nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒12‒06
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Do search engines increase concentration in media markets? By Joan Calzada; Nestor Duch-Brown; Ricard Gil
  2. Can Media Pluralism Be Harmful to News Quality? By Federico Innocenti
  3. Airline Cooperation Effects on Airfare Distribution: An Auction-model-based Approach By Ivaldi, Marc; Petrova, Milena J; Urdanoz, Miguel
  4. Does Firm Exit Increase Prices? By Suveg, Melinda
  5. When They Go Low, We Go High? Measuring Bank Market Power in a Low-for-Long Environment By Ms. Deniz O Igan; Mr. Andrea F Presbitero; Mr. Nicola Pierri
  6. Measuring competition in services markets with pass-through and speed of adjustment By Frédéric Gonzales; Hildegunn Kyvik Nordås; Michel Lioussis
  7. The impact on market outcomes of the portfolio selection of large equity investors By Moreno Ruiz, Diego; Petrakis, Emmanuel
  8. Retail Pricing Format and Rigidity of Regular Prices By Ray, Sourav; Snir, Avichai; Levy, Daniel
  9. Ex-post evaluation of the American Airlines-US Airways merger: a structural approach By Bontemps, Christian; Remmy, Kevin; Wei, Jiangyu
  10. Monopoly Capitalism in the Digital Era By Andrea Coveri; Claudio Cozza; Dario Guarascio
  11. When ‘the’ market loses its relevance: an empirical analysis of demand-side linkages in platform ecosystems By CARBALLA SMICHOWSKI Bruno; DUCH BROWN Nestor; GOMEZ LOSADA Alvaro; MARTENS Bertin
  12. Buyer’s Optimism, Information Design, and Price Discrimination By Pham, Hien
  13. A Structural Model of Organizational Buying for B2B Markets: Innovation Adoption with Share of Wallet Contracts By Navid Mojir; K. Sudhir
  14. A Post M&A Innovation in Family Firms By Abdul-Basit Issah
  15. R&D innovation with socially responsible firms By Domenico Buccella; Luciano Fanti; Luca Gori
  16. Labour Market Power and the Quest for an Optimal Minimum Wage: Evidence from Italy By Mauro Caselli; Jasmine Mondolo; Stefano Schiavo
  17. Perceived Competition in Agricultural Lending: Stylized Facts and an Agenda for Future Research By Chad Fiechter; Todd Kuethe; David B. Oppedahl
  18. Common Ownership Patterns in the European Banking Sector – The Impact of the Financial Crisis By Albert Banal-Estañol; Nuria Boot; Jo Seldeslachts

  1. By: Joan Calzada (Universitat de Barcelona); Nestor Duch-Brown (Joint Research Centre); Ricard Gil (Smith School of Business, Queen’s University)
    Abstract: Search engines are one of the main channels to access news content of traditional newspapers. In the European Union, organic search traffic from Google accounts for 35% of news outlets’ visits. Yet, the effects of Google Search on market competition and information diversity are ambiguous, as the firm indexes news outlets considering both domain authority and information accuracy. Using detailed daily data traffic for 606 news outlets from 15 European countries, we assess the effect of Google Search’s indexation on search visits. Our identification strategy exploits nine core algorithm updates rolled out by Google between 2018 and 2020 in order to achieve exogenous variation in news outlets’ indexation. Several conclusions follow from our estimations. First, Google core updates overall reduce the number of keywords that news outlets have in top positions in search results. Second, keywords ranked in top search position have a positive effect on news outlets’ visits. Third, our results are robust when we focus the analysis on different types of news outlets, but are less conclusive when we consider national markets separately. Our paper also analyzes the effects of Google core updates on media market concentration. We find that the three “big†core updates identified in this period reduced market concentration by 1%, but this effect was mostly compensated by the rest of the updates.
    Keywords: Media market, Google Search, Europe, core algorithm updates.
    JEL: L1 L5
    Date: 2021
  2. By: Federico Innocenti
    Abstract: I study the effect of polarization and competition on information provision. With a single expert who faces decision-makers with het- erogeneous priors, the expert solves a trade-off between persuading sceptics and retaining believers. With high polarization, an expert has incentives to supply low-quality information to leverage believers' credulity. With multiple experts with opposite biases, competition is harmful if attention is limited. Unbiased and Bayesian decision-makers rationally devote attention to like-minded experts. Echo chambers arise endogenously, whereas decision-makers would be better informed in monopoly. My model can rationalize the spread and persistence of conspiracy theories and fake news.
