nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒09‒27
thirty papers chosen by
Russell Pittman
United States Department of Justice

  1. Flagship Entry in Online Marketplaces By Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Lu Fang
  2. Buyer Alliances in Vertically Related Markets By Hugo Molina
  3. Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-Period Versus Intertemporal Price Discrimination By Didier Laussel; Ngo Van Long; Joana Resende
  4. Intangibles and industry concentration: Supersize me By Matej Bajgar; Chiara Criscuolo; Jonathan Timmis
  5. Hub and Spoke Cartels: Theory and Evidence from the Grocery Industry By Robert Clark; Ignatius Horstmann; Jean-François Houde
  6. Empirical Models of Demand and Supply in Differentiated Products Industries By Amit Gandhi; Aviv Nevo
  7. Foundations of Demand Estimation By Steven T. Berry; Philip A. Haile
  8. Selling Impressions: Efficiency vs. Competition By Dirk Bergemann; Tibor Heumann; Stephen Morris; Constantine Sorokin; Eyal Winter
  9. Purchasing alliances and product variety By Marie-Laure Allain; Rémi Avignon; Claire Chambolle
  10. Assessing China's Provincial Electricity Spot Market Pilot Operations: Lessons from the Guangdong Province By Liu, Y.; Jiang, Z.; Guo, B.
  11. Emerging trends in communication market competition By OECD
  12. A contribution to the theory of R&D investments By Buccella, Domenico; Fanti, Luciano; Gori, Luca
  13. Vertical integration as a source of hold-up: An experiment By Marie-Laure Allain; Claire Chambolle; Patrick Rey; Sabrina Teyssier
  14. Estimating Demand with Multi-Homing in Two-Sided Markets By Affeldt, P.; Argentesi, E.; Filistrucchi, Lapo
  15. Frictions in Product Markets By Alessandro Gavazza; Alessandro Lizzeri
  16. Nursing homes' competition and distributional implications when the market is two-sided By David Bardey; Luigi Siciliani
  17. Optimal Income Taxation under Monopolistic Competition By Alexander Tarasov; Robertas Zubrickas
  18. Big Fish in Thin Markets: Competing with the Middlemen to Increase Market Access in the Amazon By Viva O. Bartkus; Wyatt Brooks; Joseph P. Kaboski; Carolyn E. Pelnik
  19. Price Squeezes as an Exploitative Abuse By Zhijun Chen
  20. Incidencia del mercado internacional y de la estructura del mercado doméstico en la transmisión de precios en la cadena láctea: Evidencia desde Uruguay By Felipe Bertamini; Miguel Carriquiry
  21. Perceived Competition in Networks By Olivier Bochet; Mathieu Faure; Yan Long; Yves Zenou
  22. Essays on the Economics of Innovation By Ela Ince
  23. Matching markets with middlemen under transferable utility By Ata Atay; Eric Bahel; Tam\'as Solymosi
  24. Measuring the Welfare Cost of Asymmetric Information in Consumer Credit Markets By Anthony A. DeFusco; Huan Tang; Constantine Yannelis
  25. Signaling in Online Credit Markets By Kei Kawai; Ken Onishi; Kosuke Uetake
  26. The Role of Social Connectedness: Evidence from Mergers and Acquisitions By Giang Nguyen; Hannah Nguyen; Hung Pham
  27. China’s Mergers & Acquisitions Activity in the United States – The Case of TikTok By Tamás Peragovics
  28. An Industrial Organization Perspective on Productivity By Jan De Loecker; Chad Syverson
  29. Is Social Capital Valuable? Evidence from Mergers and Acquisitions By Jo-Ann Suchard; Giang Nguyen; Yuelin Wang
  30. Harms of AI By Daron Acemoglu

  1. By: Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Lu Fang
    Abstract: In the world of omnichannel retail, some brands open a flagship store at online marketplaces, while others avert it. Focusing on a large e-commerce platform, we empirically study how flagship entry affects consumers, the platform, and various sellers on the platform. We find flagship entry may benefit consumers by expanding the choice set, by intensifying price competition within the entry brand, and by improving consumer perception for parts of the platform. In the meantime, flagship entry cannibalizes the sales of same-brand sellers, while other brands may gain as the buyer base expands on the platform. Counterfactual simulation suggests that flagship entry improves the gross merchandise value (GMV) of the platform but hurts existing sellers of the entry brand. On average, the effect on consumer welfare is more positive if the flagship entry is from a non-prominent brand than from a prominent brand, because consumers tend to lower their willingness to pay for individual sellers upon a prominent flagship entry. In hypothetical scenarios where flagship entry were accompanied by constraints on other same-brand sellers, the reduced competition would benefit the flagship store but hurt consumers.
