nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒08‒30
23 papers chosen by
Russell Pittman
United States Department of Justice

  1. Two-sided Markets, Pricing, and Network Effects By Jullien, Bruno; Pavan, Alessandro; Rysman, Marc
  2. Collusion, Mergers, and Related Antitrust Issues By John Asker; Volker Nocke
  3. The perpetual trouble with network products: Why IT firms choose partial compatibility By Stadler, Manfred; Tobler Trexler, Céline; Unsorg, Maximiliane
  4. Consumer Search and Choice Overload By Rey, Patrick; Nocke, Volker
  5. Market Power and Price Exposure: Learning from Changes in Renewables Regulation By Natalia Fabra; Imelda
  6. Competition and Selection in Credit Markets By Constantine Yannelis; Anthony Lee Zhang
  7. Hayek and the Texas blackout By Stephen Littlechild; Lynne Kiesling
  8. Market power and long-term gas contracts: the case of Gazprom in Central and Eastern European Gas Markets By Chi Kong Chyong; David Reiner; Dhruvak Aggarwal
  9. Generalized linear competition: From pass-through to policy By Christos Genakos; Felix Grey; Robert Ritz
  10. Storing Power: Market Structure Matters By David Andrés-Cerezo; Natalia Fabra
  11. Global carbon price asymmetry By Robert Ritz
  12. Station heterogeneity and asymmetric gasoline price responses By Emmanuel Asane-Otoo; C. Dannemann
  13. Measuring the Impact of Electricity Market Reform in a Chinese Context By Michael Pollitt
  14. Retail Markups and Discount Store Entry By Chenarides, Lauren; Gomez, Miguel I.; Richards, Timothy J.; Yonezawa, Koichi
  15. Market power in food industry in selected EU Member States By NES Kjersti; COLEN Liesbeth; CIAIAN Pavel
  16. Specialized Investments and Firms’ Boundaries: Evidence from Textual Analysis of Patents By Jan Bena; Isil Erel; Daisy Wang; Michael S. Weisbach
  17. Total consumer time: A new approach to identifying digital gatekeepers By Gösser, Niklas; Gürer, Kaan; Haucap, Justus; Meyring, Bernd; Michailidou, Asimina; Schallbruch, Martin; Seeliger, Daniela; Thorwarth, Susanne
  18. Lobbying Behind the Frontier By Matilde Bombardini; Olimpia Cutinelli Rendina; Francesco Trebbi
  19. Digital payments in China: adoption and interactions among applications By Dominique Torre; Qing Xu
  20. Competition and Co-Operation when Consumers' Sustainability Preferences Depend on Social Norms By Roman Inderst; Eftichios Sartzetakis; Anastasios Xepapadeas
  21. The Affordable Care Act After a Decade: Industrial Organization of the Insurance Exchanges By Benjamin R. Handel; Jonathan T. Kolstad
  22. China’s Energy Law Draft and the Reform of its Electricity Supply Sector By Jun Xu; Michael Pollitt; Bai-Chen Xie; Chun-Han Yang
  23. Dynamic Monopoly Pricing With Multiple Varieties: Trading Up By Stefan Buehler; Nicolas Eschenbaum

  1. By: Jullien, Bruno; Pavan, Alessandro; Rysman, Marc
    Abstract: The chapter has 9 sections, covering the theory of two-sided markets and related empirical work. Section 1 introduces the reader to the literature. Section 2 covers the case of markets dominated by a single monopolistic rm. Section 3 discusses the theoretical literature on competition for the market, focusing on pricing strategies that rms may follow to prevent entry. Section 4 discusses pricing in markets in which multiple platforms are active and serve both sides. Section 5 presents alternative models of platform competition. Section 6 discusses richer matching protocols whereby platforms pricediscriminate by granting access only to a subset of the participating agents from the other side and discusses the related literature on matching design. Section 7 discusses identication in empirical work. Section 8 discusses estimation in empirical work. Finally, Section 9 concludes.
    Keywords: Two-sided market; platform; pricing; network effects; matching
    Date: 2021–08–21
  2. By: John Asker; Volker Nocke
    Abstract: This survey examines recent developments in economic research relating to antitrust, paying specific attention to research in the areas of collusion and merger enforcement. Research relating to both collusion and mergers has made significant advances in the last twenty years. With respect to collusion, this includes important theoretical and empirical work on the sustainability, structure, and impact of collusive schemes. With respect to mergers, this includes important work on the impact of enforcement institutions, both theoretical and empirical work on unilateral effects, and theoretical work on the selection of which mergers get proposed to antitrust agencies and optimal policy in the face of that selection. A feature of recent research is the increasing complementarity between empirical work (ranging from observational studies to model-based measurement) and theoretical work in advancing our understanding of collusive and merger-related phenomena.
