nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒07‒26
twenty papers chosen by
Russell Pittman
United States Department of Justice

  1. Behavior-Based Price Discrimination with endogenous data collection and strategic customer targeting By Antoine Dubus
  2. The Evolution of Market Power in the US Auto Industry By Paul L. E. Grieco; Charles Murry; Ali Yurukoglu
  3. A Change in Direction for Merger Control in Ireland: An Ex Ante/Ex Post Case Study Evaluation By Gorecki, Paul
  4. The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets By Kevin R. Williams
  5. Switching Costs in Competitive Health Insurance Markets: The Role of Insurers’ Pricing Strategies By Lamiraud, Karine; Stadelmann, Pierre
  6. Laws of Concentration and Centralization of Capital: A Modern Review By Dutta, Sourish
  7. Fairness and competition in a bilateral matching market By Bester, Helmut
  8. Selling and Saving Energy: Energy Efficiency Obligations in Liberalized Energy Markets By Louis-Gaëtan Giraudet; Matthieu Glachant; Jean-Philippe Nicolaï
  9. Empirical Framework for Cournot Oligopoly with Private Information By Gaurab Aryal; Federico Zincenko
  10. The Optimality of Upgrade Pricing By Dirk Bergemann; Alessandro Bonatti; Andreas Haupt; Alex Smolin
  11. Growing like Google: Endogenous Growth with Global Network Externalities By Cordoba, Juan Carlos; He, Sicheng
  12. Playlisting Favorites: Measuring Platform Bias in the Music Industry By Luis Aguiar; Joel Waldfogel; Sarah B. Waldfogel
  13. The impact of trade on R&D: Evidence from UK firms By S, Minkyu.
  14. Competition universalism: Its historical origins and timely alternatives By Claudius Graebner; Stephan Puehringer
  15. Oligopoly Banking, Risky Investment, and Monetary Policy By Altermatt, Lukas; Wang, Zijian
  16. Early “Frictions” in the Transition towards Cashless Payments By Batiz-Lazo, Bernardo; Buckley, Tom
  17. Public Procurement Efficiency As Perceived By Market Participants: The Case Of Russia By Olga Balaeva; Yuliya Rodionova; Andrei A. Yakovlev; Andrey Tkachenko
  18. The Behavior of the Aggregate U.S. Wage Markdown By Hashmat Khan; Konstantinos Metaxoglou
  19. The Effect of Board Overlap on Firm Behavior By Heng Geng; Harald Hau; Roni Michaely; Binh Nguyen
  20. Does a Spoonful of Sugar Levy Help the Calories Go Down? An Analysis of the UK Soft Drinks Industry Levy By Dickson, Alex; Gehrsitz, Markus; Kemp, Jonathan

  1. By: Antoine Dubus (Télécom ParisTech)
    Abstract: This article analyzes behavior-based price discrimination in a two-period competition framework where firms endogenously collect consumer data and strategically target past customers. When firms strategically target customers: (i) they price-discriminate high valuation customers; (ii) they charge a homogeneous price to low valuation customers, even when they have precise information on them. Strategic targeting questions the main classical results of the literature: in a symmetric equilibrium firms do not compete for customer information acquisition and there is no consumer poaching. Sufficiently asymmetric data collection costs can restore previous results of the literature, and we discuss their implications for firms' data strategies and competition in digital markets.
    Keywords: Behavior-based price discrimination,Strategic Targeting,Data collection
    Date: 2021–06–24
  2. By: Paul L. E. Grieco; Charles Murry; Ali Yurukoglu
    Abstract: We construct measures of industry performance and welfare in the U.S. car and light truck market from 1980-2018. We estimate a differentiated products demand model for this market using product level data on market shares, prices, and product characteristics, and consumer level data on demographics, purchases, and stated second choices. We estimate marginal costs under the conduct assumption of Nash-Bertrand pricing. We relate trends in consumer welfare and markups to industry trends in market structure and the composition of products, like the rise of import competition, the proliferation of SUV's, and changes in vehicle characteristics. We find that although prices rose over time, concentration and market power decreased substantially. Consumer welfare increased over time due to improving product quality and falling marginal costs. The fraction of total surplus accruing to consumers also increased.
