|
on Industrial Competition |
| By: | Luca Fontanelli; Mattia Guerini; Mauro Napoletano |
| Abstract: | We build a simple dynamic model to study the effects of technological learning, market selection and international competition in the determination of export flows and market shares. The model features two countries populated by firms with heterogeneous productivity levels and sales. Market selection in each country is driven by a finite pairwise Polya urn process. We show that market selection leads either to a national or to an international monopoly in presence of a static distribution of firm productivity levels. We then incorporate firm learning and entry-exit in the model and we show that the market structure does not converge to a monopoly. In addition, we show that the extended model is able to jointly reproduce a wide ensemble of stylized facts concerning intra-industry trade, industry and firm dynamics. |
| Keywords: | International trade; industrial dynamics; firm dynamics; market selection; Polya urn. |
| Date: | 2021–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2021/27&r= |
| By: | Azizjon Alimov (IESEG School of Management, LEM-CNRS UMR 9221) |
| Abstract: | This paper uses the 1989 Canada-U.S. Free Trade Agreement (FTA) to study the effect of increased foreign competition on the efficiency of corporate acquisition decisions. Following the FTA, U.S. acquirers exposed to greater increases in competitive pressure experience higher announcement returns. The positive impact of increased competition is stronger in acquirers with relatively higher agency costs prior to the FTA. Managers of acquirers exposed to greater foreign competition are more likely to be terminated following value-destroying acquisitions. Overall, these results are consistent with an active role for product market competition in disciplining managers with respect to important investment decisions. These results have broader implications: a rise in foreign competition can potentially improve the efficiency of key managerial decisions. |
| Keywords: | Trade Liberalization, Mergers and acquisitions, Competition, Governance. |
| JEL: | G34 F13 D43 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:f202105&r= |
| By: | Philippe Aghion; Antonin Bergeaud; Matthieu Lequien; Marc Melitz; Thomas Zuber |
| Abstract: | We decompose the “China shock” into two components that induce different adjustments for firms exposed to Chinese exports: a horizontal shock affecting firms selling goods that compete with similar imported Chinese goods, and a vertical shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the horizontal shock is detrimental to firms’ sales, employment, and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the vertical shock on firms’ sales, employment, and innovation. |
| JEL: | F14 F16 F6 O31 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29196&r= |
| By: | Iwan Bos (Department of Organisation, Strategy and Entrepreneurship, Maastricht University); Marco A. Marini (Department of Social and Economic Sciences, Sapienza University of Rome); Riccardo D. Saulle (Department of Economics and Management, University of Padova) |
| Abstract: | This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set stability concept and establish the existence of a unique pure-strategy price solution for any given level of capacity. This solution is shown to coincide with the set of pure-strategy Nash equilibria when capacities are large or small. For an intermediate range of capacities, it predicts a price interval that includes the mixed-strategy support. This stability concept thus encompasses all Nash equilibria and offers a pure-strategy solution when there is none in Nash terms. In particular, it provides a behavioral rationale for different types of pricing dynamics, including real-world economic phenomena such as Edgeworth-like price cycles, price dispersion and supply shortages. |
| Keywords: | Behavioral IO, Bounded Rationality, Capacity Constraints, Oligopoly Pricing, Myopic Stable Set |
| JEL: | C72 D43 L13 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0271&r= |
| By: | Pauline Affeldt; Elena Argentesi; Lapo Filistrucchi |
| Abstract: | We empirically investigate the relevance of multi-homing in two-sided markets. First, we build a micro-founded structural econometric model that encompasses demand for differentiated products and allows for multi-homing on both sides of the market. We then use an original dataset on the Italian daily newspaper market that includes information on double-homing by readers to estimate readers’ and advertisers’ demand. The results show that an econometric model that does not allow for multihoming is likely to produce biased estimates of demand on both sides of the market. In particular, on the reader side, accounting for multi-homing helps to recognize complementarity between products; on the advertising side, it allows to measure to what extent advertising demand depends on the shares of exclusive and overlapping readers. |
| Keywords: | Two-sided markets, platforms, multi-homing, media, advertising |
| JEL: | C51 D43 C13 L82 M37 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1965&r= |
| By: | Arup Barua (South-Eastern Finland University of Applied Sciences, Finland); Alexandra Ioanid (University Politehnica of Bucharest, Romania) |
| Abstract: | The Resource-based View (RBV) and Industrial Organization (IO) theory have successfully clarified the competitive advantage for a single firm based on resources and market aspects but less so for knowing the competitive advantage for dual entities or companies. Therefore, this article attempts to investigate how a competitive advantage emerges in post-M&A. It illustrates that both theories together should contemplate the "synergistic competitive advantage" as a measurement of M&A performance, which explains the competitive advantage by the acquisition synergies, e.g., joint sales, expertise, revenue, and cost. The modern thought will widen the joint appeal of RBV and IO theory considering the SCP model because the synergy (i.e., a combined effect of two entities) should be a competitive, and competitive advantage should be synergistic for acquisition success. Future researchers are entreated to test the synergistic competitive advantage in post-M&A, evading the traditional competitive advantage. Decisively the implications and directions of future research would be illuminated. |
| Keywords: | RBV (Resource-based View), IO (Industrial Organization), SCP (Structure, Conduct, Performance), SCA (Synergistic Competitive Advantage), M&As (Mergers and Acquisitions) |
| JEL: | G34 M16 O19 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2021-06&r= |
| By: | Albertazzi, Andrea; Ploner, Matteo; Vaccari, Federico |
| Abstract: | We perform a controlled experiment to study the welfare effects of competition in a strategic communication environment. Two equally informed senders with conflicting interests can misreport information at a cost that is increasing in the size of the lie. We compare a treatment where only one sender communicates with a treatment where both senders communicate simultaneously with a decision-maker. We find that the introduction of competition between senders decreases the welfare of all players. Competing senders reveal the truth less often and spend about twice the amount of resources to misreport information than their monopolistic counterpart. As a result, decision-makers take more informed choices when consulting one sender than when consulting both. |
| Date: | 2021–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:5j2w8&r= |
| By: | Nilsen, Øivind A. (Dept. of Economics, Norwegian School of Economics and Business Administration); Skuterud, Håvard; Munthe-Kaas Webster, Ingeborg |
| Abstract: | This paper provides evidence on price rigidity at the product- and firm-level in Norway. A strong within-firm synchronization is found supporting the theory of economies of scope in menu costs. The industry synchronization effects are found to be small suggesting that firms either have some monopoly power, or that a firm’s costs of changing their own prices may be larger than the benefit of responding to their competitors’ price changes. These findings have potentially important implications for the micro-foundations of macroeconomic models, and thus the policy advice derived from such models. |
| Keywords: | Price Setting; Monthly Micro Data; Selection Effects. |
| JEL: | C35 D43 E31 |
| Date: | 2021–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2021_015&r= |
| By: | Zhang, Yiran |
| Abstract: | In this paper, I first document several novel stylized facts from Chinese patent transaction data matched with manufacturing firm data. A key finding is that Chinese patent market is significantly less developed than the U.S. To understand the causes and consequences, I build a model that endogenizes firm R&D investment, patent trading decision and productivity growth. I structurally estimate the model and find the following two main results. First, Chinese patent market plays a small role in growth. It only accounts for 5% of China’s GDP growth rate, as opposed to 17% in the U.S. Second, I evaluate the importance of three frictions calibrated to Chinese patent market: search cost, fixed transaction cost and information asymmetry. Search cost turns out to be the main friction to explain the gap of patent market size. If search cost was reduced to the US level, China’s productivity growth would increase by 0.16 percentage points. |
| Keywords: | Under-developed Patent Market, patent quality, search cost, fixed cost, information asymmetry |
| JEL: | O3 |
| Date: | 2021–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109470&r= |
| By: | Robert Clark; Jean-François Houde; Jakub Kastl |
| Abstract: | This chapter discusses recent developments in the literature involving applications of industrial organization methods to finance. We structure our discussion around a simple model of a financial intermediary that concentrates its attention either on (i) the retail market and hence engages in a traditional maturity transformation business by accepting funds that can be used to invest in risky projects (loans), or (ii) the investment business, financing its operations on the “wholesale” market and making markets or investing in higher return riskier projects. Our discussion is centered around the analysis of market structure and competition in each of these markets, focusing in turn on (i) primary and secondary markets for government and corporate debt, (ii) interbank loans, (iii) markets for retail funding, and (iv) credit markets, including mortgages. |
| JEL: | G2 L1 L51 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29183&r= |
| By: | Suguru Otani |
| Abstract: | I present a structural empirical model of a one-sided one-to-many matching with complementarities to quantify the effect of subsidy design on endogenous merger matching. I investigate shipping mergers and consolidations in Japan in 1964. At the time, 95 firms formed six large groups. I find that the existence of unmatched firms enables us to recover merger costs, and the importance of technological diversification varies across carrier and firm types. The counterfactual simulations show that 20 \% of government subsidy expenditures could have been cut. Also, the government could have possibly changed the equilibrium number of groups between one and six. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.12744&r= |
| By: | Maarten De Ridder; Basile Grassi; Giovanni Morzenti |
| Abstract: | How do estimates of firm-level markups that rely on production function estimations depend on common data limitations? With a tractable analytical framework, simulation from a quantitative model, and firm-level administrative production and pricing data, we study biases due to the use of revenue instead of quantity, and due to production function misspecification. Estimates from revenue mismeasure the level of markups, but do contain useful information about true markups. Conversely, misspecified production functions have little effect on the estimated average markup but reduce its information content. Finally, revenue and quantity markups display similar correlations with variables such as profitability and market share in our data. Keywords: Macroeconomics, Production Functions, Markups, Competition |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:677&r= |
| By: | Donna, Javier D.; Espin-Sanchez, Jose-A. |
| Abstract: | We investigate the efficiency of a market relative to a non-market institution—an auction relative to a quota—as allocation mechanisms in the presence of frictions. We use data from water markets in southeastern Spain and explore a specific change in the institutions to allocate water. On the one hand, frictions arose because poor farmers were liquidity constrained. On the other hand, wealthy farmers who were part of the wealthy elite were not liquidity constrained. We estimate a structural dynamic demand model under the market by taking advantage that water demand for both types of farmers is determined by the technological constraint imposed by the crop’s production function. This approach allows us to differentiate liquidity constraints from unobserved heterogeneity. We use the estimated model to compute welfare under market and non-market institutions. We show that the institutional change from markets to quotas increased efficiency for the farmers considered. |
| Keywords: | Market Efficiency, Dynamic Demand, Auctions, Quotas, Vertical Integration, Financial Markets |
| JEL: | D02 G14 L11 L13 L42 L50 Q25 |
| Date: | 2021–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109544&r= |
| By: | Kevin A. Bryan; Heidi L. Williams |
| Abstract: | This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We summarize the state of the literature on the economics of innovation and highlight open policy questions. We first articulate the key market failures in markets for innovation, and then discuss how both scientific norms and market-oriented policies help overcome those market failures. We close by discussing recent work on the diffusion of inventions as well as on the links between innovation and inequality. |
| JEL: | O3 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29173&r= |
| By: | Das, Abhipsita; Kinnucan, Henry W. |
| Keywords: | Marketing, Research Methods/Statistical Methods, International Development |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea21:312868&r= |
| By: | Bradley Larsen; Joachim Freyberger |
| Abstract: | This study provides a structural analysis of detailed, alternating-offer bargaining data from eBay, deriving bounds on buyers and sellers private value distributions using a range of assumptions on behavior. These assumptions range from very weak (assuming only that acceptance and rejection decisions are rational) to less weak (e.g., assuming that bargaining offers are weakly increasing in players' private values). We estimate the bounds and show what they imply for consumer negotiation behavior in theory and practice. For the median product, bargaining ends in impasses in 43% of negotiations even when the buyer values the good more than the seller. |
| JEL: | C57 C78 D47 D82 L81 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29202&r= |
| By: | Davis, George C.; Gupta, Anubhab |
| Keywords: | Marketing, Food Consumption/Nutrition/Food Safety, Agricultural and Food Policy |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea21:312740&r= |