    Keywords: Bayesian Persuasion, Competition, Echo Chambers, Heterogeneous Priors, Limited Attention, Media Pluralism
    JEL: D82 D83 L82
    Date: 2021–05
  3. By: Ivaldi, Marc; Petrova, Milena J; Urdanoz, Miguel
    Abstract: Airline alliances have a long history yet there is no academic consensus on how they affect price levels and their impact on price dispersion has not yet been studied. We address this question using a novel methodology motivated by the service homogenization and increased price competiton in this industry in the recent years. Establishing an equivalence between the online sales process and a reverse English auction, we use methods from auction econometrics to work in a new way with the standard industry data set: using individual ticket sales where only aggregated prices have been used in the past. Applicable to other industries where sellers compete in prices, this approach allows us to reconsider the effect of airline alliances on the distribution of airfares in the US domestic market. We find lower price mean and dispersion in markets where airlines belong to an alliance as a result of the lower variability of costs. The methodology we apply here can be used to study any distribution of individualized prices, which are now prevalent since the advent of the digital economy.
    Keywords: Airline,;cooperation; auction, price dispersion, price distribution.
    JEL: D22 D44 L11 L93
    Date: 2021–11
  4. By: Suveg, Melinda (Research Institute of Industrial Economics (IFN))
    Abstract: This paper examines how changes in product market concentration, specifically firm exit, affect prices. I develop a model where firms have variable markups to show that the remaining firms increase their markups and prices after their competitors’ exit. The model predictions are tested using micro-data on Swedish firms. I use the exposure of firms to a bank, which was severely affected by the financial crisis abroad, as an instrument to identify the causal relationship between firm exit and prices. I find that the remaining firms increase their prices by 0.3 percent when firms with a combined market share of one percent exit.
    Keywords: Price setting; Market structure; Financial shocks; Firm exit
    JEL: D43 E31 E32 L13 L16 L60
    Date: 2021–11–08
  5. By: Ms. Deniz O Igan; Mr. Andrea F Presbitero; Mr. Nicola Pierri
    Abstract: We examine trends in bank competition since the early 2000s. The Lerner index—arguably the most commonly used measure—shows evidence of a marked increase in market power in advanced economies, especially after the global financial crisis. But other frequently used indicators of banking sector competition seem much more muted. We show that the significant drop in policy rates that occurred in the aftermath of the crisis could explain the seeming disconnect. Adjusting the Lerner index for the impact of policy rates reveals that market power has been fairly constant in advanced economies—consistent with the other signals and similar to the pattern observed in emerging markets.
    Date: 2021–05–27
  6. By: Frédéric Gonzales; Hildegunn Kyvik Nordås; Michel Lioussis
    Abstract: Making trade work for all and harnessing popular support for openness to trade depends on consumers benefitting from lower prices and broader product variety. The present study reveals that those benefits depend on competition in services markets, in particular in telecommunication. These findings result from employing an industrial organisation framework to estimate the transmission of prices from the world market to consumers of certain services in local markets (distribution, transport, and financial services). The OECD Services Trade Restrictiveness Index (OECD STRI) is used to explore the relationship between the pass-through rate of input prices to consumer prices and policy measures that capture the openness and strength of competition in services markets. The OECD STRI in telecommunications is found to be associated with a more complete and faster pass-through of prices in all markets studied. The results also illustrate the crucial role played by the internet in allowing for price comparisons that generate competitive pressure on distributors.
    Keywords: Cointegration, Pass-through rates, Price signals, Services trade restrictions
    JEL: C1 D23 D41 L11
    Date: 2021–12–01
  7. By: Moreno Ruiz, Diego; Petrakis, Emmanuel
    Abstract: We study a setting in which several large investors select their portfolios of equity of the firms competing in a symmetric duopoly considering the impact of their interests on the managerial incentives. Assuming that investors objective is to maximize the value of their portfolios, we show that equilibrium portfolios will be symmetric, contributing to enhance the anticompetitive impact of the presence of large investors on price mark ups and profits.
    Keywords: Market Power; Common Ownership; Minority Equity; Portfolio Selection
    JEL: L13 L2 L4 L5
    Date: 2021–11–22
  8. By: Ray, Sourav; Snir, Avichai; Levy, Daniel
    Abstract: We study different notions of sale and regular prices, and their variability with store pricing-formats. We use data from three large stores with different pricing-formats (EDLP/Hi-Lo/Hybrid) that are located within 1-km radius. Importantly, the data contain both the actual transaction prices and the actual regular prices as displayed on the store shelves. We combine these data with two “generated” regular price series and study their rigidity. Regular-price rigidity varies with store-formats because different format stores define regular-prices differently. Correspondingly, the meaning of price-cuts varies across store-formats. To interpret the findings, we consider the store pricing format distribution across the US.