    JEL: D4 L1 L8
    Date: 2021–09
  2. By: Hugo Molina (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: Alliances of buyers to negotiate input prices with suppliers are commonplace. Using pre- and post-alliances data on household purchases of bottled water, I develop a structural model of bilateral oligopoly to estimate the effects of three alliances formed by retailers on their bargaining power vis-à-vis manufacturers and retail prices paid by consumers. Results provide evidence of a countervailing buyer power effect that reduces retail prices by roughly 7%. Exploring determinants of buyer power, I find that changes in retailers' bargaining ability play an important role in the countervailing force exerted by the alliances which, otherwise, would have not been profitable.
    Keywords: Bilateral oligopoly,Countervailing buyer power,Bargaining,Antitrust policy
    Date: 2021–09–10
  3. By: Didier Laussel; Ngo Van Long; Joana Resende
    Abstract: A durable good monopolist faces a continuum of heterogeneous customers who make purchase decisions by comparing present and expected price-quality offers. The monopolist designs a sequence of price-quality menus to segment the market. We consider the Markov Perfect Equilibrium (MPE) of a game where the monopolist is unable to commit to future price-quality menus. We obtain the novel results that (a) under certain conditions, the monopolist covers the whole market in the first period (even when a static Mussa-Rosen monopolist would not cover the whole market), because this is a strategic means to convince customers that lower prices would not be offered in future periods, and that (b) this can happen only under the stage-wise Stackelberg leadership assumption (whereby consumers base their expectations on the value of the state variable at the end of the period). Conditions under which MPE necessarily involve sequentially trading are also derived.
    Keywords: product quality, durable good monopoly, second-degree price discrimination, Coase conjecture
    JEL: C73 D42 L12
    Date: 2021
  4. By: Matej Bajgar (Center for Economic Research and Graduate Education - Economics Institute); Chiara Criscuolo (OECD); Jonathan Timmis (The World Bank)
    Abstract: This paper presents new evidence on the growing scale of big businesses in the United States, Japan, and Europe. It finds broad evidence of rising industry concentration across the majority of countries and sectors over the period 2002 to 2014. Rising concentration is strongly associated with intensive investment in intangibles, particularly innovative assets, software, and data. This relationship appears to be stronger in more globalised and digital-intensive industries. The results are consistent with intangibles disproportionately benefiting large firms and enabling them to scale up and increase market shares. We find nuanced implications of these new business models for competition – rising markups and reduced churning amongst the top firms, but falling industry prices.
    Keywords: Competition, Industry and entrepreneurship, Innovation
    JEL: E22 L1 L25
    Date: 2021–09–22
  5. By: Robert Clark; Ignatius Horstmann; Jean-François Houde
    Abstract: Numerous recently uncovered cartels operated along the supply chain, with firms at one end facilitating collusion at the other – hub-and-spoke arrangements. These cartels are hard to rationalize because they induce double marginalization and higher costs. We examine Canada’s alleged bread cartel and provide the first comprehensive analysis of hub-and-spoke collusion. We make three contributions: i) Using court documents and pricing data we provide evidence that collusion existed at both ends of the supply chain, ii) we show that collusion was effective, increasing inflation by about 40% and iii) we provide a model explaining why this form of collusion arose.
    JEL: L1 L4 L41 L42
    Date: 2021–09
  6. By: Amit Gandhi; Aviv Nevo
    Abstract: This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We present empirical models of demand and supply in differentiated products industries with an emphasis on the key ideas arising from the recent applied literature. We start with a discussion of the challenges in modeling and estimation of demand for differentiated products, and focus on discrete choice characteristics-based demand models that address these challenges while allowing enough flexibility to capture realistic substitution patterns. Our discussion emphasizes how empirical strategies can leverage different features of data depending on the sources of variation that are commonly found in applied work. Moving to the supply-side, we show how demand estimates combined with a pricing model, can be used to recover markups and marginal costs. We also show how the model of pricing can be tested. We discuss a baseline Bertrand-Nash model of competitive pricing, and expand it to cover a) coordinated pricing, b) wholesale relationships, and c) bargaining. We end the chapter with extensions of the demand model, including dynamic and continuous demand.