    JEL: L1 L40 L62
    Date: 2021–07
  3. By: Gorecki, Paul
    Abstract: Since 2017 Ireland’s competition agency, the Competition and Consumer Protection Commission (CCPC), has cleared two merger to monopoly transactions, albeit both subject to the divestment of selected assets to an entrant. One of these transactions was Kantar Media’s 2017 acquisition of Newsaccess. Prior to 2017 the CCPC had prohibited mergers to monopoly. Does this apparent relaxation mark a sea change in CCPC merger policy? Taking the Kantar Media/Newsaccess merger as a case study, the paper explores this question. The paper finds that there has been a relaxation of merger enforcement by the CCPC. On an ex ante basis the Kantar Media/Newsaccess merger should have been prohibited or the remedy substantially strengthened. However, ex post, due to business difficulties of the merger entity consequent upon a major pre-merger restructuring, the market has self-corrected through successful entry facilitated in large part by these business difficulties. Such rapid self-correction in restoring competition is very much the exception rather than the rule. If it were otherwise there would be no need for merger control.
    Keywords: Ireland; merger control; structural remedies; substantial lessening of competition; ex post evaluation; Competition Act 2002.
    JEL: D22 K21 L41
    Date: 2021–07–11
  4. By: Kevin R. Williams
    Abstract: Airfares fluctuate due to demand shocks and intertemporal variation in willingness to pay. I estimate a model of dynamic airline pricing accounting for both sources of price adjustments using novel flight-level data. I use the model estimates to evaluate the welfare effects of dynamic airline pricing. Relative to uniform pricing, dynamic pricing benefits early-arriving, leisure consumers at the expense of late-arriving, business travelers. Although dynamic pricing ensures seat availability for business travelers, these consumers are then charged higher prices. When aggregated over markets, welfare is higher under dynamic pricing than under uniform pricing. The directionality of the welfare effect at the market level depends on whether dynamic price adjustments are mainly driven by demand shocks or by changes in the overall demand elasticity.
    JEL: L11 L12 L93
    Date: 2021–07
  5. By: Lamiraud, Karine (ESSEC Research Center, ESSEC Business School); Stadelmann, Pierre (Service de la santé publique, Etat de Vaud)
    Abstract: Our article deals with pricing strategies in Swiss health insurance markets and focuses on the relationship between basic and supplementary insurance. We analyzed how firms’ pricing strategies (i.e., pricing of basic and supplementary products) can create switching costs in basic health insurance markets, thereby preventing competition in basic insurance from working properly. More specifically, using unique market and survey data, we investigated whether firms use bundling strategies or supplementary products as low-price products to attract and retain basic insurance consumers. To our knowledge, this is the first paper to analyze these pricing strategies in the context of insurance/health insurance. We found no evidence of bundling in the Swiss setting. We did however observe that firms used low-price supplementary products that contributed to lock in consumers. A majority of firms offered at least one of such product at a low price. None offered low-price products in both basic and supplementary markets. Low-price insurance products differed across firms. When buying a lowprice supplementary product, consumers always bought their basic contract from the same firm. Furthermore, those who opted for low-price supplementary products were less likely to declare an intention to switch basic insurance firms in the near future. This result was true for all risk category levels.
    Keywords: Managed Competition; Swiss Health Care Systems; Pricing; Consumer Inertia; Switching Costs; Supplementary Insurance; low-price supplementary product; Bundling
    JEL: I10
    Date: 2020–05–13
  6. By: Dutta, Sourish
    Abstract: Though the basic (the late 1860s) Marxian model, under the capitalist mode of production, assumes perfect competitive or contestable ambience within the market by means of a large number of trivial firms in each industry, Marx was cognizant of the growing size of firms, the subsequent dwindling of competition, and the evolution of monopolistic or anti-competitive power. Hence, the capital has the inclination for concentration and centralization in the hands of the richest and big capitalists. Actually, the concentration and centralization of capital are two capital accumulation (or self-expansion of capital) techniques. Such concentration and centralization of capital can be clearly detected at this modern time, especially in the USA, in the enormous occurrences of mergers, acquisitions and conglomerates. In this assignment, henceforth, I will be trying to cultivate an analytical discussion about these two interlinked concepts and their implications and repercussions in this modern world of capitalism.
    Date: 2021–06–26
  7. By: Bester, Helmut
    Abstract: This paper analyzes fairness and bargaining in a dynamic bilateral matching market. Traders from both sides of the market are pairwise matched to share the gains from trade. The bargaining outcome depends on the traders' fairness attitudes. In equilibrium fairness matters because of market frictions. But, when these frictions become negligible, the equilibrium approaches theWalrasian competitive equilibrium, independently of the traders' inequity aversion. Fairness may yield a Pareto improvement; but also the contrary is possible. Overall, the market implications of fairness are very different from its effects in isolated bilateral bargaining.
    Keywords: Fairness,inequity aversion,bargaining,ultimatum game,matching market,search costs,competitive equilibrium
    JEL: C78 D5 D6 D83 D9
    Date: 2021
  8. By: Louis-Gaëtan Giraudet (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique); Matthieu Glachant (CERNA i3 - Centre d'économie industrielle i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique); Jean-Philippe Nicolaï (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich])
    Abstract: In Europe, energy efficiency obligations are imposed on energy retailers competing in liberalized energy markets. They comply by subsidizing energy efficiency investments made by energy end-users within or outside their customer base. We develop a model describing how competition in the energy market affects compliance strategies. We find that, instead of selecting the most cost-effective investments options, firms may either target their most elastic customers, which enables them to increase their retail price, or their competitor's customers, which protects their sales. Allowing firms to trade obligations can restore cost-effectiveness, but reduces consumer surplus. Overall, the degree of flexibility that should be incorporated into such programs crucially depends on the degree of heterogeneity across investment costs and the relative weights governments assign to cost-effectiveness and consumer surplus.
    Keywords: Energy efficiency,Imperfect competition,Information asymmetry,Internal and external compliance.
    Date: 2020–09–01
  9. By: Gaurab Aryal; Federico Zincenko
    Abstract: We propose an empirical framework for Cournot oligopoly with private information about costs. First, considering a linear demand with a random intercept, we characterize the Bayesian Cournot-Nash equilibrium and determine its testable implications. Then we establish nonparametric identification of the joint distribution of demand and technology shock and firm-specific cost distributions. Finally, we propose a likelihood-based estimation method and apply it to the global crude oil market. Using counterfactuals, we also quantify the effect of firms sharing information about their costs on consumer welfare. We also extend the model to include either firm-specific conduct parameters, nonlinear demand, or selective entry.
    Date: 2021–06
  10. By: Dirk Bergemann; Alessandro Bonatti; Andreas Haupt; Alex Smolin
    Abstract: We consider a multiproduct monopoly pricing model. We provide sufficient conditions under which the optimal mechanism can be implemented via upgrade pricing -- a menu of product bundles that are nested in the strong set order. Our approach exploits duality methods to identify conditions on the distribution of consumer types under which (a) each product is purchased by the same set of buyers as under separate monopoly pricing (though the transfers can be different), and (b) these sets are nested. We exhibit two distinct sets of sufficient conditions. The first set of conditions is given by a weak version of monotonicity of types and virtual values, while maintaining a regularity assumption, i.e., that the product-by-product revenue curves are single-peaked. The second set of conditions establishes the optimality of upgrade pricing for type spaces with monotone marginal rates of substitution (MRS) -- the relative preference ratios for any two products are monotone across types. The monotone MRS condition allows us to relax the earlier regularity assumption. Under both sets of conditions, we fully characterize the product bundles and prices that form the optimal upgrade pricing menu. Finally, we show that, if the consumer's types are monotone, the seller can equivalently post a vector of single-item prices: upgrade pricing and separate pricing are equivalent.
    Date: 2021–07
  11. By: Cordoba, Juan Carlos; He, Sicheng
    Abstract: We study endogenous growth in the presence of domestic and international network externalities. In our model, network externalities provide natural protection to first movers and incentivize disruptive innovations without the need for patent protection. Domestic and global growth depends on the extent of network externalities, international compatibility costs, and anti-trust policies. We find that traditional anti-trust policies may lead to unintended outcomes. Policies such as banning price discrimination or collusion may reduce economic growth. In particular, price discrimination and collusion could increase economic growth when network externalities are large in relation to compatibility costs.
