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on Industrial Competition |
| By: | Chen, Zhuoqiong (Charlie); Stanton, Christopher T.; Thomas, Catherine |
| Abstract: | When experience goods compete, consuming one product can be informative about value for similar untried products. We study 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. Rather than competing intensely in the first period for all future profits, firms compete for the difference in 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 ex ante homogeneous products. |
| Keywords: | Behavior based price discrimination; Duopoly; Experience Goods; product differentiation |
| JEL: | D21 D43 D83 L11 L13 L15 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15255&r= |
| By: | Javier Donna (University of Florida); Pedro Pereira (Autoridade da Concorrência); Andre Trindade (FGV EPGE); Renan Yoshida (Stanford Uiversity) |
| 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: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:69&r= |
| By: | Beckert, Walter; Smith, Howard; Takahashi, Yuya |
| Abstract: | In many markets the buyer pays an individually-negotiated price. Theoretically, relative to uniform-pricing, this has an ambiguous impact on market power and the effects of merger. To analyze competition in the UK brick industry-where individually-negotiated pricing is used, and the market is highly concentrated-we develop a model of negotiated pricing and discrete-choice demand which permits alternative specifications for how the buyer's runner-up product affects price negotiations. We derive a likelihood for observed choices and prices and estimate the model using transaction-level data. We use the model to reject the hypothesis of price-taking buyers, calculate the distribution of markups, and measure the effect on markups of multi-product ownership and buyer location. A counterfactual policy of uniform pricing increases average markups by about one-third, harms most buyers, and magnifies the price-increasing effect of merger. Average markups increase because uniform pricing is intrinsically less competitive and because it imposes buyer price-taking. |
| Keywords: | Bargaining; construction supplies; individualized pricing; Merger Analysis; price discrimination; Spatial differentiation |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15379&r= |
| By: | Boehm, Johannes; Sonntag, Jan |
| Abstract: | This paper studies the prevalence of potential anticompetitive effects of vertical mergers using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers' competitors than when they vertically integrate with an unrelated firm. This relationship holds for both domestic and cross-border mergers, and for domestic and international relationships. It also holds when instrumenting mergers using exogenous downward pressure on the supplier's stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumored or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place. These findings are consistent with anticompetitive effects of vertical mergers, such as vertical foreclosure, rising input costs for rivals, or self-foreclosure. |
| Keywords: | Market foreclosure; mergers and acquisitions; production networks; vertical integration |
| JEL: | L14 L42 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15463&r= |
| By: | Gomes, Renato; Lozachmeur, Jean-Marie; Maestri, Lucas |
| Abstract: | We study oligopolistic competition by firms engaging in second-degree price discrimination. In line with the large empirical literature on demand estimation, our theory allows for comovements between consumers' taste for quality and propensity to switch brands. If low-type consumers are sufficiently less (more) brand loyal than high types, (i) quality provision is inefficiently low at the bottom (high at the top) of the product line, and (ii) informational rents are negative (positive) for high types, while positive (negative) for low types. We produce several testable comparative statics on pricing and quality provision, and show that more competitive markets (in the sense that consumers are less brand-loyal) may produce lower welfare. Interestingly, pure-strategy equilibria fail to exist whenever brand loyalty is sufficiently different across consumers types. Accordingly, our theory identifies a new rationale for price/quality dispersion; namely, the interplay between self-selection constraints and heterogeneity in brand loyalty. |
| Keywords: | asymmetric information; Competition; preference correlation; price discrimination; price dispersion |
| JEL: | D82 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15253&r= |
| By: | Rosa-Branca Esteves (Department of Economics/NIPE, University of Minho); Francisco Carballo-Cruz (Department of Economics/NIPE, University of Minho) |