    JEL: C01 D12 D22 D43 L13
    Date: 2021–09
  7. By: Steven T. Berry (Cowles Foundation, Yale University); Philip A. Haile (Cowles Foundation, Yale University)
    Abstract: Demand elasticities and other features of demand are critical determinants of the answers to most positive and normative questions about market power or the functioning of markets in practice. As a result, reliable demand estimation is an essential input to many types of research in Industrial Organization and other fields of economics. This chapter presents a discussion of some foundational issues in demand estimation. We focus on the distinctive challenges of demand estimation and strategies one can use to overcome them. We cover core models, alternative data settings, common estimation approaches, the role and choice of instruments, and nonparametric identification.
    Date: 2021–09
  8. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Pontificia Universidad Católica de Chile); Stephen Morris (Dept. of Economics, MIT); Constantine Sorokin (Glasgow University and Higher School of Economics); Eyal Winter (The Hebrew University of Jerusalem)
    Abstract: In digital advertising, a publisher selling impressions faces a trade-off in deciding how precisely to match advertisers with viewers. A more precise match generates efficiency gains that the publisher can hope to exploit. A coarser match will generate a thicker market and thus more competition. The publisher can control the precision of the match by controlling the amount of information that advertisers have about viewers. We characterize the optimal trade-off when impressions are sold by auction. The publisher pools premium matches for advertisers (when there will be less competition on average) but gives advertisers full information about lower quality matches.
    Keywords: Second Price Auction, Conflation, Targeted Advertising, Impressions, Two-Sided Private Information, Bayesian Persuasion, Information Design
    JEL: D44 D47 D83 D84
    Date: 2021–08
  9. By: Marie-Laure Allain (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Rémi Avignon (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Claire Chambolle (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We analyze the impact of purchasing alliances on product variety and profit sharing in a setting, in which capacity constrained retailers operate in separated markets and select their assortment in a set of differentiated products offered by heterogeneous suppliers (multinationals vs. local SMEs). Retailers may either have independent listing strategies or build a buying group, thereby committing to a joint listing strategy. This alliance may cover the whole product line (full buying group) or only the products of large suppliers (partial buying group). We show that a buying group may enhance the retailers' buyer power and reduce the overall product variety to the detriment of consumers. Our most striking result is that partial buying groups do not protect the small suppliers from being excluded or from bearing profit losses; they may even be more profitable for retailers than full buying groups.
    Keywords: Vertical relations,Purchasing alliance,Buying group,Buyer power,Vertical foreclosure
    Date: 2020
  10. By: Liu, Y.; Jiang, Z.; Guo, B.
    Abstract: Targeting on improving the efficiency of power generation, China announced its plan to reform the electricity wholesale market. A focal point of the wholesale market reform is to introduce a stable and reliable electricity spot market. Using Guangdong's spot market pilot operations as a case study, this article becomes the first which uses ex-post market data to assess the efficacy of China's electricity spot market. To investigate the stability of the spot market, we estimate the relationship between prices and demand. We find the electricity supply curve to be non-linear and convex, suggesting the needs to invest more thermal capacity to stabilise the spot market prices (SMPs). To investigate the reliability of the spot market, we first estimate the market distortion caused by a price floor on the SMPs, and then examine whether local market power exists. The price floor on the SMPs resulted in a welfare transfer from consumers to producers, the monetary value of which equals to 1.3% of the tradable value of the day-ahead market. We also find evidence of local market power in the east of Guangdong, suggesting the necessity of investing more power lines connecting the west to the east. Finally, policy implications are provided.
    Keywords: China power market reform, market failures, local market power, electricity spot market
    JEL: Q41 Q48 D61
    Date: 2021–09–17
  11. By: OECD
    Abstract: Communication market structures and their effect on delivering efficient and inclusive connectivity is of key interest to policy makers and regulators. This report discusses emerging competition trends in OECD broadband markets that are shaping market structures, covering both fixed and mobile networks. The increasing complementarity of fixed and wireless networks and the convergence of previously separate markets have led to new forms of communication market competition. While convergence has been acting as a driver for market consolidation, there is also increased scrutiny in merger review. Some OECD countries are discussing options to keep mobile communication markets open to new entrants in the context of merger reviews, while others have experienced a recent wave of entry. The report explores the role of horizontal and vertical mergers in communication markets, presents examples of entry in mobile communication markets, and discusses some of effects of entry and consolidation in OECD markets.
    Date: 2021–09–24
  12. By: Buccella, Domenico; Fanti, Luciano; Gori, Luca
    Abstract: This research contributes to the theory of cost-reducing R&D investments by offering a tractable three-stage non-cooperative Cournot duopoly game in which R&D-investing firms choose whether to disclose R&D-related information to the rival. Though in a noncooperative context firms have no incentive to unilaterally disclose information on their costreducing R&D activity to prevent the rival from freely appropriate it, this work shows that there is room for the government to design an optimal policy aimed at incentivising unilaterally each owner towards R&D disclosure. Under this welfare improving policy, sharing R&D-related information becomes a Pareto efficient Nash equilibrium strategy of selfish firms. These findings suggest that introducing public subsidies aimed at favouring R&D disclosure represents a win-win result, eliminating the so far established - and unpleasant for both firms and society - non-disclosing outcome.
    Keywords: Cost-reducing innovation,Nash equilibrium,Government,Social welfare
    JEL: D43 L13 O31
    Date: 2021
  13. By: Marie-Laure Allain (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Claire Chambolle (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Patrick Rey (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Sabrina Teyssier (GAEL - Laboratoire d'Economie Appliquée de Grenoble - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes)
    Abstract: In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, vertical integration can create hold-up problems for the rival. We develop an experiment to test this theoretical prediction in a setup in which suppliers can either pre commit ex ante to being greedy or degrade ex post the input they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems. However, vertical integration also generates more departures from theory, which can be explained by bounded rationality and social preferences.
    Keywords: Vertical integration,Hold-up,Experimental economics,Bounded rationality,Social preferences
    Date: 2021
  14. By: Affeldt, P.; Argentesi, E.; Filistrucchi, Lapo (Tilburg University, Center For Economic Research)
    Keywords: two-sided markets; plateforme; multi-homing; media; advertising
    Date: 2021
  15. By: Alessandro Gavazza; Alessandro Lizzeri
    Abstract: This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We focus on markets with frictions, such as transaction costs, asymmetric information, search and matching frictions. We discuss how such frictions affect allocations, favor the emergence of intermediaries or dealers, and potentially create market power. Our focus is mostly on markets with many participants rather than on transactions that are bilateral or involve a small number of players.
    JEL: L0 L1
    Date: 2021–09
  16. By: David Bardey (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UNIANDES - Universidad de los Andes [Bogota]); Luigi Siciliani (Unknown)
    Abstract: We investigate the effect of competition in the nursing homes sector with a two-sided market approach. More precisely, we investigate the distributional implications across the three key actors involved (residents, nurses and nursing homes) that arise from the two-sidedness of the market. Within a Hotelling set up, nursing homes compete for residents and for nurses, who provide quality to residents, by setting residents price and nurses wage. Nurses are assumed altruistic and therefore motivated to provide quality. The market is two-sided because: i) a higher number of residents affects nurses workload, which affects their willingness to provide labour supply; and ii) a higher number of nurses affects residents quality through a better matching process and by relaxing nurses time constraints. Our key findings are that i) the two-sidedness of the market leads to higher wages for nurses, which makes the nurses better off; ii) this is then passed to residents in the form of higher prices, which makes residents worse off; iii) nursing homes profits are instead unaffected. In contrast, when nurses wages are regulated, the two-sidedness of the market implies a transfer between residents and nursing homes. When residents price are regulated, it implies a transfer between nurses and nursing homes. These results are robust to institutional settings which employ pay-for-performance schemes (that reward either nursing homes or nurses): the two-sidedness of the market is strengthened and residents are still worse off.