    Date: 2021–07–16
  12. By: Luis Aguiar; Joel Waldfogel; Sarah B. Waldfogel
    Abstract: Platforms are growing increasingly powerful, raising questions about whether their power might be exercised with bias. While bias is inherently difficult to measure, we identify a context within the music industry that is amenable to bias testing. Our approach requires ex ante platform assessments of commercial promise - such as the rank order in which products are presented - along with information on eventual product success. A platform is biased against a product type if the type attains greater success, conditional on ex ante assessment. Theoretical considerations and voiced industry concerns suggest the possibility of platform biases in favor of major record labels, and industry participants also point to bias against women. Using data on Spotify curators' rank of songs on New Music Friday playlists in 2017, we find that Spotify's New Music Friday rankings favor independent-label music, along with some evidence of bias in favor of music by women. Despite challenges that independent-label artists and women face in the music industry, Spotify's New Music curation appears to favor them.
    JEL: K21 L12 L82
    Date: 2021–07
  13. By: S, Minkyu.
    Abstract: How does firm innovation respond to changing trade environments? This paper investigates this question using the matched administrative datasets for UK firms' R&D expenditures and their trade exposures between 2002 and 2011. I find a strong adverse impact of import competition from China on UK firms' R&D, which is supportive of the `Schumpeterian hypothesis'. There is no evidence that the improved access to Chinese inputs for individual firms offset this negative competition channel. Increased export demand, by contrast, significantly stimulates firms' innovation efforts. Our results also reveal heterogeneity in the R&D responses depending on the firms' initial conditions: First, more productive British firms raise their R&D spending by much more in response to increased foreign demand. Second, exporters reduce R&D by less than non-exporters in the face of the rising Chinese competition. These findings together imply that innovation of purely domestic and less profitable firms was most hurt by globalization, leading to a widening productivity gap across firms.
    Keywords: R&D, Chinese competition, Firm-level trade
    JEL: F14 F60 O31
    Date: 2021–07–08
  14. By: Claudius Graebner (Institute for Socio-Economics, University of Duisburg-Essen, Germany; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria; ZOE Institute for future-fit Economies, Bonn, Germany); Stephan Puehringer (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: This paper discusses the actual relevance and historical origins or ‘competition universalism’. In economics, competition is conceptualized as a nearly ubiquitous element of societies, or, at least, used to study a wide array of social and political relations, including competition between firms for market shares, between individuals for prestige, countries for resources, athletes for victory, or politicians for influence. This trend towards ‘competition universalism’ was facilitated by the increasing dominance of an economic approach that places less weight on descriptive accuracy and a consideration so socio-historical specificities, but instead focuses on the development of general and tractable mathematical models. Thereby, the paper links the trend to competition universalism to developments in the epistemological orientation in economics. It first explicates the historical genesis of competition universalism, then discusses the extent it has reached today, and concludes with critical remarks and the proposition of an alternative, more particularist approach to study competition.
    Keywords: competition universalism; economic and social sphere; economic imperialism; economic methodology
    Date: 2021–05
  15. By: Altermatt, Lukas; Wang, Zijian
    Abstract: Oligopolistic competition in the banking sector and risk in the real economy are important characteristics of developed economies, but have so far mostly been abstracted from in monetary economics. We build a dynamic general equilibrium model of monetary policy transmission that incorporates both of these features and document that including them leads to important insights in our understanding of the transmission mechanism. Various equilibrium cases can occur, and policies have differing effects in these cases. We calibrate the model to the U.S. economy in 2016-2019 in order to study how changes in the degree of banking competition or the policy rate would have affected equilibrium outcomes. We find that doubling banking competition would have increased welfare by 1.02\%, but at the cost of increasing the probability of bank default from 0.02\% to 0.44\%. We further find that the policy rate was set optimally to minimize the probability of bank default, but that a decrease in the policy rate by 1pp would have increased welfare by 0.40\%. We also show that bank profits are increasing in the policy rate, in particular when interest rates are low. Thus, a 1pp reduction in the policy rate would have reduced profits per bank by 35.5\% in our calibrated economy. Finally, we document that monetary policy pass-through is incomplete under imperfect competition in the banking sector, as a change in the policy rate by 1pp leads to a change of only 0.92pp in the loan rate, while pass-through to the deposit rate is nearly complete for rate increases, but almost zero for rate reductions due to the zero-lower bound.
    Keywords: Oligopoly competition, Risky investment, Monetary policy, Financial intermediation
    Date: 2021–07–13
  16. By: Batiz-Lazo, Bernardo; Buckley, Tom
    Abstract: In this article we describe the trials and tribulations in the early stages to introduce cashless retail payments in the USA. We compare efforts by financial service firms and retailers. We then document the ephemeral life of one of these innovations, colloquially known as “Hinky Dinky”. We conclude with a brief reflection on the lessons these historical developments offer to the future of digital payments.