| Abstract: | This paper offers some insights for competition policy agencies in charge of determining whether the use of data by dominant firms can harm competition and consumers. When the welfare criterion is consumer surplus we show that in markets characterized by sufficiently low entry costs, the ability of the incumbent firm to price discriminate is not enough to exclude the rival from the market. In this case, we show that price discrimination intensifies competition and overall consumer surplus is above its non-discrimination counterpart. In these markets there are no reasons to block price discrimination. In contrast, in markets with intermediate values of entry costs, the incumbent access to data for personalised prices, might act as an important barrier to entry. With no intervention, the entrant would decide to stay out and the incumbent would be able to increase profits at the expense of consumer welfare. |
| Keywords: | Data-driven strategies, digital markets, price discrimination, competition policy and regulation. |
| JEL: | D43 L13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:5/2021&r= |
| By: | Ivaldi, Marc; Zhang, Jiekai |
| Abstract: | The empirical analysis of media platforms economics has often neglected the multi-homing behaviour of advertisers. Assuming away the cross-substitutability and/or complementarity between the advertising slots of dierent platforms could damage the quality and the robustness of counterfactual analysis. To evaluate the consequence of such an abstraction, we compare the simulation results of hypothetical platform mergers when the demand on the advertising side is derived from a Translog cost model which allows for multi-homing, and when it is approximated by using a simple log-linear inverse demand model that ignores the dierentiation among media platforms' advertising slots. Ignoring the existence of substitutes or complements on the advertising side would result in overpredicting the losses of the viewers' surplus and in underpredicting the gains in platforms' revenues. |
| Keywords: | Two-sided market; platform merger; advertising; TV market; competition policy |
| JEL: | K21 L10 L40 L82 M37 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125568&r= |
| By: | Pagnozzi, Marco; Piccolo, Salvatore; Reisinger, Markus |
| Abstract: | We analyze vertical contracting between a manufacturer and retailers who have correlated private information. The manufacturer chooses the number of retailers and secretly contracts with each of them. We highlight a new trade-off between limiting competition and reducing retailers' information rents that shapes the optimal size of the distribution network. We show how the manufacturer's technology and the characteristics of demand affect this distribution network. In contrast to previous literature, we show that the manufacturer may choose a number of retailers that exceeds the socially optimal one, and that vertical integration can raise consumer welfare. |
| Keywords: | asymmetric information; distribution network; opportunism; retail market structure; Vertical contracting |
| JEL: | D43 L11 L42 L81 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15472&r= |
| By: | Boone, Jan |
| Abstract: | This paper shows that it is possible for intermediate goods to be priced above the value that the good has for final consumers. This happens in sectors selling to adverse selection markets where the cost difference between consumer types is dominated by their elasticity difference. High input prices then help to separate consumer types. An increase in competition can raise prices further. We use the example of pharmaceutical companies selling drugs to a health insurance market at prices exceeding value. Another feature of the model is an excessive private incentive to reduce market size, e.g. in the form of personalized medicine. |
| Keywords: | Adverse Selection; pharmaceutical prices; pricing above value; risk equalization; Vertical Relations |
| JEL: | I11 I13 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15279&r= |
| By: | Christian Oertel; Armin Schmutzler |
| Abstract: | We analyze entry of a firm with a new and differentiated product into a market with two properties: An existing incumbent has a captive consumer base, and all consumers have heterogeneous tastes. The interaction of the share of captive consumers with the degree of taste heterogeneity leads to non-monotone effects of both parameters on entry. In particular, a higher captive share can support entry when heterogeneity is low but not when it is high, and higher taste heterogeneity (i.e., less product substi- tutability) can impede entry in the presence of captive consumers. Considering these effects together leads to new insights on entry, horizontal product innovation, and price discrimination. |
| Keywords: | Entry, captive consumers, asymmetric competition, product innovation |
| JEL: | L13 L40 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:386&r= |
| By: | Cullen, Joseph; Schutz, Nicolas; Shcherbakov, Oleksandr |
| Abstract: | We develop and estimate a dynamic structural model of the US wireless industry. The demand model features two sources of dynamics: First, consumers that switch contracts must pay early termination fees to their current wireless service provider; second, handsets are durable. Consumers and wireless carriers are forward-looking and, in contrast to previous work, have perfect foresight over the evolution of the industry. Carriers compete using open-loop strategies. Counterfactual simulations reveal that the elimination of early termination fees, despite raising equilibrium prices, unambiguously benefits consumers. Firms may benefit as well provided the cost of processing early termination fees is high enough. |