    Keywords: Nursing homes,Competition,Two-sided markets,Distribution
    Date: 2021–07
  17. By: Alexander Tarasov; Robertas Zubrickas
    Abstract: This paper is concerned with cross-dependencies between endogenous market structure and tax policy. We extend the Mirrlees (1971) model of income taxation with a monopolistic competition framework with general additively separable consumer preferences. We show that price and variety distortions resulting from the market structure imply that income tax policy needs to be complemented with commodity or firm taxation to achieve the constrained social optimum. We calibrate the model and find that, when choosing optimal tax policy, the failure to account for the market structure results in a welfare loss of 1:77 percent. Motivated by practical cases, we study a policy regime that is solely based on income taxation. Under this policy regime, departures from the social optimum can be compensated by lower and less regressive income taxes than those obtained under the regime with all forms of taxation. We also examine the role of consumer preferences for policy outcomes and show that it is substantially amplified by an endogenous market structure.
    Keywords: tax policy, monopolistic competition, variety effect, consumer preferences, endogenous labor
    JEL: D43 H21 L13
    Date: 2021
  18. By: Viva O. Bartkus; Wyatt Brooks; Joseph P. Kaboski; Carolyn E. Pelnik
    Abstract: Middlemen are ubiquitous in supply chains. In developing countries they help bring products from remote communities to end markets but may exert strong market power. We study a cooperative intervention which organizes together poor fishing communities in the Amazon — one of the poorest and most remote regions of the world — to purchase large boats in order to partially bypass middlemen and deliver their fish directly to market. We find that the intervention increases income by 27%, largely through an increase in price received, and also increases consumption. Moreover, the intervention is highly cost effective with the projected stream of income gains easily covering the cost of the investment. Finally, we formalize a model in which the market power of middlemen itself can create a poverty trap, which can be eliminated with cooperative investment.
    JEL: O1 O12 O13 O18
    Date: 2021–09
  19. By: Zhijun Chen (Monash University)
    Abstract: Price squeezes have been commonly viewed as an exclusionary abuse under the argument of “constructive refusal to deal†, however, such an argument has been challenged by the courts and legal scholars. This paper proposes an exploitative rationale for price squeezes. A vertically integrated dominant firm can exploit efficiency gains from a downstream competitor and price squeezing is a necessary condition for such exploitation. Price squeezing forces the competitor to produce at a lower marginal cost than the dominant firm so that the dominant firm can earn more than the monopoly profit by extracting part of efficiency gains from the rival. Exploitation through price squeezing reduces the rival’s profit unfairly and distorts the production efficiency without benefiting consumers. Prohibiting price squeezes benefits the competitor and improves production efficiency without harming consumers. This paper lays a solid economic foundation for treating price squeeze cases and contributes to reconciling the diverging approach adopted by the courts in the United States and the European Union in recent price squeeze cases.
    Keywords: Price Squeeze, Margin Squeeze, Vertical Integration
    JEL: D42 L42
    Date: 2021–09
  20. By: Felipe Bertamini (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Miguel Carriquiry (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: The dairy chain in Uruguay is very important from economic, social and decentralization standpoints. The analysis of the main links of the chain through the study of price transmission contributes to providing greater transparency in price formation in a context of enhanced volatility and uncertainty. In this line, the price transmission relationships between the export industry and the international market and between the national industry and the dairy producers were estimated and quantified using Error Correction Vectors Models (ECVM). In the first relationship, it was estimated that an increase of 1% in the international price would translate into an increase in the export price of the industry of 1,36%. While the terms of trade between the industry and the dairy producer was 1,9%. A 1% increase in the industry sales price is transmitted by 1,9% to the producer price. For the analysis of the market functioning Threshold Cointegration (TAR) and Momentum Threshold Cointegration (MTAR) models were estimated, as there could be asymmetries between the price received by the producer and the price of the industry, identifying plausible exercises of market power by the industry. Results indicated that there exist asymmetries in the price transmission. The main company establishes a minimum value in the price of the raw material that the other companies must follow and take as a reference. As producers have an important position in the company, they can react more quickly when their price is below the long-term equilibrium. In other words, there is a positive influence on the price paid to dairy producers which may be due to the market structure in which a dominant position is held by a farmer’s cooperative.
