nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒11‒01
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Chamberlin without differentiation: Soft-capacity constrained price competition with free entry By Marie-Laure Cabon-Dhersin; Nicolas Drouhin
  2. Multi-Product Pricing and Minimum Resale Price Maintenance By Dertwinkel-Kalt, Markus; Wey, Christian
  3. Private Labels in Marketplaces By Radostina Shopova
  4. Preemptive Entry and Technology Diffusion: The Market for Drive-in Theaters By Ricard Gil; Jean-François Houde; Shilong Sun; Yuya Takahashi
  5. Entry Regulation and Competition. Evidence from retail and labor markets of pharmacists. By Unsorg, Maximiliane; Rostam-Afschar, Davud
  6. The impact of competition on expert's information disclosure: the case of real estate brokers By Cherbonnier, Frédéric; Lévêque, Christophe
  7. Multinational firms' organisational dynamics: Competition intensity and the ownership decision under uncertainty By Navarro, Leandro
  8. Fake Reviews and Naive Consumers By Boris Knapp
  9. Market Segmentation and Competition in Health Insurance By Michael J. Dickstein; Kate Ho; Nathaniel D. Mark
  10. Does Monetary Policy Affect Mergers and Acquisitions? By Horn, Carl-Wolfram; Fischer, Johannes J.
  11. How To Sell (or Procure) in a Sequential Auction By Kenneth Hendricks; Thomas Wiseman
  12. The Determinants of Competitive Advantage: Capability vs. Industry Structure By Harada, Tsutomu; Hiramine, Yoshiki
  13. Market Design By Nikhil Agarwal; Eric Budish
  14. A Two-stage Pricing Strategy Considering Learning Effects and Word-of-Mouth By Yanrong Li; Lai Wei; Wei Jiang
  15. Macroeconomic dynamics and the role of market power. The case of Italy By Mondolo, Jasmine
  16. Credit Union Regulations' Mysterious Hold on Thrifts and Community Banks By Reka Sundaram-Stukel; Steven C Deller

  1. By: Marie-Laure Cabon-Dhersin (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université); Nicolas Drouhin (CREM - Centre de recherche en économie et management - CNRS - Centre National de la Recherche Scientifique - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - UNICAEN - Université de Caen Normandie - NU - Normandie Université, UNICAEN UFR SEGGAT - Université de Caen Normandie - UFR de Sciences Économiques, Gestion, Géographie et Aménagement des Territoires - UNICAEN - Université de Caen Normandie - NU - Normandie Université)
    Abstract: We show that the long-term properties of price and cost in Chamberlin's (1933) monopolistic competition model can be reproduced with a soft-capacity constrained price competition oligopoly model for a homogeneous good with free entry.
    Keywords: price competition,soft-capacity constraint,free entry,U-shaped cost function,monopolistic competition,Chamberlin
    Date: 2021–10–14
  2. By: Dertwinkel-Kalt, Markus; Wey, Christian
    JEL: L12 L41 D42 K21
    Date: 2021
  3. By: Radostina Shopova
    Abstract: This paper investigates the implications of vertical integration with private labels in the marketplace model opposed to the classic wholesale model. Differently from classic retailers, on a marketplace firms set end-consumer prices and the intermediary collects fees. When introducing a lower-quality version of a product, a marketplace owner does not have an incentive to increase the cost of the outside seller and foreclose him. In order to protect revenues from the seller channel, a marketplace owner overprices his product, compared to a retailer or stand-alone monopolist, and decreases the fee. I demonstrate that offering a lower quality is indeed optimal for both marketplace owner and classic retailer, with the former differentiating more from the seller's offering. This harms the seller less, but improves the consumer surplus less compared to a retailer.
    JEL: D21 D40 L12 L22 L42 L81
    Date: 2021–10
  4. By: Ricard Gil; Jean-François Houde; Shilong Sun; Yuya Takahashi
    Abstract: This paper studies the role and incidence of entry preemption strategic motives on the dynamics of new industries, while providing an empirical test for entry preemption, and quantifying its impact on market structure. The empirical context is the evolution of the U.S. drive-in theater market between 1945 and 1957. We exploit a robust prediction of dynamic entry games to test for preemption incentives: the deterrence effect of entering early is only relevant for firms in markets of intermediate size. Potential entrants in small and large markets face little uncertainty about the actual number of firms that will eventually enter. This leads to a non-monotonic relationship between market size and the probability of observing an early entrant. We find robust empirical support for this prediction using a large cross-section of markets. We then estimate the parameters of a dynamic entry game that matches the reduced-form prediction and quantify the strength of the preemption incentive. Our counterfactual analysis shows that strategic motives can increase the number of early entrants by as much as 50 percent in mid-size markets without affecting the number of firms in the long run. By causing firms to enter the market too early, we show that strategic entry preemption leads on average to a 5% increase in entry costs and a 1% decrease in firms' expected value (relative to an environment without strategic investments).