| Keywords: | dynamics; perfect foresight; structural estimation; Switching Costs |
| JEL: | D12 L11 L13 L40 L96 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15506&r= |
| By: | Ziad Ghandour (Universidade do Minho, Escola de Economia e Gestão, Centre for Research in Economics and Management (NIPE)); Luigi Siciliani (Department of Economics and Related Studies, University of York); Odd Rune Straume (Department of Economics/NIPE, University of Minho and Department of Economics, University of Bergen) |
| Abstract: | We study the strategic relationship between hospital investment in health technologies and provision of service quality. We use a spatial competition framework with altruistic providers and allow for hospital investment and quality provision to be either complements or substitutes in the patient health benefit and provider cost functions. We assume that each hospital commits to a certain investment level before deciding on the provision of service quality. We show that, compared to a simultaneous-move benchmark, providers´lack of ability to commit to a particular quality level generally leads to either under- or overinvestment. Underinvestment arises when the price-cost margin is positive and when quality and investments are strategic complements. In turn, this has implications for the optimal design of hospital payment contracts. We show that, differently from the simultaneous-move case, the first-best solution is generally not attainable by setting the fixed price at the appropriate level, but the regulator must complement the payment contract with at least one more instrument to address under- or overinvestment. We also analyse the welfare effects of different policy options (separate payment for investment, through a higher per-treatment price, or refinement of pricing) to reimburse hospitals for their investments. |
| Keywords: | Investment; Quality competition; Hospital payment |
| JEL: | D24 I11 I18 L13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:3/2021&r= |
| By: | Bar-Isaac, Heski; Shelegia, Sandro |
| Abstract: | In a model of consumer search, we trace through effects of changes in retail variety. Some consumers visit stores that offer many products that are imperfect substitutes, learn which product they like most, and then buy it elsewhere. These showroomers put upward pressure on prices elsewhere because they populate the market with consumers who know their preferences, in the style of the Diamond paradox (Diamond (1971)). Changes in retail variety affect search behaviour and all market outcomes. One change that we examine is the introduction of a shopping venue where prices are readily available but product information is not. |
| Keywords: | consumer search; Pricing; Retailer Variety; Showrooming |
| JEL: | D83 L11 L14 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15448&r= |
| By: | Massimo Motta; Sandro Shelegia |
| Abstract: | An incumbent monopolist may prevent a firm which currently sells a complementary product from developing a substitute, by copying its product. Imitation reduces the potential rival's current profits, making it less likely for it to obtain funding in the financial market. The anticipation of the incumbent's aggressive behaviour may also create an "ex ante" effect, by inducing the rival not to challenge the incumbent with a substitute (that is, not to enter the "kill zone") and develop another complement instead. Further, in this case the incumbent will have an incentive not to copy, since a new complement will raise its rents. The possibility of being acquired by the incumbent tends to push the rival towards developing a substitute rather than a complement. By choosing the former, potential gains from the acquisition are created (in the form of suppression of competition): as long as the rival has some bargaining power in the determination of the takeover price, it will then benefit from entering the "kill zone". |
| Keywords: | innovation, copying, Platforms |
| JEL: | L12 L41 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1780&r= |
| By: | Schankerman, Mark; Schuett, Florian |
| Abstract: | Critics claim that patent screening is ineffective, granting low-quality patents that impose unnecessary social costs. We develop an integrated framework, involving patent office examination, fees, and endogenous validity challenges in the courts, to study patent screening both theoretically and quantitatively. In our model, some inventions require the patent incentive while others do not, and asymmetric information creates a need for screening. We show that the endogeneity of challenges implies that courts, even if perfect, cannot solve the screening problem. Simulations of the model, calibrated on U.S. data, indicate that screening is highly imperfect, with about forty percent of all patents issued on inventions that do not require the patent incentive. While we find that the current patent system generates positive social value, intensifying examination would yield large welfare gains. The social value of the patent system would also be larger if complemented by antitrust limits on licensing. |