    Keywords: dairy chain, price transmission, error correction vector model, asymmetries in price formation.
    JEL: Q11 Q13
    Date: 2021–07
  21. By: Olivier Bochet; Mathieu Faure; Yan Long; Yves Zenou (Division of Social Science)
    Abstract: We consider an aggregative game of competition in which agents have an imperfect knowledge about the set of agents they are in competition with. We model agent’s perceived competitors by a network in which each agent is assumed to only have information on the activities of their direct neighbors. In this framework, a natural equilibrium concept emerges, the peer-consistent equilibrium (PCE). In a PCE, each agent chooses an action level that maximizes her subjective perceived utility and the action levels of all individuals in the network must be consistent. We decompose the network into communities and completely characterize peer-consistent equilibria by identifying which sets of agents can be active in equilibrium. An agent is active if she either belongs to a strong community or if few agents are aware of her existence. We show that there is a unique stable PCE. We provide a behavioral foundation of eigenvector centrality, since, in any stable PCE, agents’ action levels are proportional to their eigenvector centrality in the network. We illustrate our results with two well-known models: Tullock contest function and Cournot competition.
    Date: 2021–09
  22. By: Ela Ince
    Abstract: The thesis brings together three independent essays on the economics of innovation. I analyse the impact of competition on firm-level innovation (chapter 1) and the impact of different types of innovation on firm performance (chapter 2) looking at the top business R&D spenders of the world. I, then, switch my focus on researchers and analyse the determinants of brain drain in Europe (chapter 3).The first chapter is co-authored by Anabela Santos (European Commission) and Michele Cincera (ULB) and aims at assessing the impact of competition on firm-level innovation. The sample is composed of the world top corporate R&D spenders listed in the EU 2017 industrial R&D Scoreboard, and the analysis covers the years spanning from 2007 to 2016. We use an industry-year indicator, the inverse of the Lerner Index, as the indicator of competition for these firms that are leading in innovation efforts in the industries they are operating at the worldwide. R&D expenditures are used as the proxy for innovation. Model is estimated using two-stage least squares, to control for potential endogeneity of the competition indicator. Results confirm the existence of an inverted-U shaped relationship between competition and innovation. Further analysis is undertaken splitting the overall firm sample into services and manufacturing sectors according to technology and knowledge intensities and into the country of headquarters. We validate the inverted-U shaped relationship between competition and innovation for the firms in medium-high- and high-tech manufacturing sectors whereas we do not observe this impact for the firms operating in medium-low- and low-tech manufacturing sectors nor in services sectors. We also find differences in innovation behaviour of firms headquartered in the EU, US, Japan and China. While the inverted-U shaped relationship is highly pronounced for the Chinese firms, we find the U shaped impact of competition on the innovation of the EU and Japanese firms.The second chapter brings together firm-level R&D spending information with patent information, and aims at investigating the impact of different types of patented inventions on firm output growth performance controlling for R&D spending and other firm financials. The firm sample is sourced from the EU 2014 Industrial R&D Scoreboard that brings together the leading private sector R&D investors of the world. The analysis covers the years from 2005 to 2010. I consider forward-looking patent value indicators of breakthrough and general innovation using 7-year citation window, and backward-looking patent value indicators of originality and radicalness in innovation activities. Firm performance is estimated through a Cobb-Douglas production function. I allow for non-linearity in the relationship between innovation strategy and firm performance, and investigate sectoral heterogeneity looking at the impact in health industries and ICT producers. Models are estimated using two-stage least squares and generalised method of moments to control for potential endogeneity of innovation indicators. The findings confirm certain non-linearities and sectoral heterogeneities in the relationships between the different types of innovation and firm performance. ICT producers are growing with breakthrough innovations, generality and novelty in innovation process supporting the general-purpose technology feature of ICT. I, however, do not find a positive impact of technological breakthroughs nor a specific trend of generality and novelty in innovation process on productivity of pharmaceutical and biotechnology firms in the sample.The third chapter is co-authored by Christophe Colassin (ULB) and Michele Cincera (ULB) and aims at analysing the determinants of brain drain in Europe where there exists unbalances and polarisation between the States in terms of attractiveness for researchers despite the common policies and practices put in place by the European Union. The information about the mobility outflows are sourced from Centre for Science and Technology Studies and concern the year 2019. In order to analyse the macroeconomic determinants of mobility of researchers, the chapter brings together information from various data sources that attribute country-level values to the potential determinants of mobility outflows. We use a gravity model framework to detect quantitatively the pull and push factors of researchers' mobility including the 28 EU Member states in the time of analysis, and 3 additional Schengen countries, Norway, Iceland and Switzerland. In addition to the cultural and geographic proximity, we find that a country’s researcher base, entrepreneurial opportunities, knowledge intensity, public R&D spending and international collaborations increase the mobility of researchers within Europe whereas non-academic placements of researchers and the perception of virtual mobility as an alternative decrease the mobility. Researchers from countries with attractive research systems, more innovative private sector and more female researchers are found to be more mobile, whereas, the ones with higher GDP growth rates are less. We find that satisfaction with the recruitment process and the salary levels are decreasing factors for the mobility outflows. Finally, while fixed-term contracts in academia are found to be a factor that decreases the attractiveness; satisfaction with recruitment process, existence of the top R&D spending enterprises in the economy, and the freedom of academic exchange and dissemination are the factors that increases the attractiveness of a country for mobility inflows.
    Keywords: Competition; Innovation; R&D; Productivity; Brain Drain
    Date: 2021–09–17
  23. By: Ata Atay; Eric Bahel; Tam\'as Solymosi
    Abstract: This paper studies matching markets in the presence of middlemen. In our framework, a buyer-seller pair may either trade directly or use the services of a middleman; and a middleman may serve multiple buyer-seller pairs. Direct trade between a buyer and a seller is costlier than a trade mediated by a middleman. For each such market, we examine an associated cooperative game with transferable utility. First, we show that an optimal matching for a matching market with middlemen can be obtained by considering the two-sided assignment market where each buyer-seller pair is allowed to use the mediation service of the middlemen free of charge and attain the maximum surplus. Second, we prove that the core of a matching market with middlemen is always non-empty. Third, we show the existence of a buyer-optimal core allocation and a seller-optimal core allocation. In general, the core does not exhibit a middleman-optimal matching. Finally, we establish the coincidence between the core and the set of competitive equilibrium payoff vectors.
    Date: 2021–09
  24. By: Anthony A. DeFusco; Huan Tang; Constantine Yannelis
    Abstract: Information asymmetries are known in theory to lead to inefficiently low credit provision, yet empirical estimates of the resulting welfare losses are scarce. This paper leverages a randomized experiment conducted by a large fintech lender to estimate welfare losses arising from asymmetric information in the market for online consumer credit. Building on methods from the insurance literature, we show how exogenous variation in interest rates can be used to estimate borrower demand and lender cost curves and recover implied welfare losses. While asymmetric information generates large equilibrium price distortions, we find only small overall welfare losses, particularly for high-credit-score borrowers.
    JEL: D14 D82 G10 G23 G5
    Date: 2021–09
  25. By: Kei Kawai; Ken Onishi; Kosuke Uetake
    Abstract: We study how signaling affects equilibrium outcomes and welfare in an online credit market using detailed data on loan characteristics and borrower repayment. We build and estimate an equilibrium model in which a borrower may signal her default risk through the reserve interest rate. Comparing a market with and without signaling relative to the benchmark with no asymmetric information, we find that adverse selection destroys as much as 34% of total surplus, up to 78% of which can be restored with signaling. We also estimate backward-bending supply curves for some markets, consistent with the prediction of Stiglitz & Weiss (1981).
    JEL: D82 G21 L15
    Date: 2021–09
  26. By: Giang Nguyen (Faculty of Political Science and Economics, Waseda University 1-6-1 Nishi-Waseda, Shinjuku, Tokyo 169-8050, Japan); Hannah Nguyen (Department of Banking and Finance, Monash University Caulfield East, Victoria 3145, Australia); Hung Pham (Department of Banking and Finance, Monash University Caulfield East, Victoria 3145, Australia)
    Abstract: Using a comprehensive dataset of social network ties between U.S. counties, we document higher announcement returns for acquirers that are more socially proximate to their targets. Our findings are robust to the inclusion of geographical proximity and withstand endogeneity concerns. Consistent with the information asymmetry hypothesis, we show that the effect of social connectedness is more pronounced when targets have high information opacity, as proxied by target status, analyst coverage, bid–ask spreads, R&D, and high-tech classifications. In addition, social connectedness lowers advisory fees, reduces deal premiums, and yields better acquirer long-term performance.