    JEL: L1 L12 L82
    Date: 2021–10
  5. By: Unsorg, Maximiliane; Rostam-Afschar, Davud
    JEL: L4 L5 L2 J44 J23
    Date: 2021
  6. By: Cherbonnier, Frédéric; Lévêque, Christophe
    Abstract: Competition can theoretically counter or reinforce tendency of experts to pass biased information to customers. Using data from an online company connecting real estate brokers with clients who want to sell their properties, we show that more competition or lower opportunity to collude induce brokers to raise their ini- tial price estimation by more than 3%. This is observed upstream, when experts appraise the property for sale. Competition partially prevents brokers from biais- ing downward evaluations, and is benecial to the client since it translates into a positive eect on listing and sale prices with no signicant eect on the time to sale.
    Keywords: Information revelation; Competition; Price appraisal; Real Estate Bro-; kers;
    JEL: L15 D83 R30 L85
    Date: 2021–10–22
  7. By: Navarro, Leandro
    JEL: D21 D23 D81 D83 F14 F21 F23 L22
    Date: 2021
  8. By: Boris Knapp
    Abstract: User-generated reviews like those found on Amazon, Yelp, and similar platforms have become an important source of information for most consumers nowadays. It is therefore tempting for firms to manipulate reviews in order to increase demand for their products - but not all consumers are aware of this. We show that in a simple model with fake reviews and naive consumers the unique equilibrium is characterised by partial pooling, where fake reviews blend in with real ones and are persuasive. Policies that reduce the share of naive consumers have opposing effects on the two consumer groups: naives benefit, while sophisticates are harmed. A policy maker concerned with aggregate consumer welfare is thus facing a non-trivial problem. We further show that when real reviews are written strategically, they are not always truthful. Given sufficiently favourable market conditions, the equilibrium where all real reviewers are strategic is outcome equivalent to one where all consumers are sophisticates. In the context of online platforms, where the boundary between consumers and reviewers is fluid, this equivalence result has important practical implications.
    JEL: C72 D82 L15
    Date: 2021–07
  9. By: Michael J. Dickstein; Kate Ho; Nathaniel D. Mark
    Abstract: In the United States, households obtain health insurance through distinct market segments. We explore the economics of this segmentation by comparing coverage provided through small employers versus the individual marketplace. Using data from Oregon, we find households with group coverage spend 26% less on covered health care than households with individual coverage yet face higher markups. We develop a model of plan choice and health spending to estimate preferences in both markets and evaluate integration policies. In our setting, pooling can both mitigate adverse selection in the individual market and benefit small group households without raising taxpayer costs.
    JEL: I11 I13 I18 L0
    Date: 2021–10
  10. By: Horn, Carl-Wolfram; Fischer, Johannes J.
    JEL: E44 E52 G34 E22
    Date: 2021
  11. By: Kenneth Hendricks; Thomas Wiseman
    Abstract: A seller with one unit of a good faces N\geq3 buyers and a single competitor who sells one other identical unit in a second-price auction with a reserve price. Buyers who do not get the seller's good will compete in the competitor's subsequent auction. We characterize the optimal mechanism for the seller in this setting. The first-order approach typically fails, so we develop new techniques. The optimal mechanism features transfers from buyers with the two highest valuations, allocation to the buyer with the second-highest valuation, and a withholding rule that depends on the highest two or three valuations. It can be implemented by a modified third-price auction or a pay-your-bid auction with a rebate. This optimal withholding rule raises significantly more revenue than would a standard reserve price. Our analysis also applies to procurement auctions. Our results have implications for sequential competition in mechanisms.
    Date: 2021–10
  12. By: Harada, Tsutomu; Hiramine, Yoshiki
    Abstract: The purpose of this study is to investigate the effects of capability and industry structure on competitive advantage in the Japanese economy. We used one of the most comprehensive data sets for Japanese firms compiled by Teikoku Databank. While related literature primarily examined the effects of industry on competitive advantage using industry dummies, this study incorporated more sophisticated measures for industry structure. The results revealed that both capability and industry structure accounted for competitive advantage. Moreover, the opposite effects of industry structure on competitive advantage between competitive and uncompetitive firms were identified. Thus, the results indicate that capability plays a more important role in accounting for competitive advantage than industry structure.