| Keywords: | courts; Innovation; licensing; litigation; patent fees; Patent quality; screening |
| JEL: | D82 K41 L24 O31 O34 O38 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15301&r= |
| By: | Matsuyama, Kiminori; Ushchev, Philip |
| Abstract: | We propose and characterize parametric families of homothetic demand systems, which feature a constant pass-through rate that is common across otherwise heterogenous monopolistically competitive firms. These parametric families offer natural, flexible, and yet tractable extensions of CES. In the case of complete pass-through, the markup rate is constant, as in CES, yet it can be heterogenous across firms, unlike in CES. In the case of incomplete pass-thorough, the price of each firm is log-linear in its marginal cost and its choke price with the common coefficients across firms. Tougher competition, captured by a lower "average price," reduces the prices of all firms at a uniform rate, and hence without affecting their relative prices. Yet, it causes a disproportionately larger decline in the revenue and the profit among firms with lower markup rates. |
| Keywords: | Constant Elasticity of Substitution (CES); Constant Pass-Through (CoPaTh); Constant Price Elasticity (CPE); H.D.I.A.; H.I.I.A.; H.S.A.; Heterogenous firms; Homothetic Demand Systems; monopolistic competition |
| JEL: | D21 D43 L13 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15475&r= |
| By: | Burstein, Ariel Tomas; Carvalho, Vasco M; Grassi, Basile |
| Abstract: | We study markup cyclicality in a granular macroeconomic model with oligopolistic competition. We characterize the comovement of firm, sectoral, and economy-wide markups with sectoral and aggregate output following firm-level shocks. We then quantify the model's ability to reproduce salient features of the cyclical properties of markups in French administrative firm-level data, from the bottom (firm) level to the aggregate level. Our model helps rationalize various, seemingly conflicting, measures of markup cyclicality in the French data. |
| Keywords: | Aggregate fluctuations; Firm Dynamics; granularity; Markup Cyclicality; Oligopolistic Competition |
| JEL: | D21 D22 D24 D43 E32 L11 L13 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15360&r= |
| By: | Andrés-Cerezo, David; Fabra, Natalia |
| Abstract: | We assess how firms' incentives to operate and invest in energy storage depend on the market structure. For this purpose, we characterize equilibrium market outcomes allowing for market power in storage and/or production, as well as for vertical integration between storage and production. Market power reduces overall efficiency through two channels: it induces an inefficient use of the storage facilities, and it distorts investment incentives. The worst outcome for consumers and total welfare occurs under vertical integration. We illustrate our theoretical results by simulating the Spanish wholesale electricity market for different levels of storage capacity. The results are key to understanding how to regulate energy storage, an issue which is critical for the deployment of renewables. |
| Keywords: | electricity; investment; market structure; Storage |
| JEL: | L22 L94 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15444&r= |
| By: | Assad, Stephanie; Calvano, Emilio; Calzolari, Giacomo; Clark, Robert; Denicolò, Vincenzo; Ershov, Daniel; Johnson, Justin; Pastorello, Sergio; Rhodes, Andrew; XU, Lei; Wildenbeest, Matthijs |
| Abstract: | Markets are being populated with new generations of pricing algorithms, powered with Artificial Intelligence, that have the ability to autonomously learn to operate. This ability can be both a source of efficiency and cause of concern for the risk that algorithms autonomously and tacitly learn to collude. In this paper we explore recent developments in the economic literature and discuss implications for policy. |
| Keywords: | Algorithmic Pricing; Antitrust; Competition Policy; Artificial Intelligence; Collusion; Platforms. |
| JEL: | D42 D82 L42 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125584&r= |
| By: | Milena Djourelova; Ruben Durante; Gregory J. Martin |
| Abstract: | How does competition from online platforms affect the organization, performance, and editorial choices of newspapers? And what are the implications of these changes for the information vot-ers are exposed to and for political accountability? We study these questions using the staggered introduction of Craigslist - the world’s largest online platform for classified advertising - across US counties between 1995 and 2009. This setting allows us to separate the effect of competition for classified advertising from other changes brought about by the Internet, and to compare newspapers that relied more or less heavily on classified ads ex ante. We find that, following the entry of Craigslist, local papers experienced a significant decline in the number of newsroom and management staff. Cuts in editorial staff disproportionately affected reporters covering politics. These organizational changes led to a reduction in news coverage of politics and political corrup-tion, and resulted in a decline in newspaper readership which was not compensated by increased news consumption on other media. Finally, we find some evidence that reduced news coverage of politics was associated with lower voter turnout, and more party-line voting for both citizens and politicians. |