    JEL: K21 L4
    Date: 2021–08
  3. By: Stadler, Manfred; Tobler Trexler, Céline; Unsorg, Maximiliane
    Abstract: Compatibility of network products is an important issue in markets for communication technology as well as hard- and software products. Empirical findings suggest that firms competing in these markets typically choose intermediate degrees of product compatibility. We present a strategic two-stage game of two firms deciding strategically or commonly on the degree of product compatibility in the first stage and on prices in the second stage. Indeed, partial compatibility constitutes a subgame perfect Nash equilibrium when coordination costs of standardization are high and the installed bases are low.
    Keywords: Compatibility,Network Products,Network Effects
    JEL: C72 L13 L15
    Date: 2021
  4. By: Rey, Patrick; Nocke, Volker
    Abstract: We consider a multiproduct seller facing consumers who must search to learn prices and valuations. The equilibrium features choice overload: the larger the product line, the fewer consumers start searching. We provide conditions under which the seller o¤ers too much or too little variety. We then allow the seller to position products or make recommendations, thereby introducing the possibility of directed search, and show that the seller may .nd it pro.table to maintain some noise. Finally, we study the seller.s incentive to disclose product identity and extend our analysis to that of a platform choosing which sellers to host.
    Keywords: Sequential consumer search; product variety; choice overload; multi-product firm; platform
    JEL: L12 L15 D42
    Date: 2021–08–24
  5. By: Natalia Fabra (Universidad Carlos III de Madrid); Imelda (Universidad Carlos III de Madrid)
    Keywords: market power, forward contracts, arbitrage, renewables
    JEL: L13 L51 Q41
    Date: 2021–05
  6. By: Constantine Yannelis; Anthony Lee Zhang
    Abstract: We present both theory and evidence that increased competition may decrease rather than increase consumer welfare in subprime credit markets. We present a model of lending markets with imperfect competition, adverse selection and costly lender screening. In more competitive markets, lenders have lower market shares, and thus lower incentives to monitor borrowers. Thus, when markets are competitive, all lenders face a riskier pool of borrowers, which can lead interest rates to be higher, and consumer welfare to be lower. We provide evidence for the model’s predictions in the auto loan market using administrative credit panel data.
    JEL: D14 D4 G20 G21 G5 L62
    Date: 2021–08
  7. By: Stephen Littlechild (EPRG, CJBS, University of Cambridge); Lynne Kiesling (University of Colorado-Denver)
    Keywords: Hayek, Texas blackout, scarcity pricing, retail electricity competition
    JEL: L94 L51 K23 D47 D82
    Date: 2021–06
  8. By: Chi Kong Chyong (EPRG, CJBS, University of Cambridge); David Reiner (EPRG, CJBS, University of Cambridge); Dhruvak Aggarwal (EPRG, University of Cambridge)
    Keywords: Gazprom, European Commission, Market Power, Natural Gas, Security of Supply, Competition, Long-term contracts, Swap deals
    JEL: L95 L42 D47 D42 C63 P28
    Date: 2021–05
  9. By: Christos Genakos (CJBS, University of Cambridge); Felix Grey (Faculty of Economics and Energy Policy Research Group, University of Cambridge); Robert Ritz (EPRG, CJBS, University of Cambridge)
    Keywords: Pass-through, imperfect competition, regulation, carbon pricing, airlines, political economy
    JEL: D43 H23 L51 L93
    Date: 2020–07
  10. By: David Andrés-Cerezo (European University Institute); Natalia Fabra (Universidad Carlos III and CEPR)
    Keywords: Storage, electricity, market structure, investment, vertical relations
    JEL: L22 L94
    Date: 2020–12
  11. By: Robert Ritz (EPRG, CJBS, University of Cambridge)
    Keywords: Carbon leakage, carbon pricing, imperfect competition, international trade, second best
    JEL: H23 L11 Q54
    Date: 2021–05
  12. By: Emmanuel Asane-Otoo (University of Oldenburg, Department of Economics); C. Dannemann (University of Oldenburg, Department of Economics)
    Abstract: Besides temporal and spatial aggregation issues in the analysis of asymmetric response of retail gasoline prices, previous studies have also largely ignored parameter heterogeneity across fuel stations. This paper addresses the aggregation issues and the parameter homogeneity assumption by examining the responsiveness of stations to input cost changes using daily station-specific retail and wholesale gasoline prices for 12,613 geographically diverse stations. Based on individual station analysis using asymmetric error correction models, we find that 48% of stations engage in competitive pricing while the remaining 52% exhibit the rockets and feathers pricing pattern. Our findings suggest that the rockets and feathers phenomenon is a feature of individual stations and local market characteristics are important determinants. We also show that pooled panel regression techniques obscure the actual pricing pattern observed from station-level time series analysis.