    Keywords: cashless, payments, innovation, USA, Hinky Dinky
    JEL: E42 L81 N2 N8
    Date: 2021–07
  17. By: Olga Balaeva (National Research University Higher School of Economics); Yuliya Rodionova (National Research University Higher School of Economics); Andrei A. Yakovlev (National Research University Higher School of Economics); Andrey Tkachenko (National Research University Higher School of Economics)
    Abstract: This paper studies the indicators of public procurement efficiency as perceived by public buyers and suppliers and what barriers must be overcome for them to consider public procurement efficient. The analysis, based on an online survey of Russian procurers and suppliers in 2020, reveals that, despite the importance of fighting corruption and increasing competition, most procurers and suppliers consider the supply of high-quality goods and timely contract execution the most important criteria. The natural experiment with COVID-19 has mitigated the rigidity of the regulation problem but exacerbated the ambiguity problem. During the pandemic, public procurement contract execution worsened. To improve procurement efficiency, the regulator should clearly specify its requirements and consider the main participants’ interests.
    Keywords: public procurement; efficiency; regulation; COVID-19; suppliers; procurers, Russia.
    JEL: H57
    Date: 2021
  18. By: Hashmat Khan (Department of Economics, Carleton University); Konstantinos Metaxoglou (Department of Economics, Carleton University)
    Abstract: We estimate the aggregate U.S. wage markdown for 1987–2018 using the KLEMS data and the approach in Hershbein, Macaluso and Yeh (2020). Building on the existing literature, our markdown estimates depend on output elasticities of inputs and their shares of gross output. We identify four salient features of the markdown. First, the markdown is above 1, implying an average wage below the competitive level. Second, the markdown has increased over time, mainly during the 2000–2015 period. Third, the variation of the markdown is mostly driven by the input shares and not the output elasticities. Fourth, the markdown is strongly procyclical, implying a larger deviation of wages from their competitive levels during expansions.
    Keywords: Employer Market Power, Monopsony, Markdowns, Business Cycles
    JEL: E24 E32
    Date: 2021–07–06
  19. By: Heng Geng (Victoria University of Wellington); Harald Hau (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)); Roni Michaely (The University of Hong Kong; ECGI); Binh Nguyen (Victoria University of Wellington - Victoria University of Wellington, Students)
    Abstract: The staggered introduction of Corporate Opportunity Waivers (COWs) in nine US states since 2000 reduced legal risk to directors serving on multiple boards and increased intra-industry board overlap in firms characterized by intensive R&D activity. More board overlap results in a higher return on assets, higher profit margins, and higher sales revenues in spite of reduced factor inputs. The higher profitability is observed equally for new board overlap with and without own-board alteration, which rules out improved board quality as an explanation. Instead, higher profitability appears to originate in reduced firm rivalry measured by less innovation activity and increased product market segmentation rather than the synergetic exploitation of more and better corporate opportunities.
    Keywords: Board interlock, corporate opportunity waivers, firm coordination
    Date: 2021–07
  20. By: Dickson, Alex (University of Strathclyde); Gehrsitz, Markus (University of Strathclyde); Kemp, Jonathan (AG Barr)
    Abstract: This study evaluates the effects of the 2018 UK Soft Drinks Industry Levy on soft drinks prices, sales, reformulation activities, and consequently calories consumed. We combine novel electronic point of sale data that cover most of the UK soft drinks market with longitudinal nutritional information and a variety of event-study specifications. We document that all but a few global soft drinks brands reduced sugar content and hence avoided the tiered levy. For brands that maintained their original sugar content, the levy was on average over-shifted resulting in substantial retail price increases. Consumers responded by reducing their consumption of levied drinks by around 18% which is indicative of an inelastic demand response, especially in the drink-now and energy drink segments of the market. We also document substitution into diet drinks in response to the tax. In total, the levy is responsible for a reduction in intake of just under 6,500 calories from soft drinks per annum per UK resident. More than 80% of reductions were due to manufacturers' reformulation activities and occurred in the two years between the announcement of the levy and its implementation.
    Keywords: sugar tax, soda tax, reformulation, tax pass-through, sin taxes
    JEL: H21 H23 H51 I12 I18
    Date: 2021–07

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