| Keywords: | newspapers, internet, advertising, political accountability |
| JEL: | L82 L86 D72 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9090&r= |
| By: | Martin Carree (Maastricht University [Maastricht]); Marcus Dejardin (UNamur - Université de Namur [Namur], UCL - Université Catholique de Louvain) |
| Abstract: | Firm entry and exit flows in the retailing and consumer services may be viewed as market equilibrating processes. Local markets with considerable market room and high unemployment may be thought of having high subsequent entry rates and possibly low exit rates. We examine this relationship and obtain empirical results for a range of industries in 563 Belgian municipalities. We show that, over a three-year period, (net) entry is positively affected by the presence of local 'market room'. We find a significant 'unemployment push' effect on entry in some industries, but also a significantly positive effect of unemployment on exit. This pattern possibly indicates a 'revolving door regime' in areas marked by unemployment where new entrants leave the market relatively soon after entry, or only crowd out local competitors without creating additional employment. |
| Keywords: | entry,exit,entrepreneurship,unemployment,local development |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03220690&r= |
| By: | Johnson, Justin; Rhodes, Andrew; Wildenbeest, Matthijs |
| Abstract: | Using both economic theory and Artificial Intelligence (AI) pricing algorithms, we investigate the ability of a platform to design its marketplace to promote competition, improve consumer surplus, and even raise its own profits. We allow sellers to use Q-learning algorithms (a common reinforcement-learning technique from the computer-science literature) to devise pricing strategies in a setting with repeated interactions, and consider the effect of platform rules that reward firms that cut prices with additional exposure to consumers. Overall, the evidence from our experiments suggests that platform design decisions can meaningfully benefit consumers even when algorithmic collusion might otherwise emerge but that achieving these gains may require more than the simplest steering policies when algorithms value the future highly. We also find that policies that raise consumer surplus can raise the profits of the platform, depending on the platform's revenue model. Finally, we document several learning challenges faced by the algorithms. |
| Keywords: | Algorithms; artificial intelligence; Collusion; platform design |
| JEL: | K21 L00 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15504&r= |
| By: | Ritz, R. |
| Abstract: | This paper studies a social planner who chooses countries' carbon prices so as to maximize global welfare. Product markets are characterized by firm heterogeneity, market power, and international trade. Because of the market-power distortion, the planner's optimal policy is second-best. The main insight is that optimal carbon prices may be highly asymmetric: zero in some countries and above the social cost of carbon in countries with relatively dirty production. This result obtains even though a uniform global carbon price is always successful at reducing countries' emissions. Competition policy that mitigates market power may enable stronger and more balanced climate action. |
| Keywords: | Carbon leakage, carbon pricing, imperfect competition, international trade, second best |
| JEL: | H23 L11 Q54 |
| Date: | 2021–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2145&r= |
| By: | Lopez, Claude; Smith, Benjamin |
| Abstract: | This report summarizes the recent key regulatory changes in the US, Europe, and China. It shows these jurisdictions have different regulatory approaches while being confronted with similar challenges. They all seek the right regulatory balance between: • promoting market efficiency while minimizing antitrust issues, • strengthening financial inclusion while ensuring financial stability, and • improving consumers’ welfare while limiting data usage misconduct. But can these approaches be reconciled under the umbrella of an inclusive and flexible global framework? While global coordination seems unlikely on many policy issues such as antitrust or government access to data, it works for technical standards. The coherence they bring to the regulatory landscape will benefit all countries, consumers, and firms. We identify data sharing as a necessary technical standard to restore consumer choice and strengthen competition in tech companies’ different economic sectors. We define data sharing as the combination of (i) data portability, (ii) platforms’ interoperability, and (iii) data reciprocity. In highly innovative markets such as those in the digital space, these requirements ensure low entry barriers. They also provide convenient and cost-effective alternatives to customers, allowing them to sanction firms’ poor behavior or quality of services by switching to another. Ultimately these requirements will favor competition, innovation, and consumers’ privacy. |
