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on Industrial Competition |
| By: | Pauline Affeldt; Tomaso Duso; Klaus Gugler; Joanna Piechucka |
| Abstract: | Worldwide, the overwhelming majority of large horizontal mergers are cleared by antitrust authorities unconditionally. The presumption seems to be that efficiencies from these mergers are sizeable. We calculate the compensating efficiencies that would prevent a merger from harming consumers for 1,014 mergers affecting 12,325 antitrust markets scrutinized by the European Commission between 1990 and 2018. Compensating efficiencies seem too large to be achievable for many mergers. Barriers to entry and the number of firms active in the market are the most important factors determining their size. We highlight concerns about the Commission’s merger enforcement being too lax. |
| Keywords: | compensating efficiencies, efficiency gains, merger control, concentration, screens, HHI, mergers, unilateral effects, market definition, entry barriers |
| JEL: | L19 L24 L00 K21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9403&r= |
| By: | Hattori, Keisuke |
| Abstract: | This paper compares the profitability and sustainability between profit-sharing collusion with side payments and price-fixing collusion without side payments in a two-firm repeated Bertrand game when firms differ in both cost and discount factor. Although profit-sharing collusion yields larger joint profits, bargaining over collusive agreements makes heterogeneous firms prefer different types of collusion: a low-cost (high cost) firm is more likely to adhere to profit-sharing (price-fixing) collusion. If both firms have the same discount factor, profit-sharing collusion is more sustainable. However, price-fixing collusion can be the only sustainable collusion if the efficient firm is more patient than the inefficient firm. Furthermore, we extend profit-sharing collusion by incorporating side payments with different enforcement procedures (i.e., different timing of side payments) and different purposes: to reach agreement and to make the agreement sustainable. Our results provide a theoretical rationale for why firms fail or succeed at reaching and sustaining some forms of collusion. |
| Keywords: | Collusion; Asymmetric costs; Asymmetric discount factors; Side payments; Repeated game |
| JEL: | C73 C78 L13 L41 |
| Date: | 2021–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110800&r= |
| 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 E52 L1 L11 L16 L22 L81 M10 M21 M30 M31 |
| Date: | 2021–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110818&r= |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT); Andreas Haupt (Institute for Data, Systems, and Society, MIT); Alex Smolin (Dept. of Economics, Yale University) |
| Abstract: | We consider a multiproduct monopoly pricing model. We provide sufficient conditions under which the optimal mechanism can be implemented via upgrade pricing—a menu of product bundles that are nested in the strong set order. Our approach exploits duality methods to identify conditions on the distribution of consumer types under which (a) each product is purchased by the same set of buyers as under separate monopoly pricing (though the transfers can be different), and (b) these sets are nested. We exhibit two distinct sets of sufficient conditions. The ï¬ rst set of conditions weakens the monotonicity requirement of types and virtual values but maintains a regularity assumption, i.e., that the product-by-product revenue curves are single-peaked. The second set of conditions establishes the optimality of upgrade pricing for type spaces with monotone marginal rates of substitution (MRS)—the relative preference ratios for any two products are monotone across types. The monotone MRS condition allows us to relax the earlier regularity assumption. Under both sets of conditions, we fully characterize the product bundles and prices that form the optimal upgrade pricing menu. Finally, we show that, if the consumer’s types are monotone, the seller can equivalently post a vector of single-item prices: upgrade pricing and separate pricing are equivalent. |
| Keywords: | Revenue Maximization, Mechanism design, Strong duality, Upgrade pricing |
| JEL: | D42 D82 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2290r&r= |
| By: | Matthias Hettich |
| Abstract: | Increasingly, firms use algorithms powered by artificial intelligence to set prices. Previous research simulated interactions among Q-learning algorithms in an oligopoly model of price competition. The algorithms learn collusive strategies but require a long time that corresponds to several years to do so. We show that pricing algorithms using deep learning (DQN) can collude significantly faster. The availability of these more powerful pricing algorithms enables simulations in larger markets. Collusion disappears in wide oligopolies with up to 10 firms. However, incorporating knowledge of the learning behavior by reformulating the state representation increases the ability to collude effectively. |
| Keywords: | Algorithmic Pricing, Collusion, Artificial Intelligence, Reinforcement Learning, DQN |
| JEL: | D21 D43 D83 L12 L13 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cqe:wpaper:9421&r= |
| By: | Hodaka Morita; Kumpei Akiyama; Tomohiro Ara; Shosuke Noguchi; Arghya Ghosh |
| Abstract: | Partial equity ownership (PEO) between horizontally competing firms may have negative impacts on the society by increasing firms' market power and weakening their competition. At the same time, PEO may also have positive impacts on the society by inducing knowledge transfer between competing firms and shifting outputs from a cost ineffective firm to a cost effective firm. As oligopoly models that explores the trade-off of these positive and negative impacts, we discuss the model of Ghosh and Morita (2017) that focuses on the link between PEO and knowledge transfer, and the model of Ara, Ghosh and Morita (2021) that focuses on the shift of outputs in international contexts, clarifying the process through which the level of PEO is endogenously determined in these models. We also discuss Akiyama's (2021) model of joint venture (JV) in which two horizontally competing firms can establish a JV, exploring the process through which the ratio of JV's equity ownership is endogenously determined. We discuss policy implications of these models. |
| Date: | 2021–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:toh:tupdaa:10&r= |
| By: | Gibson, Matthew (Williams College) |
| Abstract: | Adam Smith alleged that secret employer collusion to reduce labor earnings is common. This paper examines an important case of such behavior: no-poach agreements through which technology companies agreed not to compete for each other’s workers. Exploiting the plausibly exogenous timing of a US Department of Justice investigation, I estimate the effects of these agreements using a difference-in-differences design. Data from Glassdoor permit the inclusion of rich employer- and job-level controls. Estimates indicate each agreement cost affected workers approximately 2.5 percent of annual salary. Stock bonuses and ratings of job satisfaction were also negatively affected. |
| Keywords: | monopsony, oligopsony, employer market power, labor earnings |
| JEL: | J42 K21 J30 L41 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14843&r= |
| By: | Mr. