nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒07‒12
25 papers chosen by
Russell Pittman
United States Department of Justice

  1. Advance Selling in the Wake of Entry By Nadia Ceschi; Marc Möller
  2. Horizontal Mergers under Bertrand Competition By X. Henry Wang; Jingang Zhao
  3. Consumer Information and the Limits to Competition By Armstrong, Mark; Zhou, Jidong
  4. Patterns of Competitive Interaction By Armstrong, Mark; Vickers, John
  5. Price Competition Online: Branded Websites, Marketplace Selling and Price Competition By Oksana Loginova
  6. Product Differentiation and Equilibrium Price with Partial Product Search By Lin Liu; X. Henry Wang
  7. The collusive efficacy of competition clauses in Bertrand Markets with capacity-constrained retailers By Trost, Michael
  8. Entry regulation and competition evidence from retail and labor markets of pharmacists By Rostam-Afschar, Davud; Unsorg, Maximiliane
  9. Behavior-Based Personalized Pricing: When Firms Can Share Customer Information By Chongwoo Choe; Noriaki Matsushima; Mark J. Tremblay
  10. Downstream new product development and upstream process innovation By Akio Kawasaki; Tomomichi Mizuno; Kazuhiro Takauchi
  11. Promotion ban and heterogeneity in retail prices during the Great Lockdown By Hindriks, Jean; Madio, Leonardo; Serse, Valerio
  12. On the Foundations of Competitive Search Equilibrium with and without Market Makers By James Albrecht; Xiaoming Cai; Pieter A. Gautier; Susan Vroman
  13. Political Power and Market Power By Bo Cowgill; Andrea Prat; Tommaso Valletti
  14. The Effects of Government Licensing on E-commerce: Evidence from Alibaba By Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Chunxiao Li
  15. Measuring the evolution of competition and the impact of the financial reform in the Mexican banking sector, 2008-2019 By Enrique Bátiz-Zuk; José Luis Lara Sánchez
  16. Bank Runs, Bank Competition and Opacity By Toni Ahnert; David Martinez-Miera
  17. Estimating Consumer Inertia in Repeated Choices of Smartphones* By Lukasz Grzybowski; Ambre Nicolle
  18. Adapting Competition Law and Policy for Economic Development with Asian Illustrations By Majah-Leah V. Ravago; James A. Roumasset; Arsenio M. Balisacan
  19. The Equivalence Between Sequential and Simultaneous Firm Decisions By Francisco Silva; Samir Mamadehussene
  20. Shapes as Product Differentiation: Neural Network Embedding in the Analysis of Markets for Fonts By Sukjin Han; Eric Schulman; Kristen Grauman; Santhosh Ramakrishnan
  21. Price discrimination with inequity-averse consumers: A reinforcement learning approach By Buchali, Katrin
  22. Intermediary Commissions in a Regulated Market with Heterogeneous Customers By Bernardita Vial; Pilar Alcalde
  23. Green Technology Transitions with an Endogenous Market Structure By Bondarev, Anton; Dato, Prudence; Krysiak, Frank C.
  24. Achieving Scale Collectively By Vittorio Bassi; Raffaela Muoio; Tommaso Porzio; Ritwika Sen; Esau Tugume
  25. Hayek and the Texas blackout By Littlechild, S.; Kiesling, L.

  1. By: Nadia Ceschi; Marc Möller
    Abstract: This article provides a tractable model of inter-temporal price-discrimination by heterogeneous firms, imperative for our understanding of advance purchase markets in the wake of entry. The pricing schedule of a more efficient entrant is found to differ systematically from the pricing schedule of a more prominent incumbent. By diverting competition to a stage where consumers face uncertainty about their preferences, advance selling reduces prices while increasing the entrant’s market share and profitability relative to the incumbent. Policies that curtail the firms’ ability to sell in advance, although potentially beneficial for welfare, may have the adverse effects of consolidating an incumbent’s position and of reducing the consumers’ surplus.
    Keywords: Competition, Price Discrimination, Individual Demand Uncertainty, Advance Purchase Discounts.
    JEL: D43 D80 L13
    Date: 2021–06
  2. By: X. Henry Wang (Department of Economics, University of Missouri); Jingang Zhao (Economics Department, University of Saskatchewan)
    Abstract: This paper draws on recent results from the study of hybrid games and multi-product oligopolies to analyze horizontal mergers under Bertrand competition. We identify a set of linear Bertrand models in which a horizontal merger will reduce both the outsiders' profits and consumer surplus when the insiders' cost savings are sufficiently large. We also show that mergers in Bertrand models will normally increase the insiders' profits even without generating any cost-savings. Such results suggest that the increase in the insiders' profits may arise at the expense of rival firms and consumers, and thus raise new concerns about the anti-competitive effects of mergers under price competition.
    Keywords: Horizontal merger, Bertrand competition, consumer surplus
    JEL: D43 L13 L41
    Date: 2021
  3. By: Armstrong, Mark; Zhou, Jidong
    Abstract: This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures which induce pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal policy amplifies underlying product differentiation, thereby relaxing competition, while ensuring consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal policy dampens differentiation, which intensifies competition, but induces some consumers to buy their less-preferred product. Our analysis sheds light on the limits to competition when the information possessed by consumers can be designed flexibly.
    Keywords: Information design, Bertrand competition, product differentiation, online platforms
    JEL: D43 D47 D8 L13 L15
    Date: 2021–06
  4. By: Armstrong, Mark; Vickers, John
    Abstract: We explore patterns of price competition in an oligopoly where consumers vary in the set of firms they consider for their purchase and buy from the lowest-priced firm they consider. We study a pattern of consideration, termed "symmetric interactions", that generalises models used in existing work (duopoly, symmetric firms, and firms with independent reach). Within this class, equilibrium profits are proportional to a firm's reach, firms with a larger reach set higher average prices, and a reduction in the number of firms (either by exit or by merger) harms consumers. However, increased competition (either by entry of by increased consumer awareness) does not always benefit consumers. We go on to study patterns of consideration with asymmetric interactions. In situations with disjoint reach and with nested reach we find equilibria in which price competition is "duopolistic": only two firms compete within each price range. We characterize the contrasting equilibrium patterns of price competition for all patterns of consideration in the three-firm case.
    Keywords: Price competition, consideration sets, price dispersion, entry and merger.
    JEL: C72 D43 D83 L13 L4
    Date: 2021–05
  5. By: Oksana Loginova (Department of Economics, University of Missouri)
    Abstract: I consider a market for differentiated products with an online marketplace (the platform) and two types of firms. Marketplace firms sell through the platform. Branded firms sell to consumers directly and, if they choose so, through the platform. When a branded firm joins the platform, the firm expands its reach beyond its branded website/physical store(s) to consumers who visit the platform for all their purchases. The drawback is that the firm has to pay a referral fee for all sales on the platform, some of which are from its loyal consumers who would otherwise have purchased from the firm directly. I investigate the role of the firm composition in determining the equilibrium outcome. Interestingly, a higher fraction of branded firms translates into more firms on the platform and intense price competition. In the midst of the COVID-19 pandemic consumers who used to shop at physical stores turn to the platform. I show that if they do (do not) look into other products, more (fewer) branded firms will join the platform in equilibrium.
    Keywords: pricing, competition, online marketplace, platform, brands
    JEL: C72 D43 L11 L13 M31
    Date: 2021
  6. By: Lin Liu (College of Business, University of Central Florida); X. Henry Wang (Department of Economics, University of Missouri)
    Abstract: According to earlier economics literature, an increase in product differentiation increases firms' prices. Anderson and Renault (1999), however, show that when search cost is needed to evaluate any product, a U-shaped relationship exists between firms' equilibrium prices and product differentiation. Such a relationship emerges because an increase in product differentiation brings in a positive direct effect on price through increasing market power and a negative indirect effect through encouraging search across firms. In this paper, we revisit this important issue with the recent development of partial-depth search, which allows consumers to evaluate a subset of product attributes. We use a simultaneous search model, and our results show that a U-shaped relationship still emerges in equilibrium when search depth is fixed and dictated by the search environment but vanishes when depth is chosen by consumers. Specifically, in the latter eventuality with endogenous depth, an increase in product differentiation creates a second indirect effect which is positive on price through a greater search depth: a higher differentiation increases the expected search benefit and thus induces consumers to search products at a greater depth, which allows them to better differentiate products and thus softens competition. This new positive indirect effect combined with the conventional positive direct effect leads firms' equilibrium prices to increase with product differentiation.
    Keywords: Search, Partial-search depth, Price, Product differentiation, Competition
    JEL: D43 D83 L13
    Date: 2021
  7. By: Trost, Michael
    Abstract: We study the collusive efficacy of competition clauses (CC) such as the meeting competition clause (MCC) and the beating competition clauses (BCC) in a general framework. In contrast to previous theoretical studies, we allow for repeated interaction among the retailers and heterogeneity in their sales capacities. Besides that, the selection of the form of the CC is endogeneized. The retailers choose among a wide range of CC types - including the conventional ones such as the MCC and the BCCs with lump sum refunds. Several common statements about the collusive (in)efficacy of CCs cannot be upheld in our framework. We show that in the absence of hassle costs, MCCs might induce collusion in homogeneous markets even if they are adopted only by few retailers. If hassle and implementation costs are mild, collusion can be enforced by BCCs with lump sum refunds. Remarkably, these fundings hold for any reasonable rationing rule. However, a complete specification of all collusive CCs is in general impossible without any further reference to the underlying rationing rule.
    Keywords: Competition clauses,price-matching guarantee,price-beating guarantee,anti-competitivepractice,capacity-constrained oligopoly
    JEL: L11 L13 L41
    Date: 2021
  8. 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 a liated 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 hig€h managerial e ciency 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 a liated 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: regulation,acquisitions,entry,market concentration,wages,employment,pharmacists
    JEL: L4 L5 L2 J44 J23
    Date: 2021
  9. By: Chongwoo Choe; Noriaki Matsushima; Mark J. Tremblay
    Abstract: We study a model of behavior-based price discrimination where asymmetric firms can agree to share customer information that can be used for personalized pricing. We show that information sharing is individually rational for firms as it softens upfront competition when information is gathered, consumers are worse off as a result, but total surplus can increase thanks to the improved quality of matching between firms and consumers. These findings are robust to firm asymmetries and varying discount factors for consumers and firms.
    Date: 2020–03
  10. By: Akio Kawasaki (Faculty of Economics, Oita University); Tomomichi Mizuno (Graduate School of Economics, Kobe University); Kazuhiro Takauchi (Faculty of Business and Commerce, Kansai University)
    Abstract: It is well known that when a rival introduces a new product, a firm's response is affected by conflicting factors. For example, a certain factor stimulates firms to introduce their new products in a quick and retaliatory manner if their rivals introduce new products. Based on this fact, we build a simple vertical relation model: two downstream firms decide whether to introduce a horizontally differentiated new product, whereas a single upstream supplier invests in cost-reducing research and development (R&D). We show that the equilibrium of downstream innovation depends on upstream efficiency. If upstream R&D efficiency is high, downstream innovation is a strategic complement; this corresponds to the scenario in which downstream firms act in a retaliatory manner against their rivals introducing new products. Conversely, if upstream efficiency is low, downstream innovation is a strategic substitute: this implies that downstream firms behave passively when their rivals introduce new products. We also find that upstream R&D efficiency works similarly to the R&D spillover parameter in the d'Aspremont and Jacquemin's (1988) model. When R&D spillover is high (low), the firm's innovation behavior is a strategic complement (substitute). Hence, we offer a new insight into the innovation literature.
    Date: 2021–06
  11. By: Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Madio, Leonardo; Serse, Valerio (Université catholique de Louvain, LIDAM/CORE, Belgium)
    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: 2021–05–01
  12. By: James Albrecht; Xiaoming Cai; Pieter A. Gautier; Susan Vroman
    Abstract: The literature offers two foundations for competitive search equilibrium, a Nash approach and a market-maker approach. When each buyer visits only one seller (or each worker makes only one job application), the two approaches are equivalent. However, when each buyer visits multiple sellers, this equivalence can break down. Our paper analyzes competitive search equilibrium with simultaneous search using the two approaches. We consider four cases defined by (i) the surplus structure (are the goods substitutes or complements?) and (ii) the mechanism space (do sellers post fees or prices?). With fees, the two approaches yield the same constrained efficient equilib-rium. With prices, the equilibrium allocation is the same using both approaches if the goods are complements, but is not constrained efficient. In the case in which only prices are posted and the goods are substitutes, the equilibrium allocations from the two approaches are different.
    Keywords: multiple applications, competitive search, market makers, efficiency
    JEL: C78 D44 D83
    Date: 2021
  13. By: Bo Cowgill; Andrea Prat; Tommaso Valletti
    Abstract: We study the link between lobbying and industrial concentration. Using data for the past 20 years in the US, we show how lobbying increases when an industry becomes more concentrated, using mergers as shocks to concentration. This holds true both for expenditures on federal lobbying as well as expenditures on campaign contributions. Results are in line with the predictions of a model where lobbying is akin to a public good for incumbents, and thus typically underprovided, while a merger solves the coordination problem.
    Date: 2021–06
  14. By: Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Chunxiao Li
    Abstract: Using proprietary data from Alibaba, we examine how the 2015 Food Safety Law (FSL) affects e commerce in China. The FSL requires most food sellers on e-commerce platforms to obtain a valid online license for retail food handling. Because the FSL was rolled out progressively, we have a rare opportunity to observe a gradual transition from voluntary certification to partial licensing and mandatory licensing. Data summary shows that, conditional on sellers with valid licensing information, those that had a better online reputation and more online food sales before the FSL tend to display their FSL license earlier on the platform, and buyers are more willing to transact with a seller after she displays her FSL license. This positive response is stronger for younger and less reputable sellers, suggesting that the license provides useful information in addition to what consumers observe on the platform. To identify the causal impact of the FSL, we compare food and non-food categories via synthetic control matching. We find that the average quality of surviving food sellers has improved after partial and mandatory licensing, partly because those who are unwilling to obtain the FSL license must exit the platform. Despite an increase in seller concentration, the platform's gross merchandise value in the food category did not decline post FSL, nor did the average sales price increase significantly one year into the full enforcement of the FSL. This suggests that the FSL does not hamper the long-run performance of the regulated market, probably because it has enhanced seller quality and market transparency on the platform.
    Keywords: Market structure and pricing; Recent economic and financial developments
    JEL: D82 K23 L5 L81
    Date: 2021–07
  15. By: Enrique Bátiz-Zuk; José Luis Lara Sánchez
    Abstract: This paper analyzes the monthly evolution of bank competition in Mexico from 2008 to 2019 using different measures. Subsequently, we analyze whether the 2014 financial reform had an effect on some of our competition measures. We use ordinary and quantile regression techniques and Markov switching models to identify changes in regimes. We find partial empirical evidence supporting the idea that the reform had a positive average effect and increased banks competition intensity during a few years. However, we also document heterogeneity as some large banks benefited from an increase in their market power. We perform several robustness tests and report that our measures lead to values that are congruent and similar to those available in the literature. The main policy lesson of our research is that regulators could benefit from the monitoring of competition evolution using a finer time frequency.
    JEL: D40 G21 G28 L10 L11 L50
    Date: 2021–06
  16. By: Toni Ahnert; David Martinez-Miera
    Abstract: We model the opacity and deposit rate choices of banks that imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. We show how shocks that increase bank competition or bank transparency increase deposit rates, costly withdrawals, and thus bank fragility. Therefore, perfect competition is not socially optimal. We also propose a theory of bank opacity. The cost of opacity is more withdrawals from a solvent bank, lowering bank profits. The benefit of opacity is to deter the entry of a competitor, increasing future bank profits. The excessive opacity of incumbent banks rationalizes transparency regulation.
    Keywords: Financial institutions; Financial markets; Financial stability; Financial system regulation and policies; Wholesale funding
    JEL: G21
    Date: 2021–06
  17. By: 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 - CNRS - Centre National de la Recherche Scientifique - X - École polytechnique - Télécom ParisTech - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres, IP Paris - Institut Polytechnique de Paris); Ambre Nicolle (ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz])
    Abstract: For a sample of 9,799 subscribers to a single mobile operator, we observe switching between mobile handsets between July 2011 and December 2014. We estimate a discrete choice model in which we account for disutility from switching to different operating systems and brands. Our estimation results indicate the presence of significant inertia in the choice of operating systems and brands. We use our model to simulate market shares in the absence of switching costs and conclude that the market shares of Android and smaller operating systems would increase at the expense of the market share of iOS in such context.
    Keywords: Android,iOS,Mixed Logit,Switching Costs,Consumer Inertia,Smartphones
    Date: 2021
  18. By: Majah-Leah V. Ravago (Department of Economics, Ateneo de Manila University); James A. Roumasset (Economics Department, University of Hawaii); Arsenio M. Balisacan (Philippine Competition Commission)
    Abstract: Do the needs of countries in different economic environments and at various stages of development warrant different policies? In the pursuit of economic development and consumer welfare, competition policy should curb rent-seeking and promote market efficiency without interfering with the extra-market institutions for the dynamic promotion of specialization, innovation, and investment coordination. This requires the coordination of competition policy with other economic roles of government including trade, industrial, and infrastructure policies. We investigate the impact of adoption of competition law on long-term economic growth using cross-country data from 1975-2015. Countries may choose to adopt – or not adopt – competition law depending on their circumstances, including level of economic development, institutions, and geography. Considering endogeneity and self-selection, we employ an endogenous switching regression allowing for the interdependence of economic growth and adoption of competition law. Our analysis shows that adoption increased the growth rates in adopting countries but would have decreased growth in non-adopting countries. This suggest that countries should not be pressured to prematurely adopt competition law but a limited international or regional agreement such as harmonization of policies may instead be pursued. In addition to correcting the abuses of anti-competitive behavior, competition policy should be designed to promote innovation and productivity growth and be well-coordinated with trade and domestic policies. We review these arguments focusing on Asian countries. The cases of Korea, Thailand, and the Philippines capture the characteristics of the law and authorities at various stages of maturity.
    Keywords: Competition policy, antitrust, economic development, economic growth, Asia
    JEL: L40 L51 L52 K21 O57 O53
    Date: 2021–06
  19. By: Francisco Silva; Samir Mamadehussene
    Abstract: When ?rms compete by choosing two strategic variables (e.g. quality and price), the timing under which ?rms make their decisions (simultaneous vs sequential choice of the strategic variables) plays a critical role, as the equilibrium may be drastically di?erent depending on the timing that is assumed. We rely on the marketing and psychology literatures that provide well-established evidence that consumers do not consider all products in a market, i.e. consumers form “consideration sets”. Under this assumption, we ?nd that in markets where (i) ?rms’ strategies do not in?uence the consideration set formation, and (ii) ?rms are su?ciently uncertain regarding the rivals that each consumer considers, the equilibrium of the game in which ?rms choose the strategic variables sequentially is close to the equilibrium of the simultaneous game. Moreover, the equilibrium of the simultaneous game does not depend on whether or not consumers consider all available alternatives. Therefore, we argue that the analysis of these markets can be performed with standard models provided that the simultaneous timing is used (even if ?rms make their decisions sequentially).
    Date: 2020
  20. By: Sukjin Han; Eric Schulman; Kristen Grauman; Santhosh Ramakrishnan
    Abstract: Many differentiated products have key attributes that are unstructured and thus high-dimensional (e.g., design, text). Instead of treating unstructured attributes as unobservables in economic models, quantifying them can be important to answer interesting economic questions. To propose an analytical framework for this type of products, this paper considers one of the simplest design products-fonts-and investigates merger and product differentiation using an original dataset from the world's largest online marketplace for fonts. We quantify font shapes by constructing embeddings from a deep convolutional neural network. Each embedding maps a font's shape onto a low-dimensional vector. In the resulting product space, designers are assumed to engage in Hotelling-type spatial competition. From the image embeddings, we construct two alternative measures that capture the degree of design differentiation. We then study the causal e ects of a merger on the merging firm's creative decisions using the constructed measures in a synthetic control method. We find that the merger causes the merging firm to increase the visual variety of font design. Notably, such effects are not captured when using traditional measures for product offerings (e.g., specifications and the number of products) constructed from structured data.