| Keywords: | data sharing, tech, bigtech, regulation, interoperability, portability, fianancial stability |
| JEL: | F3 F4 F5 F6 O3 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107679&r= |
| By: | Aghadadashli, Hamid; Legros, Patrick |
| Abstract: | Managers have imperfect information about each other's willingness to collude and may signal this willingness through direct communication or market actions. Owners offer bonuses to managers and trade off productive effort provision, higher profits if managers coordinate on high prices, and the risk of antitrust fines if managers explicitly communicate. Our model shows that the distribution of fines between the owners and the managers is crucial for com- munication to be informative. High or low bonuses can reflect the willingness of owners to induce managers to explicitly communicate, and are red flags for corporate responsibility when collusion is supported by direct communication. |
| Keywords: | Antitrust fines; Collusion; communication; imperfect information; Incentive Schemes; managerial firms; oligopoly |
| JEL: | C79 D43 D82 K21 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15241&r= |
| By: | Federico Innocenti |
| Abstract: | I study the effect of polarization and competition on information provision. With a single expert who faces decision-makers with het- erogeneous priors, the expert solves a trade-off between persuading sceptics and retaining believers. With high polarization, an expert has incentives to supply low-quality information to leverage believers' credulity. With multiple experts with opposite biases, competition is harmful if attention is limited. Unbiased and Bayesian decision-makers rationally devote attention to like-minded experts. Echo chambers arise endogenously, whereas decision-makers would be better informed in monopoly. My model can rationalize the spread and persistence of conspiracy theories and fake news. |
| Keywords: | Bayesian Persuasion, Competition, Echo Chambers, Heterogeneous Priors, Limited Attention, Media Pluralism |
| JEL: | D82 D83 L82 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_298&r= |
| By: | Jürgen Neumann (University of Paderborn) |
| Abstract: | For the sake of variety, consumers in many markets often choose to consume an unknown, potentially low-quality good over a known, high-quality one. Online ratings, despite their widely recognized importance for assessing the quality of unknown goods, have not yet been studied in the light of such variety-seeking behavior. In particular, it remains unclear how online ratings interact with variety-seeking in terms of market outcomes. This study proposes an analytical model to analyze this interaction, including pricing, profits, and consumer surplus. The main results of the model analysis suggest that for markets where consumers' tendency for variety-seeking is sufficiently strong, the following holds: (1) An increase in online ratings is more profitable for low-quality than for high-quality sellers, and (2) an increase in online ratings leads to an increase in consumer surplus even if ratings overestimate actual quality (i.e., are positively biased). These insights can help not only businesses operating in these markets with managing their online reputation and setting their prices, but also review system designers with de-biasing the ratings published on their system. |
| Keywords: | Online Ratings, Variety-Seeking, Analytical Modeling, Economics of IS |
| JEL: | M15 M31 O32 D43 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:dispap:77&r= |
| By: | Rosa-Branca Esteves (Department of Economics/NIPE, University of Minho); Qihong Liu (Department of Economics, University of Oklahoma); Jie Shuai (Wenlan School of Business, Zhongnan University of Economics and Law) |
| Abstract: | Firms commonly price discriminate across consumers based on purchase history, a practice known as behavior-based price discrimination (BBPD). Existing studies usually assume that consumer preferences follow uniform distribution, and find that BBPD benefits consumers at the cost of firms, prisoners’ dilemma. In this paper, we consider a class of consumer preferences distribution and show that new profit and welfare results arise. In particular, when consumer preferences are sufficiently clustered at the center of the market (e.g. triangular distribution), BBPD boosts industry profits at the expense of consumers. This is opposite to the standard prisoners’ dilemma results under uniform distribution. On the other hand, when consumer preferences are not clustered at the center of the market, the usual findings prevail. Our results highlight the important role of the shape of preferences and provide useful implications for relevant players including managers, regulators and consumer advocates. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:4/2021&r= |
| By: | Dodini, Samuel; Lovenheim, Michael F.; Salvanes, Kjell G; Willén, Alexander |