    Keywords: Asymmetric Pricing, Input Cost, Price Transparency, Aggregation
    Date: 2021–08
  13. By: Michael Pollitt (EPRG, CJBS, University of Cambridge)
    Keywords: power sector reform, social cost benefit analysis, state of the market
    JEL: L94
    Date: 2021–04
  14. By: Chenarides, Lauren; Gomez, Miguel I.; Richards, Timothy J.; Yonezawa, Koichi
    Keywords: Marketing, Agribusiness, Production Economics
    Date: 2021–08
  15. By: NES Kjersti (European Commission - JRC); COLEN Liesbeth; CIAIAN Pavel (European Commission - JRC)
    Abstract: This report provides an overview of various market power indicators within the food industry in selected Member States (MS) in the EU. In addition, the report aims to examine whether the alternative market power indicators are qualitatively comparable proxies to measure market power in the food industry and to discuss the potential implications for the EU’s directive on unfair trading practices (UTPs). The report analyses the market power in-depth for the year 2016 and studies its dynamics over the period 2006-2017 in the selected MS. The report considers four alternative measures of market power: the concentration ratio (CR4), the Herfindahl-Hirschman Index (HHI), markups as well as turnover size, which is the market power measure used in the EU’s UTP directive. The report analyses are based on the firm-level accounting data available from the Orbis database. Due to limited data availability in some countries, the report considers 10 MS for calculation of the CR4, HHI and turnover indicator, and 7 MS for estimation of markups. The analyses are carried out for different (more aggregated) sectors of the food industry—i.e., retail, wholesale and manufacturing—, as well as for disaggregated subsectors within the wholesale and manufacturing sectors.
    Keywords: food chain, unfair trading practices (UTP), market power
    Date: 2021–07
  16. By: Jan Bena; Isil Erel; Daisy Wang; Michael S. Weisbach
    Abstract: Inducing firms to make specialized investments through bilateral contracts can be challenging because of potential hold- up problems. Such contracting difficulties have long been argued to be an important reason for acquisitions. To evaluate the extent to which this motivation leads to mergers, we perform a textual analysis of the patents filed by the same lead inventors of the target firms before and after the mergers. We find that patents of inventors from target firms become 28.9% to 46.8% more specific to those of acquirers’ inventors following completed mergers, benchmarked against patents filed by targets and a group of counterfactual acquirers. This pattern is stronger for vertical mergers that are likely to require specialized investments. There is no change in the specificity of patents for mergers that are announced but not consummated. Overall, we provide empirical evidence that contracting issues in motivating specialized investment can be a motive for acquisitions.
    JEL: G34 L14 L22
    Date: 2021–08
  17. By: Gösser, Niklas; Gürer, Kaan; Haucap, Justus; Meyring, Bernd; Michailidou, Asimina; Schallbruch, Martin; Seeliger, Daniela; Thorwarth, Susanne
    Abstract: [Introduction:] The route to customers is becoming increasingly digital, for any business. There is hardly any business that is not focussing on reaching customers online. The Covid-19 pandemic has further accelerated this trend. In many markets, digital platforms have become essential tools for the sale of goods and services. On the one hand, there are transaction platforms for specific goods and services. They are specialist providers in their fields. Consumers access the relevant specialist to directly search for the product or service they intend to purchase, and they expect to directly conclude transactions on the platform ("transaction platforms"). These platforms typically generate the majority of their revenues from sales to consumers or commissions from these sales. On the other hand, there are attention platforms that provide information, entertainment and/or other services (e-mail accounts, translations, search functionality, social media contacts, software use, etc.) to users ("attention platforms"). These platforms are often free of charge for consumers and they generate most of their revenues from advertising. In order to maximize revenues these platforms often aim at maximizing the time that consumers spend within their ecosystems so as to channel consumers' attention to advertising clients or - in case of vertical integration - also to their own offerings. Through the selection of content such as ranking search results and also through advertising these attention platforms can have significant impact on which products receive consumer attention in the first place which enables them to affect and even steer competition. If platforms have such a significant effect on consumer attention that they can steer consumers towards some products and away from others, they may factually become a gatekeeper for these markets. (...)