    Date: 2021–07–08
  21. By: Buchali, Katrin
    Abstract: With the advent of big data, unique opportunities arise for data collection and analysis and thus for personalized pricing. We simulate a self-learning algorithm setting personalized prices based on additional information about consumer sensitivities in order to analyze market outcomes for consumers who have a preference for fair, equitable outcomes. For this purpose, we compare a situation that does not consider fairness to a situation in which we allow for inequity-averse consumers. We show that the algorithm learns to charge different, revenue-maximizing prices and simultaneously increase fairness in terms of a more homogeneous distribution of prices.
    Keywords: pricing algorithm,reinforcement learning,Q-learning,price discrimi-nation,fairness,inequity
    JEL: D63 D91 L12
    Date: 2021
  22. By: Bernardita Vial; Pilar Alcalde
    Abstract: Several studies predict that in markets with intermediation, changes in regulation intended to benefit consumers may have negative consequences for welfare when firms set commissions. We argue that, even if commissions are exogenous, transparent, and paid by customers, policies to diminish intermediaries’ bias may have nontrivial effects on equilibrium outcomes. We provide evidence from a highly regulated retirement market by examining two subsequent policy changesthat reduced the commission differential between products. Some of the patterns of the demand side are consistent with biased advice, but others are less intuitive. Our model helps understand these patterns and also predicts the firms’ equilibrium reaction to commission levels. We show that, in many cases, prices move in the opposite direction to the intermediaries’ bias: when intermediaries are cheaper and less biased, more customers follow their advice, making demand less elastic. This change induces firms to increase prices, producing nontrivial effects on welfare.
    Date: 2020
  23. By: Bondarev, Anton; Dato, Prudence (University of Basel); Krysiak, Frank C.
    Abstract: The transition to a green technology is central to environmental policy. During such a transition, technology and market structure often change simultaneously, as firms developing the new technology enter the market of incumbents supplying the old one. This leads to the questions how technological change and market changes interact and at which stage of the technology transition incumbents or newcomers are more likely to drive the technology transition. We advance a model that describes this co-evolution of technology and market. Our results show that this co-evolution induces substantial market failures. The transition might be blocked by an incumbent protecting the old technology and, even if it is not, emissions decline less rapidly than in the social optimum. Furthermore, incentives change during the transition: At the beginning, entrants can be crucial to start the transition, but, later on, the incumbent will usually become the driving force. When this switch occurs depends on the propensity of the new technology to attract new customers and on the possible speed of technological development. Our results have implications for environmental policy, as they indicate that supporting small new- comers might be desirable at the beginning but can be detrimental at later stages of a technology transition.
    Keywords: Green Technology, Innovation, Imperfect Competition, Endogenous Market Structure, Technology Transition, Emissions, Climate Change
    JEL: C60 L10 O31 Q54 Q55
    Date: 2021–04
  24. By: Vittorio Bassi; Raffaela Muoio; Tommaso Porzio; Ritwika Sen; Esau Tugume
    Abstract: This paper argues that rental market interactions allow small firms to increase their effective scale and mechanize production, even when each individual firm would be too small to invest in expensive machines. We conduct a novel survey of manufacturing firms in Uganda, which uncovers an active rental market for large machines between small firms in informal clusters. We then build an equilibrium model of firm behavior and estimate it with our data. Our results show that the rental market is quantitatively important for mechanization and productivity since it provides a workaround for other market imperfections that keep firms small. We also show that the rental market shapes the effectiveness of policies to foster mechanization, such as subsidies to purchase machines.
    JEL: E0 O1
    Date: 2021–06
  25. By: Littlechild, S.; Kiesling, L.
    Abstract: Was the Texas blackout a market failure or regulatory failure? The economist Hayek has been adduced in support of both views. Hayek would have approved the competitive Texas system, including ERCOT. His likely view on the scarcity pricing framework is less clear, and the recent regulatory implementation of the “circuit breaker†was problematic. There is now a need to revise the scarcity pricing framework in the light of recent events, and to reflect ever-changing market conditions.
    Keywords: Hayek, Texas blackout, scarcity pricing, retail electricity competition
    JEL: L94 L51 K23 D47 D82
    Date: 2021–06–24

This nep-com issue is ©2021 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.