    Keywords: competitive advantage, capability, industry structure
    Date: 2021–10
  13. By: Nikhil Agarwal; Eric Budish
    Abstract: This Handbook chapter seeks to introduce students and researchers of industrial organization (IO) to the field of market design. We emphasize two important points of connection between the IO and market design fields: a focus on market failures—both understanding sources of market failure and analyzing how to fix them—and an appreciation of institutional detail. Section II reviews theory, focusing on introducing the theory of matching and assignment mechanisms to a broad audience. It introduces a novel “taxonomy” of market design problems, covers the key mechanisms and their properties, and emphasizes several points of connection to traditional economic theory involving prices and competitive equilibrium. Section III reviews structural empirical methods that build on this theory. We describe how to estimate a workhorse random utility model under various data environments, ranging from data on reported preference data such as rank-order lists to data only on observed matches. These methods enable a quantification of trade-offs in designing markets and the effects of new market designs. Section IV discusses a wide variety of applications. We organize this discussion into three broad aims of market design research: (i) diagnosing market failures; (ii) evaluating and comparing various market designs; (iii) proposing new, improved designs. A point of emphasis is that theoretical and empirical analysis have been highly complementary in this research.
    JEL: C78 D47 L00
    Date: 2021–10
  14. By: Yanrong Li; Lai Wei; Wei Jiang
    Abstract: This paper proposes a two-stage pricing strategy for nondurable (such as typical electronics) products, where retail price is cut down at certain time points of the product lifecycle. We consider learning effect of electronic products that, with the accumulation of production, average production cost decreases over time as manufacturers get familiar with the production process. Moreover, word-of-mouth (WOM) of existing customers is used to analyze future demand, which is sensitive to the difference between the actual reliability and the perceived reliability of products. We theoretically prove the existence and uniqueness of the optimal switch time between the two stages and the optimal price in each stage. In addition, warranty as another important factor of electronic products is also considered, whose interaction with word-of-mouth as well as the corresponding influences on total profit are analyzed. Interestingly, our findings indicate that (1) the main reason for manufacturers to cut down prices for electronic products pertains to the learning effects; (2) even through both internal factors (e.g., the learning effects of manufacturers) and external factors (e.g., the price elasticity of customers) have impacts on product price, their influence on manufacturer's profit is widely divergent; (3) generally warranty weakens the influence of external advertising on the reliability estimate, because warranty price only partially reflects the actual reliability information of products; (4) and the optimal warranty price can increase the profits for the manufacturer by approximately 10%.
    Date: 2021–10
  15. By: Mondolo, Jasmine
    Abstract: In recent years, the US and other advanced countries have experienced macroeconomic dynamics which raise some concerns and which, according to the literature, are at least partly attributable to a rise in product market power. This study mainly aims to understand how Italy performs in terms of five relevant economic variables (i.e., domestic investment rate, labour share, labour force participation, wage inequality and economic dynamism), and whether firms’ markups are on the rise. The picture that emerges is mixed, and the negative performance in terms of business dynamism and wage dispersion may be ascribable to an increase in product market power. The firm-level analysis of the Italian manufacturing sector for the years 2011-2018, which complements previous empirical analysis on product market power in this country and accounts for labour market power as well, reveals an increment in the average markup which, however, is not particularly pronounced and unsettling, and which is preceded by a period of steady decline. Moreover, this trend is accompanied by a more remarkable increase in the workers’ labour market power, which helps explain the modest growth in the revenue-based labour share observed during the same period.
    Keywords: labour share, market power, markup, investment, inequality
    JEL: E25 J42 L11
    Date: 2021–10–13
  16. By: Reka Sundaram-Stukel; Steven C Deller
    Abstract: The continued operation of credit unions in the 2008-2010 regulatory framework remained a source of debate in the financial sector. Competing thrifts argued for fair regulatory treatment while credit unions argued for the relaxation of restrictions on their scale and scope of operation. We provide a fresh perspective by building on central place theory and offering a family of location models for the U.S. credit unions. Our results showed that credit unions operated in areas with a low concentration of retail banks. This finding was evidence that credit unions serve niche markets and they were not a significant source of direct competition for thrifts and community banks. This may signal an increase in credit union formation in a post-pandemic world.
    Date: 2021–10

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