    Keywords: Price Rigidity,Sticky Prices,Regular Prices,Sale Prices,Filtered Prices,Reference Prices,Transaction Prices,Price Cuts,Pricing Format,Every Day Low Price,EDLP,Hi-Lo,Hybrid
    JEL: E31
    Date: 2021
  9. By: Bontemps, Christian; Remmy, Kevin; Wei, Jiangyu
    Abstract: In this paper, we estimate a structural model of the domestic US airline market to analyze the effect of the recent merger between American Airlines and US Airways. Our results show that, between 2011 and 2016, a substantial fuel price drop in conjunction with changes in consumer preferences toward direct flights completely rationalizes the observed decrease in prices. However, we estimate that, during the same period, more than half of the consumer welfare increase is due, on top of these environmental changes, to the ex-post optimization of the networks of the newly merged airline and of its competitors.
    Keywords: Merger; airlines; network; structural model; nested logit; airfare; demand; supply.
    Date: 2021–11–09
  10. By: Andrea Coveri; Claudio Cozza; Dario Guarascio
    Abstract: The paper applies the radical view of Monopoly Capitalism to the digital platform economy. Based on the seminal ideas of Hymer and Zeitlin that led Cowling and Sugden to define the large monopolistic firm as a means to plan production from a unique centre of strategic decision-making, we attempt to develop a framework where digital platforms are conceived as an evolution of large transnational corporations. Power and control in our Monopoly Capitalism view are then meant not only in terms of market relations, but rather as levers for coordinating global production and influencing world societies. Applying this framework to the Amazon case, we highlight the key analytical dimensions to be considered: not only Amazon dominates other firms and suppliers through its diversification and a direct control of data and technology; its power is also linked to global labour fragmentation and uneven bargaining power vis-Ã -vis world governments, as in the Hymer and Cowling's tradition.
    Keywords: Monopoly Capital; Monopoly Power; Digital Platforms; Amazon; Multinational corporation
    JEL: L12 L22 P12
    Date: 2021–11
  11. By: CARBALLA SMICHOWSKI Bruno (European Commission – JRC); DUCH BROWN Nestor (European Commission – JRC); GOMEZ LOSADA Alvaro (European Commission – JRC); MARTENS Bertin (European Commission – JRC)
    Abstract: Recent literature has shown that the existence of supply and demand-side non-generic complementarities (“demand-side linkages") within ecosystems raises questions about the pertinence of defining a single relevant market comprising substitute products (“substitutability approach"). However, empirical methodologies to measure these linkages and asses the competitive dynamics underpinning them are lacking. Using recent data from internet traffic between the major 246 European digital platforms, we develop such a methodology and test some theoretical findings of the ecosystems literature with major implications for competition and regulatory analysis. We corroborate that demand-side linkages are a non-negligible phenomenon: 18% of these platforms show them. However, unlike what the ecosystems literature predicts, in roughly half of the cases they do not link complementors but platforms competing in at least one market. Finally, while, as expected, we observe demand-side linkages mostly within industry-defined ecosystems, we find evidence of industry-agnostic ecosystems. These could be instigated and orchestrated by platform users instead of by a firm. We conclude that the substitutability approach is not obsolete, but needs to be complemented with alternative approaches in order to i) take into account coopetition within the same relevant market and ii) analyze how the competitive process in one market can impact the welfare generated in another (industry's) market through non-generic complementarities.
    Keywords: ecosystems, platforms, complementarities, relevant market
    Date: 2021–11
  12. By: Pham, Hien
    Abstract: A seller (she) faces a single buyer (he) who holds a biased and private prior belief regarding whether the product fits his need (which brings him a higher payoff than otherwise). The seller can provide additional information about the product that helps the buyer privately refine his belief. We fully characterize the revenue-maximizing menu of prices and disclosure policies that follows a simple cutoff structure. While the diversity in the priors alone is not sufficient to trigger price discrimi-nation, the presence of information design induces the optimal mech-anism featuring both information and price discrimination. Further-more, the seller does not strictly benefit from charging upfront pay-ments for information.
    Date: 2021–11
  13. By: Navid Mojir (Yale School of Management); K. Sudhir (Cowles Foundation and Yale School of Management)
    Abstract: The paper develops the ï¬ rst structural model of organizational buying to study innovation diffusion in a B2B market. Our model is particularly applicable for routinized exchange relationships, whereby centralized buyers periodically evaluate and choose contracts, then downstream users or- der items on contracted terms. The model captures different utility tradeoffs for users and buyers while accounting for how buyer and user choices interact to impact user adoption/usage and buyer contracting. Further, the paper considers the dynamics induced by share of wallet (SOW) pricing contracts, commonly used in B2B markets to reward customer loyalty with discounts for buying more than a threshold share from a supplier. We assemble novel panel data on surgeon usage, SOW contracts, contract switching, and hospital characteristics. We ï¬ nd two segments of hospitals in terms of the relative power of surgeons and buyers: a buyer-centric and a surgeon-centric segment. Further, innovations diffuse faster in teaching hospitals and when surgeries are concentrated among a few surgeons. Finally, we answer such questions as: Should the marketer focus on push (buyer-focused) or pull (user-focused) strategies? Do SOW contracts hurt the innovations of smaller ï¬ rms? Surprisingly, we ï¬ nd that the contracts can help speed the diffusion of major innovations from smaller players.
