nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒06‒28
thirty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Competition in Pricing Algorithms By Zach Y. Brown; Alexander MacKay
  2. Has Market Power of U.S. Firms Increased? By Mary Amiti; Sebastian Heise
  3. Intrapersonal price discrimination in a dominant firm model By Antelo, Manel; Bru, Lluís
  4. The Effect of Mergers on Variety in Grocery Retailing By Elena Argentesi; Paolo Buccirossi; Roberto Cervone; Tomaso Duso; Alessia Marrazzo
  5. Stability of collusion and quality differentiation- a Nash bargaining approach By Thanos Athanasopoulos; Burak Dindaroglu; Georgios Petropoulos
  6. Multiproduct Intermediaries By Rhodes, Andrew; Watanabe, Makoto; Zhou, Jidong
  7. Decentralizing Cooperation through Upstream Bilateral Agreements By Jeon, Doh-Shin; Lefouili, Yassine
  8. Platform mergers and antitrust By Geoffrey Parker; Georgios Petropoulos; Marshall Van Alstyne
  9. The Economics of the Public Option: Evidence from Local Pharmaceutical Markets By Juan Pablo Atala; José Ignacio Cuesta; Felipe González; Cristóbal Otero
  10. This paper presents a non-technical introduction to three economic tools that have in recent years become widespread in competition law enforcement in general and in the analysis of proposed mergers in particular: critical loss analysis, upward pricing pressure, and the vertical arithmetic. In addition, for each tool, its use in a recent U.S. merger case is illustrated: for critical loss analysis, the Novelis/Aleris merger; for upward pricing pressure, the GE/Electrolux merger; and for the vertical arithmetic, the Comcast/NBCU joint venture. By Russell Pittman
  11. Market Power and the Volatility of Markups in the Food Value Chain: The Role of Italian Cooperatives By Hyejin Lee; Johan Swinnen; Patrick Van Cayseele
  12. When Social Assistance Meets Market Power: A Mixed Duopoly View of Health Insurance in the United States By Ranasinghe, Ashantha; Su, Xuejuan
  13. Equivalence between fixed fee and ad valorem profit royalty By Colombo, Stefano; Ma, Siyu; Sen, Debapriya; Tauman, Yair
  14. Competition Laws, Governance, and Firm Value By Ross Levine; Chen Lin; Wensi Xie
  15. The role of strategic airline alliances in Africa By Button, Kenneth; Porta, Flavio; Scotti, Davide
  16. Does Tax Policy Work When Consumers Have Imperfect Price Information? Theory and Evidence By Felix Montag; Alina Sagimuldina; Monika Schnitzer
  17. Distribution of the benefits of regulation vs. competition: The case of mobile telephony in South Africa By Ryan Hawthorne; Lukasz Grzybowski
  18. " How the actors of the traditional distribution resolving by business laws, tensions related to the mutation of the supply chain By Min Feng; Driss Bourazzouq
  19. Merger Policy in Digital Industries By Cabral, Luís M B
  20. Price Discrimination and Public Policy in the U.S. College Market By Ian Fillmore
  21. Common Agent or Double Agent? Pharmacy Benefit Managers in the Prescription Drug Market By Rena M. Conti; Brigham Frandsen; Michael L. Powell; James B. Rebitzer
  22. Owning the Agent: Hospital Influence on Physician Behaviors By Haizhen Lin; Ian M. McCarthy; Michael R. Richards
  23. Market Size and Research: Evidence from the Pharmaceutical Industry By Dennis Byrski; Fabian Gaessler; Matthew J. Higgins
  24. Classical Theory of Competitive Market Price Formation By Sabiou M. Inoua; Vernon L. Smith
  25. Management Practices and Takeover Decisions By Manthos D. Delis; Pantelis Kazakis; Constantin Zopounidis
  26. Good deeds, business, and social responsibility in a market experiment By Mario Biggeri; Domenico Colucci; Nicola Doni; Vincenzo Valori
  27. Your Uber Is Arriving Now: An Analysis of Platform Location Decisions through an Institutional Lens By MMatthijs B. Punt; Jesse van Kollem; Jarno Hoekman; Koen Frenken
  28. Differentiated goods in a dynamic Cournot duopoly with emission charges on outputs By Ahmad Naimzada; Marina Pireddu
  29. Machine Learning in U.S. Bank Merger Prediction: A Text-Based Approach By Katsafados, Apostolos G.; Leledakis, George N.; Pyrgiotakis, Emmanouil G.; Androutsopoulos, Ion; Fergadiotis, Manos