    Keywords: Social connectedness; merger and acquisition; information asymmetry
    Date: 2021–09
  27. By: Tamás Peragovics (Institute of World Economics, Centre for Economic and Regional Studies)
    Abstract: One of the protagonists of globalization in the past decade has been China. Its economic and financial footprint has deepened across the globe, and its companies are active in all industries, with few countries left untouched by such interest. A key instrument in this expansion are mergers and acquisitions (M&A) projects pursued by Chinese companies, many of which are focused on technologically advanced, and thus politically sensitive, businesses in Western countries. This expansion is fueled in large part by China’s Go Global strategy, initiated in 1999, and, more recently, the Made in China 2025 campaign. The US has drawn considerable interest from Chinese companies since the 2010s, many of which are aimed to buy into key American businesses. This working paper discusses Chinese M&A activities in the US during this period, focusing on the political obstacles and regulatory difficulties they encounter. In so doing, the study demonstrates that the American M&A market showed more receptivity towards Chinese projects in the first half of the 2010s, while it became more politically charged after 2016, in large part due to the steady deterioration of ties between Beijing and Washington. The case of TikTok and other high-profile Chinese businesses are used to illustrate these developments.
    Keywords: China, USA, mergers, acquisitions, TikTok
    JEL: G34 G11 P33 P45
    Date: 2021–04
  28. By: Jan De Loecker; Chad Syverson
    Abstract: This chapter overviews productivity research from an industrial organization perspective. We focus on what is known and what still needs to be learned about the productivity levels and dynamics of individual producers, but also how these interact through markets and industries to influence productivity aggregates. We overview productivity concepts, facts, data, measurement, analysis, and open questions.
    JEL: D2 L1 L2 L6
    Date: 2021–09
  29. By: Jo-Ann Suchard (UNSW Business School, University of New South Wales Sydney.); Giang Nguyen (School of Political Science and Economics, Waseda University.); Yuelin Wang (School of Political Science and Economics, Waseda University.)
    Abstract: Using comprehensive social capital data of U.S. counties from the Social Capital Project, we show evidence that the county-level social capital where the acquirer is located is positively related to the acquirer’s announcement returns. This finding withstands alternative model specifications and remains robust to endogeneity concerns. We also document that social capital has a more pronounced effect on the acquirer’s announcement returns when the supermajority to approve a merger, acquirer size, the deal size, and the ratio of stock payment are larger and the percentage of blockholder ownership is smaller. Additionally, we find that social capital creates more synergies, enhances acquirers’ long-term performance, and shortens deal completion duration. Overall, our results support the shareholder value maximization view that social capital constrains managerial opportunistic and selfserving behaviors, which leads to better acquisition outcomes.
    Keywords: Social Social Capital, Merger and Acquisition, Shareholder Value Maximization.
    JEL: G34 Z13
    Date: 2021–09
  30. By: Daron Acemoglu
    Abstract: This essay discusses several potential economic, political and social costs of the current path of AI technologies. I argue that if AI continues to be deployed along its current trajectory and remains unregulated, it may produce various social, economic and political harms. These include: damaging competition, consumer privacy and consumer choice; excessively automating work, fueling inequality, inefficiently pushing down wages, and failing to improve worker productivity; and damaging political discourse, democracy's most fundamental lifeblood. Although there is no conclusive evidence suggesting that these costs are imminent or substantial, it may be useful to understand them before they are fully realized and become harder or even impossible to reverse, precisely because of AI's promising and wide-reaching potential. I also suggest that these costs are not inherent to the nature of AI technologies, but are related to how they are being used and developed at the moment - to empower corporations and governments against workers and citizens. As a result, efforts to limit and reverse these costs may need to rely on regulation and policies to redirect AI research. Attempts to contain them just by promoting competition may be insufficient.
    JEL: J23 J31 L13 L40 O33 P16
    Date: 2021–09

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