L1 O4 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15712&r= |
| By: | Yeon-Koo Che; Weijie Zhong |
| Abstract: | We study robustly-optimal mechanisms for selling multiple items. The seller maximizes revenue against a worst-case distribution of a buyer's valuations within a set of distributions, called an "ambiguity" set. We identify the exact forms of robustly-optimal selling mechanisms and the worst-case distributions when the ambiguity set satisfies a variety of moment conditions on the values of subsets of goods. We also identify general properties of the ambiguity set that lead to the robust optimality of partial bundling which includes separate sales and pure bundling as special cases. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.02828&r= |
| By: | Hyejin Lee; Johan Swinnen; Patrick Van Cayseele |
| Abstract: | Agricultural cooperatives have often been promoted as a way to increase their market power and to obtain stability of profit against uncertainty. This paper estimates the firm-level markups and markup volatility to identify the countervailing market power of cooperatives in the Italian fruits and vegetable sector and the dairy sector. We use the firm-level data of Italian firms for the period 2007-2014. We find that, overall, there is a tradeoff in cooperatives’ role between obtaining market power and stability. Farmer cooperatives in both sectors gain stability in their markups but their markups are lower, on average, than those for non-cooperatives. For processor cooperatives, the fruits and vegetable sector obtains more market power. This appears to arise from the product differentiation strategy of the processors cooperative. |
| Date: | 2021–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:ete:licosp:674093&r= |