  30. Competitive Balance in the National Hockey League after Unrestricted Free Agency and the Salary Cap By Lee, Travis
  31. Plants in Space By Oberfield, Ezra; Rossi-Hansberg, Esteban; Sarte, Pierre-Daniel; Trachter, Nicholas

  1. By: Zach Y. Brown; Alexander MacKay
    Abstract: Increasingly, retailers have access to better pricing technology, especially in online markets. Using hourly data from five major online retailers, we show that retailers set prices at regular intervals that differ across firms. In addition, faster firms appear to use automated pricing rules that are functions of rivals' prices. These features are inconsistent with the standard assumptions about pricing technology used in the empirical literature. Motivated by these facts, we consider a model of competition in which firms can differ in pricing frequency and choose pricing algorithms rather than prices. We demonstrate that, relative to the standard simultaneous price-setting model, pricing technology with these features can increase prices in Markov perfect equilibrium. A simple counterfactual simulation implies that pricing algorithms lead to meaningful increases in markups in our empirical setting, especially for firms with the fastest pricing technology.
    JEL: D43 L13 L81 L86
    Date: 2021–05
  2. By: Mary Amiti; Sebastian Heise
    Abstract: A number of studies have documented that market concentration among U.S. firms has increased over the last decades, as large firms have grown more dominant. In a new study, we examine whether this rising domestic concentration means that large U.S. firms have more market power in the manufacturing sector. Our research argues that increasing foreign competition over the last few decades has in fact reduced U.S. firms’ market power in manufacturing.
    Keywords: market concentration; markups; import competition
    JEL: E2
    Date: 2021–06–21
  3. By: Antelo, Manel; Bru, Lluís
    Abstract: The standard dominant firm (DF)-competitive fringe model, in which all firms sell the good through linear pricing, is extended to the use of nonlinear contracts in the form of two-part tariffs (2PT). We show that under general conditions, the DF practices intrapersonal price discrimination, and supplies to fewer consumers than under linear pricing. As a consequence, nonlinear pricing leads to an inefficient result and consumers are worse off than when the DF uses linear prices; on the contrary, fringe firms are better off as they end up charging a higher price for the good.
    Keywords: Dominant firm, fringe firms, linear and nonlinear contracts, intrapersonal price discrimination
    JEL: L13
    Date: 2021–06
  4. By: Elena Argentesi; Paolo Buccirossi; Roberto Cervone; Tomaso Duso; Alessia Marrazzo
    Abstract: We study the effect of a merger between two Dutch supermarket chains to assess its effect on the depth as well as composition of assortment. We adopt a difference-in-differences strategy that exploits local variation in the merger’s effects, controlling for selection on observables through a matching procedure when defining our control group. We show that the merger led the merging parties to reposition their assortment to avoid cannibalization in the areas where they directly competed before the merger. While the low-variety target’s stores reduced the depth of their assortment when in direct competition with the acquirer, the latter increased their assortment. This suggests that variety is a strategic variable in retail chains’ response to changes in local competition.
    Keywords: variety, assortment, mergers, ex-post evaluation, retail sector, supermarkets, grocery
    JEL: L10 L41 L66 L81 D22 K21 C23
    Date: 2021
  5. By: Thanos Athanasopoulos; Burak Dindaroglu; Georgios Petropoulos
    Abstract: How do incentives to collude depend on how asymmetric firms are? In many markets, product quality is an important parameter that determines firms’ market strategies. We study collusion in a quality-differentiated duopoly and we adopt a Nash bargaining approach to compute the collusive equilibrium and assess its stability. We derive collusive and deviation strategies as continuous functions of quality asymmetry. We obtain novel and surprising results. Stability of collusion is...
    Date: 2021–06
  6. By: Rhodes, Andrew; Watanabe, Makoto; Zhou, Jidong
    Abstract: This paper develops a new framework for studying multiproduct intermediaries when consumers demand multiple products and face search frictions. We show that a multiproduct intermediary is profitable even when it does not improve consumer search efficiency. In its optimal product selection, it stocks high-value products exclusively to attract consumers to visit, then profits by selling non-exclusive products which are relatively cheap to buy from upstream suppliers. However, relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively. As applications we use the framework to study the optimal design of a shopping mall, and the impact of direct-to-consumer sales by upstream suppliers on the retail market.
    Keywords: Direct-to-consumer sales; Exclusivity; intermediaries; Multiproduct demand; Product range; search
    JEL: D83 L42 L81
    Date: 2020–05
  7. By: Jeon, Doh-Shin; Lefouili, Yassine
    Abstract: We consider an industry with nâ?¥3 firms owning upstream inputs and interacting noncooperatively in a downstream market. Under general conditions, upstream bilateral agreements giving firms access to one another's input lead to industry profit maximization. This decentralization result applies to various upstream agreements including cross-licensing agreements among patent-holding manufacturers, interconnection agreements among telecommunication companies, interbank payments for ATM networks, and data-sharing agreements among competitors or complementors.
    Keywords: Bilateral oligopoly; Cooperation; upstream agreements
    JEL: L13 L41
    Date: 2020–06
  8. By: Geoffrey Parker; Georgios Petropoulos; Marshall Van Alstyne
    Abstract: This is an updated version of the Working Paper- Platform mergers and antitrust published by Bruegel in January 2021. Platform ecosystems rely on economies of scale, data-driven economies of scope, high quality algorithmic systems, and strong network effects that frequently promote winner-takes-most markets. Some platform firms have grown rapidly and their merger and acquisition strategies have been very important factors in their growth. Big platforms’ market dominance has generated competition concerns...
    Date: 2021–06
  9. By: Juan Pablo Atala; José Ignacio Cuesta; Felipe González; Cristóbal Otero
    Abstract: We study the economic and political effects of competition by state-owned firms, leveraging the decentralized entry of public pharmacies to local markets in Chile around local elections. Public pharmacies sell drugs at a third of private pharmacy prices, because of a stronger upstream bargaining position and downstream market power in the private sector, but are also of lower quality. Exploiting a field experiment and quasiexperimental variation, we show that public pharmacies affected consumer shopping behavior, inducing market segmentation and price increases in the private sector. This segmentation created winners and losers, as consumers who switched to public pharmacies benefited, whereas consumers who stayed with private pharmacies were harmed. The countrywide entry of public pharmacies would reduce yearly consumer drug expenditure by 1.6 percent, which outweighs the costs of the policy by 52 percent. Mayors that introduced public pharmacies received more votes in the subsequent election, particularly by the target population of the policy.
    Date: 2021
  10. By: Russell Pittman (U.S. Department of Justice)
    Date: 2021–06
  11. 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.
    Keywords: Cooperatives, market power, firm-level markups, volatility
    JEL: L44 Q13 D23
    Date: 2021
  12. By: Ranasinghe, Ashantha (University of Alberta, Department of Economics); Su, Xuejuan (University of Alberta, Department of Economics)
    Abstract: We develop a mixed duopoly model with quality-differentiated products. The public firm chooses its product quality and offers it for free to eligible individuals as a form of social assistance to maximize consumer welfare, while the private firm chooses both the product quality and price to maximize profit. We first characterize the pattern of market segmentation for given product offerings, highlighting the non-monotonic relationship between market participation and individual income. We then calibrate the model to health insurance for the U.S. working-age population, with Medicaid acting as the public firm. We examine the distributional implications of policy changes, both actual and hypothetical, that lead to various degrees of public program expansion. Despite potentially significant inefficiency of the public firm, the overall effect of its expansion is welfare improving. Central to these findings is the significant market power enjoyed by the private firm that results in high profit margins if left unchecked. As more individuals become eligible for the public program, the resulting increase in competitive pressure disciplines the private firm’s ability to exercise market power.
    Keywords: mixed duopoly; quality differentiation; public provision of private goods; funding of public services; distribution
    JEL: D21 D43 H11 H42 H44 I00 L38
    Date: 2021–06–23
  13. By: Colombo, Stefano; Ma, Siyu; Sen, Debapriya; Tauman, Yair
    Abstract: For an outside innovator with a finite number of buyers of the innovation, this paper compares two licensing schemes: (i) fixed fee, in which a licensee pays a fee to the innovator and (ii) ad valorem profit royalty, in which a licensee leaves a fraction of its profit with the innovator. We show these two schemes are equivalent in that for any number of licenses the innovator puts for sale, these two schemes give the same licensing revenue. We obtain this equivalence result in a general model with minimal structure. It is then applied in a Cournot oligopoly for an outside innovator. Finally, in a Cournot duopoly it is shown that when the innovator is one of the incumbent firms rather than an outsider, the equivalence result does not hold.
    Keywords: fixed fee. advlorem profit royalty, licensing schemes, auction, posted price, outside innovator
    JEL: D43 D44 D45 L13 L24
    Date: 2021–06–03
  14. By: Ross Levine; Chen Lin; Wensi Xie
    Abstract: Do antitrust laws influence corporate valuations? We evaluate the relationship between firm value and laws limiting firms from engaging in anticompetitive agreements, abusing dominant positions, and conducting M&As that restrict competition. Using firm-level data from 99 countries over the 1990-2010 period, we discover that valuations rise after countries strengthen competition laws. The effects are larger among firms with more severe pre-existing agency problems: firms in countries with weaker investor protection laws, with weaker firm-specific governance provisions, and with greater opacity. The results suggest that antitrust laws that intensify competition exert a positive influence on valuations by reducing agency problems.
    JEL: G3 K21 K22 L4
    Date: 2021–06
  15. By: Button, Kenneth; Porta, Flavio; Scotti, Davide
    Abstract: This paper looks at the impacts of strategic airline alliances on African aviation. Globally, there has been an on-going trend towards airlines coordinating their activities via strategic alliances and joint ventures. These alliances affect market competition including the quality and costs of the services provided. Despite the economic benefits found in prior analyses of alliances in other markets there has been very limited study of alliance participation by African airlines. Our analysis suggests, among other things, that membership of one of the three global alliances could benefit African airlines, add to their passenger flows, and enhance regional economic integration.
    Keywords: Africa’s strategic air alliances; airline economics; airline cooperation; airline networks
    JEL: K21 L93 N37 R40
    Date: 2020
  16. By: Felix Montag; Alina Sagimuldina; Monika Schnitzer
    Abstract: We investigate how the pass-through rate of commodity taxes depends on competition in a setting where consumers have imperfect information about prices. We use a theoretical search model that has two key predictions: First, the larger the number of price sensitive consumers, the higher the pass-through rate. Second, there is a hump-shaped relationship between the average pass-through experienced by consumers and the number of sellers. We test our theoretical predictions by studying pass-through in the context of a tax decrease and increase in the German retail fuel market. We estimate pass-through of these tax changes to diesel and gasoline prices using a unique dataset containing the universe of price changes at fuel stations in Germany and France and a synthetic difference-in-differences strategy. Our empirical results are in line with our theoretical predictions. Finally, we show that our theoretical framework can encompass and reconcile a large number of empirical observations in previous studies.
    Keywords: pass-through, carbon tax, VAT, consumer search, competition
    Date: 2021
  17. By: Ryan Hawthorne (University of Cape Town); Lukasz Grzybowski (SES - Département Sciences Economiques et Sociales - Télécom ParisTech, ECOGE - Economie Gestion - I3, une unité mixte de recherche CNRS (UMR 9217) - Institut interdisciplinaire de l’innovation - X - École polytechnique - Télécom ParisTech - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, IP Paris - Institut Polytechnique de Paris)
    Abstract: We test for the distributional effects of regulation and entry in the mobile telecommunications sector in a highly unequal country, South Africa. Using six waves of a consumer survey of over 134,000 individuals between 2009-2014, we estimate a discrete choice model allowing for individual-specific price-responsiveness and preferences for network operators. Next, we use a demand and supply equilibrium framework to simulate prices and the distribution of welfare without entry and mobile termination rate regulation. We find that, in the South African context, regulation benefits consumers significantly more than entry does, and that high-income consumers and city-dwellers benefit more in terms of increased consumer surplus.
    Keywords: Mobile telecommunications,Regulation,Entry,Termination rates,Discrete choice JEL Classification: L13,L40,L50,L96
    Date: 2021–01
  18. By: Min Feng (Centre de Recherche Magellan - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - Institut d'Administration des Entreprises (IAE) - Lyon, TSM - Toulouse School of Management Research - UT1 - Université Toulouse 1 Capitole - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT1 - Université Toulouse 1 Capitole, TSM - Toulouse School of Management - UT1 - Université Toulouse 1 Capitole, Institut d'Administration des Entreprises (IAE) - Lyon, UT1 - Université Toulouse 1 Capitole); Driss Bourazzouq (LAREQUOI - Laboratoire de recherche en Management - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines, UVSQ - Université de Versailles Saint-Quentin-en-Yvelines, Université Paris-Saclay)
    Abstract: In our empirical study, we'd like to analyze the case of many traditional retailers around Europe with a view of competition with other on-line traders and distributors, the objective is to understand if using law and management strategy, using business legal strategies like patent or brands or other legal strategies (legal monopoly etc…) helps the traditional retailers to compete again the 100% online retailers, by developing among other a multichannel protected distribution.
    Date: 2021–05–29
  19. By: Cabral, Luís M B
    Abstract: I present a cautionary note on the proposal to tighten merger policy in the high-tech space. The discouragement effect on innovation could be significant. This is not to say that increased policy enforcement is not called for. On the contrary. My point is that it should primarily take the form of checking for abuses of dominant position, tightening consumer protection, and directly regulating dominant firms.
    Date: 2020–05
  20. By: Ian Fillmore (Washington University in St. Louis)
    Abstract: In the United States, the federal government grants colleges access to a student's Free Application for Federal Student Aid (FAFSA) which facilitates substantial price discrimination. This paper is the first to estimate the consequences of allowing colleges to use the FAFSA in their pricing decisions. I build and estimate a structural model of college pricing and simulate counterfactuals wherein some or all of the FAFSA information is restricted. I find that if FAFSA information were restricted, 13 percent of students attending elite colleges would be inefficiently priced out of the elite market. Nevertheless, student welfare would rise as colleges charged the majority of students lower prices. Colleges do use the FAFSA to transfer resources from high- to low-income students on average, but this redistribution is highly imprecise: allowing colleges to use the FAFSA harms one-third of low-income students while one in seven high-income students actually benefit.
    Keywords: price discrimination, higher education, first-price auction, Bayes-Nash equilibrium, financial aid, Free Application for Federal Student Aid, FAFSA
    JEL: I20 L11
    Date: 2021–06
  21. By: Rena M. Conti; Brigham Frandsen; Michael L. Powell; James B. Rebitzer
    Abstract: In the U.S., pharmacy benefit managers (PBMs) manage prescription drug purchases for payers. Firms selling branded pharmaceuticals bid for preferred slots on the PBM's formulary by offering rebates off of list price. We find that PBMs enhance efficiency, but the gains do not accrue to consumers or drug makers. Our analysis offers insights into otherwise puzzling questions. Why do drug makers pay rebates to PBMs? Why do payers delegate formulary operations to a few large PBMs? Why are list prices so high? Why might PBMs vertically integrate with payers? Our framework also offers insights into proposals for market reform.
    JEL: I1 I11 L1 L14
    Date: 2021–05
  22. By: Haizhen Lin; Ian M. McCarthy; Michael R. Richards
    Abstract: The organizational structure of U.S. health care has changed dramatically in recent years, with nearly half of physicians now employed by hospitals. This trend toward increasing vertical alignment between physicians and hospitals may alter physician behavior relative to physicians remaining in independent or group practices. We examine the effects of such vertical alignment using an instrumental variable strategy and a clinical context facilitating well-defined episodes of care. We find relatively modest positive effects (point estimates of 7% or lower) on total Medicare payments per episode, characterized by an increase in billable activity among other integrated physicians alongside a large decrease in activity among non-integrated providers. Acquiring hospitals ultimately capture more revenue following a physician practice acquisition; yet, the smaller overall bundle of care generates no net savings to Medicare due to location-based payment rules favorable to hospitals.
    JEL: H51 I11 I18
    Date: 2021–05
  23. By: Dennis Byrski; Fabian Gaessler; Matthew J. Higgins
    Abstract: Prior literature has established a link between changes in market size and pharmaceutical innovation; whether a link exists with scientific research remains an open question. If upstream research is not responsive to these changes, the kinds of scientific discoveries that flow into future drug development could be disconnected from downstream demand. We explore this question by exploiting the effects of quasi-experimental variation in market size introduced by Medicare Part D. We find no causal relationship between market size and biomedical research in the decade following the implementation of Medicare Part D. While many factors have been shown to motivate scientists to conduct research, this result suggests that changes in market size provide no such incentive. We do find, however, limited support for a response by corporate scientists conducting applied research. Implications for pharmaceutical innovation policy are discussed.
    JEL: I13 I18 L65 O31 O32
    Date: 2021–05
  24. By: Sabiou M. Inoua (Economic Science Institute, Chapman University); Vernon L. Smith (Economic Science Institute, Chapman University)
    Keywords: Microeconomic Theory, Experimental Economics, Methodology of Economics, Information Aggregation
    Date: 2021
  25. By: Manthos D. Delis; Pantelis Kazakis; Constantin Zopounidis
    Abstract: Firms with good management practices optimize and synthesize human resources, leadership, and technical and conceptual skills to enhance firm value. In this paper, we examine the role of management practices in merger and acquisition (M&A) decisions. M&A decisions are among the most important corporate decisions, on which firms spend a lot of resources and managerial qualities. We estimate management practices as a latent variable using a structural equation production model and Bayesian techniques. The key advantage of the Bayesian approach is the use of informative priors from survey-based management estimation methods, which are however available for a limited number of firms. Subsequently, we examine the effect of management practices on takeover events. We first show that management practices, on average, increase the probability of M&A deals. However, we also uncover a nonlinear U-shaped effect, which is consistent with the theoretical premise that poor management leads to many value-decreasing M&A deals, whereas good management leads to many value-increasing M&A deals.
    Keywords: OR in corporate finance; Management practices; Bayesian methods; Mergers and acquisitions; Nonlinear models
    JEL: G14 G34 C11 C30
    Date: 2021–06
  26. By: Mario Biggeri; Domenico Colucci; Nicola Doni; Vincenzo Valori
    Abstract: We study how commitment of entrepreneurs to corporate social responsibility practices might effectively improve the social impact of market competition: to this end we devised a market experiment in which profit maximization and socially-concerned behavior were both potential goals of producers. Our subject pool included two distinct types of students having different prosocial attitudes. The two types adopted significantly different strategies in the treatment group, where producers could contribute to a positive externality, whereas they behaved similarly in the control group, where the only objective was profit maximization. Subjects who were ex-ante more prosocial chose to produce with more focus on the positive externality than their counterparts. However, they failed to actually deliver a larger social impact, since that also required winning a large enough market share. We conclude that producers often commit to social responsibility, even though well-meaning conducts do not necessarily beget equally good outcomes.
    Keywords: social responsibility, market experiment, charitable giving, vertical differentiation
    JEL: C92 D22 D40 D64
    Date: 2021
  27. By: MMatthijs B. Punt; Jesse van Kollem; Jarno Hoekman; Koen Frenken
    Abstract: The disruptive impact of platform businesses on local economies has received much attention, but virtually none has been paid to the factors that impact platforms’ decisions about where to locate their activities. The novel, disruptive nature of platforms limits the relevance of traditional theories about location decisions. We argue that local institutional conditions and global legitimacy spillovers affect the choices of platform businesses about where to operate. We analyze the controversial case of ride-hailing platform Uber, an app-based service that matches uncertified chauffeurs with passengers. We find that Uber showed a preference for cities that promote competition and innovation. A spillover analysis shows how Uber leveraged their global pool of customers by choosing cities whose visitors were already familiar with Uber’s service. Our study illuminates the key role played by the brand’s mobile customer base as global carriers of legitimacy for Uber’s controversial innovation.