    Keywords: Organizational Buying Behavior, healthcare marketing, B2B Markets, B2B Innovation, New Product Diffusion, New Product Adoption
    Date: 2021–11
  14. By: Abdul-Basit Issah (WIFU/Herdecke University)
    Abstract: The paper empirically investigates how family firms appropriate acquired resources to become more innovative in the context of merger waves. It draws on resource-based view and the theory of first mover (dis)advantages to examine the implications of the timing of acquisitions on innovation in family firms. Using a panel dataset of manufacturing firms in the Standard & Poor’s (S&P) 500 followed over a period of 31 years, the study finds empirical support for the predictions that targets acquired during the upswing of a merger wave are more valuable to family firms and associated with more innovation than for non-family firms.
    Keywords: Acquisitions; innovation; resource-based view; family firms; merger waves.
    JEL: G34 L10 L20 M20
    Date: 2021
  15. By: Domenico Buccella; Luciano Fanti; Luca Gori
    Abstract: This work revisits the R&D model à la D’Aspremont –Jacquemin (1988) (AJ) in a context with socially responsible firms. In the traditional model firms invest but, in equilibrium, they are cast into a prisoner’s dilemma. Socially responsible firms also invest in equilibrium. However, provided that firms consider sufficiently high consumer welfare, to invest is firms’ utility-enhancing: the prisoner’s dilemma vanishes, and the R&D investment is the firms’ Pareto-efficient choice. That is, while in the traditional AJ context to invest in R&D is Pareto-inferior for the whole society, when firms are of CSR type their R&D innovation becomes a Pareto-superior choice.
    Keywords: Process innovation; Corporate social reponsibility; Nash equilibrium; Social welfare
    JEL: D43 L13 O31
    Date: 2021–11–01
  16. By: Mauro Caselli; Jasmine Mondolo; Stefano Schiavo
    Abstract: This study investigates the recent trends in labour market power in Italy and assess-es the impact of a potential minimum wage using a large sample of manufacturing firms. We show that, despite an average shift of labour market power from the own-ers to the workers, monopsony power is still widespread, especially in some sectors and regions. The introduction of a minimum wage would be beneficial to workers and the economy as it reduces the monopsony power of highly productive firms paying low wages; however, it may also have a negative impact, since firms with low wages and low labour productivity may react by reducing the number of their em-ployees or even by exiting the market. Finally, we defined that an optimal minimum wage, which minimises the negative effect and maximises the positive effect for the economy, ranges between 8.25 and 9.65 euro per hour.
    Date: 2021
  17. By: Chad Fiechter; Todd Kuethe; David B. Oppedahl
    Abstract: This study examines agricultural lending by commercial banks and the competition they face from the Farm Credit System and non-traditional lenders, including merchants, dealers, and other input suppliers. We construct a measure of commercial banks’ perceived competition with FCS or non-traditional lenders using the individual responses to the Federal Reserve Bank of Chicago's Land Values and Credit Conditions Survey between 1999 and 2019. Our analysis shows that the two sources of competition have very different effects on commercial bank lending terms, loan portfolio riskiness, and expected loan volumes. With these results in mind, we offer a number of suggestions for future research.
    Keywords: competition; agricultural lending; non-traditional lenders
    JEL: G21 Q14
    Date: 2021–10–01
  18. By: Albert Banal-Estañol; Nuria Boot; Jo Seldeslachts
    Abstract: We provide a description of ownership patterns in the top 25 European banks for the period 2003–2015, where we especially focus on the global financial crisis. Investment managers, such as Blackrock, are dominant in terms of number of blockholdings in different banks, maintaining fairly stable “common ownership” networks throughout our sample. However, the financial crisis led to capital injections by governments in several banks in trouble, which in turn led to a jump in holdings by governments, which typically are “non-common owners” (i.e., they hold only shares in only one bank). This jump translated into these investors temporarily being the top investor with a large share, and non-common owners being the majority among large shareholders. A brief comparison with US banks uncovers large ownership differences between the European and US banking sectors. We briefly discuss what these ownership patterns might imply for competition, stability and performance in the banking industry.
    Date: 2021–11–08

This nep-com issue is ©2021 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.