| Abstract: | This paper extends the literature on monopsony and labor market concentration by taking a skillbased approach and estimates the causal effect of monopsony power on labor market outcomes. The prior literature has focused on industry and occupation concentration and likely overstates the degree of monopsony power, since worker skills are substitutable across different firms, occupations and industries. Exploiting linked employer-employee data that cover the universe of Norwegian workers over time, we find that our skill-based monopsony measure shows lower degrees of monopsony power than the conventional industry-and occupation-based measures. However, we also find that the gender gap in concentration is substantially larger using the skillbased measure relative to the occupation- or industry-based measures. Using mass layoffs and establishment closures as an exogenous shock to labor demand, we find that workers who experience a mass separation have substantially worse subsequent labor market outcomes when they are in more concentrated skill clusters. Our results point to the existence of employer market power in the economy that is driven by the concentration of skill demand across firms. |
| Keywords: | Labor Market Concentration; monopsony; skills |
| JEL: | J23 J24 J42 J63 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15412&r= |
| By: | Jean Hindriks; Leonardo Madio; Valerio Serse |
| Abstract: | We study the impact of the Belgium lockdown on retail prices using a unique dataset tracking daily prices and promotions for various products in different stores and retail chains. Two distinctive features of our analysis are the ban on promotions during the first two weeks of the lockdown, and the presence of local pricing retail chains (LP) competing with uniform (national) pricing retail chains (UP). We decompose the price changes into the regular price, the frequency, and the size of promotions. The sale price (i.e., the price paid by consumer purchasing on “sale”) increased by 7% within two weeks and by 2.5% within three months. We then provide an heterogeneity analysis of the regular price variation across stores, retailers, products, and over time. We show that LP chains reacted the most to the lockdown with spatial heterogeneity. The heterogeneity in price response also suggests that the price increase was not driven by cost inflation. |
| Keywords: | Covid-19, pricing, lockdown, retailers |
| JEL: | D22 E30 E31 L11 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9074&r= |
| By: | Chengsi Wang (Monash University); Makoto Watanabe (FEWEB VU University of Amsterdam/Tinbergen Institute) |
| Abstract: | This paper studies a directed search equilibrium in a platform setting with homo- geneous buyers and sellers.We show that a meeting technology, typically controlled by intermediaries, (e.g., advertisement, interview scheduling, or online search pro- tocol) determines the matching outcome as follows. First, a meeting technology that provides full information to market participants is not necessarily efficient. Second, the seller- and buyer-optimal meeting technologies do not require full market transparency either; rather, the latter may be achieved even with the min- imum information. Finally, the efficient matching outcome can be decentralized by a profi t-maximizing platform who adopts a simple fee-setting policy for its intermediation service. |
| Keywords: | meeting technology, directed search, platform, intermediation |
| JEL: | D83 J64 M37 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2021-02&r= |
| By: | Burkart, Mike; Lee, Samuel; Petri, Henrik |
| Abstract: | How should bidders fi nance tender offers when the objective of the takeover is to improve incentives? In such a setting, debt fi nance has bene fits even when bidders have deep pockets: It ampli es incentive gains, imposes Pareto sharing on bidders and free-riding target shareholders, and makes bidding competition more efficient. High leverage, independent of fi nancing needs, can be privately and socially optimal. Although takeover debt dilutes target shareholders, they may benefi t most from it, especially when bidding is competitive. |
| Keywords: | Debt Financing; Debt overhang; Equity Dilution; free-riding; tender offers |
| JEL: | G34 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15249&r= |
| By: | María Florencia Gabrielli (CONICET. Universidad Nacional de Cuyo.); Manuel Willington (Universidad Adolfo Ibañez) |
| Abstract: | We propose a structural method for estimating the revenue losses associated with bidding rings in symmetric and asymmetric first-price auctions. It is based on the structural analysis of auction data and is consistent with antitrust damage assessment methodologies: we build a but-for (competitive) scenario and estimate the differences between the two scenarios. We show in a Monte Carlo exercise that our methodology performs very well in moderate size samples. We apply it to Ohio Milk Data Set analyzed by Porter and Zona [1999] and find that damages are around 7%. Damages can be assessed without any information about unaffectedmarkets. |
| Keywords: | Collusion First price auctions Damages |
| JEL: | C1 C4 C7 D44 L4 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:5&r= |
| By: | Chyong, C K.; Reiner, D; Aggarwal, D. |