    Date: 2021
  18. By: Matilde Bombardini; Olimpia Cutinelli Rendina; Francesco Trebbi
    Abstract: This chapter investigates the non-market response of firms to international trade shocks increasing the level of competition in U.S. industries. Lobbying expenditures increase as a consequence of import changes related to the China shock. The effect on lobbying is not homogeneous across firms and it concentrates particularly in those producers which are behind the technological frontier. We discuss theoretical mechanisms driving lobbying of firms away from the technological frontier: not only the cost-benefit trade-off between innovation and lobbying is relatively less appealing for low productivity firms, but the collective action ability of low productivity firms improves after a competitive shock.
    JEL: D72 P48
    Date: 2021–08
  19. By: Dominique Torre (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Qing Xu (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur)
    Abstract: Alipay and WeChat Pay, the mobile payment services of Alibaba and Tencent, rapidly spread out in China from the early 2010s. Their successes motivate three open questions: (i) why the two companies did not really compete to gain the exclusivity of their clients? (ii) why the installed basis of the incumbent did not prevent the success of the entrant? (iii) why the new entry accelerated the dffusion of the incumbent's solutions? This paper elaborates an adoption model which encapsulates the distinctive features of the two service providers. It points out that complementaries between the two solutions (dfferentiated services offered to clients, decreasing adoption costs and contrasting business models) can explain the interest of both service providers to avoid any strong competition. During the adoption phase, Alipay and WeChat had interest to a mutual development as soon as they did not offered the same product, with the same business model. In this situation, every improvement of the technology of each operator increased the profit of the other. This strategic complementarity effect between the two competitors could however decrease during time their incentive to innovate.
    Keywords: strategic complementarities,online payment,electronic wallets,payments in China,mobile-payment,paiement mobile,complémentarités stratégiques,paiement en ligne,porte-monnaie électronique,paiements en Chine
    Date: 2020
  20. By: Roman Inderst; Eftichios Sartzetakis; Anastasios Xepapadeas
    Abstract: We posit that consumers' preferences for more sustainable products depend on the perceived social norm, which in turn is shaped by average consumption in society. We explore the implications of such preferences for firms' incentives to introduce more sustainable products and to co-operate in order to either foster or forestall their introduction. Our main motivation lies in the increasing pressure put on antitrust authorities to exert more leniency towards horizontal agreements that are motivated by sustainability considerations.
    Date: 2021–07–30
  21. By: Benjamin R. Handel; Jonathan T. Kolstad
    Abstract: The regulated insurance exchanges set up in the Affordable Care Act (ACA) were designed to deliver affordable, efficient health coverage through private insurers. It is crucial to study the complex industrial organization (IO) of these exchanges in order to assess their impacts to date, during the first decade of the ACA, and in order to project their impacts going forward. We revisit the inherent market failures in health care markets that necessitate key ACA exchange regulations and investigate whether they have succeeded in their goals of expanding coverage, creating robust marketplaces, providing product variety, and generating innovation in health care delivery. We discuss empirical IO research to date and also highlight shortcomings in the existing research that can be addressed moving forward. We conclude with a discussion of IO research-based policy lessons for the ACA exchanges and, more generally, for managed competition of private insurance in health care.
    JEL: G22 H2 I11 I13
    Date: 2021–08
  22. By: Jun Xu (Zhejiang University of Finance and Economics, China); Michael Pollitt (EPRG, CJBS, University of Cambridge); Bai-Chen Xie (College of Management and Economics, Tianjin University, China); Chun-Han Yang (University of Oxford)
    Keywords: No.9 Document, Energy Law, power market reform
    JEL: K32
    Date: 2020–09
  23. By: Stefan Buehler; Nicolas Eschenbaum
    Abstract: This paper studies dynamic monopoly pricing for a broad class of Coasian and Non-Coasian settings. We show that the driving force behind pricing dynamics is the seller's incentive to trade up consumers to higher-valued consumption options. In Coasian settings, consumers can be traded up from the static optimum, and pricing dynamics arise until all trading-up opportunities are exhausted. In Non-Coasian settings, consumers cannot be traded up from the static optimum, and no pricing dynamics arise. Hence, dynamic monopoly pricing can be characterized by checking for trading-up opportunities in the static optimum.
    Date: 2021–08

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