    Keywords: born global, customer following, institutions, legitimacy, platform economy, trusted community
    Date: 2021–06
  28. By: Ahmad Naimzada; Marina Pireddu
    Abstract: We extend the dynamic Cournot duopoly framework with emission charges on outputs by Mamada and Perrings (2020), which encompassed homogeneous products in its original formulation, to the more general case of differentiated goods, in order to highlight the richness in its static and dynamic outcomes. In the model each firm is taxed proportionally to its own emission only and charge functions are quadratic. Moreover, due to an adjustment capacity constraint, firms partially modify their output level toward the best response. Like it happened in Mamada and Perrings (2020), the only model steady state coincides with the Nash equilibrium. We find that the full efficacy of the environmental policy, which applies to an equilibrium that is globally asymptotically stable anytime it is admissible, is achieved in the case of independent goods, as well as with a low interdependence degree between goods in absolute value, independently of being substitutes or complements. On the other hand, when goods are substitutes and their interdependence degree is high, the considered environmental policy is still able to reduce pollution at the equilibrium, but the latter is stable just when the policy intensity degree is high enough. When instead goods are complements and their interdependence degree is high in absolute value, the considered environmental policy produces detrimental effects on the pollution level and the unique equilibrium is always unstable, when admissible. This highlights that, from a static viewpoint, even in the absence of free riding possibilities, the choice of the mechanism to implement has to be carefully pondered, according to the features of the considered economy.
    Keywords: dynamic Cournot duopoly, differentiated products, emission charges, pollution control, comparative statics, stability analysis.
    JEL: C62 D43 Q51 Q58
    Date: 2021–06
  29. By: Katsafados, Apostolos G.; Leledakis, George N.; Pyrgiotakis, Emmanouil G.; Androutsopoulos, Ion; Fergadiotis, Manos
    Abstract: This paper investigates the role of textual information in a U.S. bank merger prediction task. Our intuition behind this approach is that text could reduce bank opacity and allow us to understand better the strategic options of banking firms. We retrieve textual information from bank annual reports using a sample of 9,207 U.S. bank-year observations during the period 1994-2016. To predict bidders and targets, we use textual information along with financial variables as inputs to several machine learning models. Our key findings suggest that: (1) when textual information is used as a single type of input, the predictive accuracy of our models is similar, or even better, compared to the models using only financial variables as inputs, and (2) when we jointly use textual information and financial variables as inputs, the predictive accuracy of our models is substantially improved compared to models using a single type of input. Therefore, our findings highlight the importance of textual information in a bank merger prediction task.
    Keywords: Bank merger prediction; Textual analysis; Natural language processing; Machine learning
    JEL: C38 C45 G1 G2 G21 G3 G34
    Date: 2021–06–12
  30. By: Lee, Travis
    Abstract: In the large literature on issues related to competitive balance, studies tend to find no significant effect of structural changes. However in the National Hockey League, the introduction of unrestricted free agency in 1995 and a hard salary cap in 2005 might reasonably be expected to affect competitiveness. The present note measures between-season competitive balance as the correlation between the current and prior years’ winning percentages. The method is to regress winning percentage on lagged winning percentage and a set of controls. The finding is that competitive balance increased after unrestricted free agency and the salary cap were implemented.
    Keywords: National Hockey League, competitive balance, collective bargaining, unrestricted free agency, salary cap
    JEL: Z00
    Date: 2020–09–15
  31. By: Oberfield, Ezra; Rossi-Hansberg, Esteban; Sarte, Pierre-Daniel; Trachter, Nicholas
    Abstract: We study the number, size, and location of a firm's plants. The firm's decision balances the benefit of delivering goods and services to customers using multiple plants with the cost of setting up and managing these plants, and the potential for cannibalization that arises as their number increases. Modeling the decisions of heterogeneous firms in an economy with a vast number of widely distinct locations is complex because it involves a large combinatorial problem. Using insights from discrete geometry, we study a tractable limit case of this problem in which these forces operate at a local level. Our analysis delivers clear predictions on sorting across space. Productive firms place more plants in dense locations that exhibit high rents compared with less productive firms, and place fewer plants in markets with low density and low rents. Controlling for the number of plants, productive firms also operate larger plants than those operated by less productive firms in locations where both are present. We present evidence consistent with these and several other predictions using U.S. establishment-level panel data.
    JEL: D24 L25 R3
    Date: 2020–05

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