| Abstract: | We explore a major European competition decision, the 2012-18 Gazprom case, using a global gas market simulation model. We find that access to LNG markets alone is insufficient to counterbalance Gazprom’s strategic behaviour; central and eastern Europe (CEE) needs to be well interconnected with bidirectional flow capability. ‘Swap deals’ created by the decision facilitate CEE market integration, while limiting Gazprom’s potential market power. Such deals may increase the diversity of contracted gas and number of market players, but do not improve physical supply diversity. In the next five years, swap deals could marginally impact negatively the utilization of strategic assets in CEE, but since Gazprom’s commitments expire by mid-2026, utilization of these strategic assets may fall considerably, especially if Gazprom withholds supplies. As an unintended consequence, CEE markets may disintegrate from the rest of Europe. Avoiding such outcomes will require further gas market reforms, particularly, market design for gas transportation. |
| Keywords: | Gazprom, European Commission, Market Power, Natural Gas, Security of Supply, Competition, Long-term contracts, Swap deals |
| JEL: | L95 L42 D47 D42 C63 P28 |
| Date: | 2021–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2144&r= |
| By: | Goetz, Daniel; Rodnyansky, Alexander |
| Abstract: | Do firms respond to cost shocks by reducing the quality of their products? Using microdata from a large Russian retailer that refreshes its product line twice-yearly, we document that higher quality products are more profitable than lower quality ones, but that the number of high quality products offered experiences a relative decrease after a large ruble devaluation in 2014. We show that rising firm costs-and not shrinking consumer incomes-explains the reallocation, and rationalize the data with a simple model that features consumer expenditure switching between high and low qualities. The reallocation to lower quality products reduces average pass-through by 15%. |
| Keywords: | crisis; Demand estimation; Devaluations; exchange rate pass-through; Quality |
| JEL: | E30 F14 F31 L11 L15 L16 L81 M11 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15248&r= |
| By: | Kiho Yoon |
| Abstract: | We study the problem of when to sell an indivisible object. There is a monopolistic seller who owns an indivisible object and plans to sell it over a given span of time to the set of potential buyers whose valuations for the object evolve over time. We formulate the seller's problem as a dynamic mechanism design problem. We provide the procedure for finding the optimal solution and show how to check incentive compatibility. We also examine sufficient conditions for the optimality of myopic stopping rule and ex-post individual rationality. In addition, we present some comparative static results regarding the seller's revenue and the selling time. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.07649&r= |
| By: | Chen, Liming (Asian Development Bank); Hasan, Rana (Asian Development Bank); Jiang, Yi (Asian Development Bank) |
| Abstract: | This paper presents evidence on the spatial distribution and effects of urban agglomeration on firm innovation. It uses a unique dataset that consistently defines city boundaries and identifies firms’ innovation-related activities across 25 developing countries in Asia. We find firm innovation to be highly concentrated at the city level. We also find substantial gains from increases in city population in terms of firms’ propensity to introduce process and product innovations and undertake research and development (R&D) activities. These gains remain even after addressing concerns regarding endogeneity through the use of historical population data as instruments. In addition, we present evidence that knowledge spillovers are an important channel through which agglomeration effects occur, specifically through the presence of top-tier universities in a given city and by raising the effectiveness of firms’ R&D efforts. These findings confirm the existence and significance of urban economies of scale in augmenting the knowledge flows that generate innovation. |
| Keywords: | agglomeration economies; innovation; knowledge spillovers |
| JEL: | O10 O30 R11 |
| Date: | 2020–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0616&r= |
| By: | Lorenzo Ductor (University of Granada); Bauke Visser (Erasmus University Rotterdam) |
| Abstract: | Evolutionary arguments and incentive theory point to the importance of variety and rotation of editorial board members to stimulate innovative research. Using a unique dataset covering more than 100 economics journals over the period 1990-2011, we document trends in the incidence of multiple positions, editorial duration and institutional background for more than 6,100 board members. We put these figures into perspective using the literature on boards of directors and measures of market concentration. The picture that emerges is of a discipline with a high concentration of institutional and individual power, especially at the more prestigious journals. Evidence suggests this indeed matters: there is a strong negative association between editorial duration and journal impact. |
| Keywords: | editorial boards, journals, concentration, power, busyness, impact |
| JEL: | A11 A14 O31 |
| Date: | 2021–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210044&r= |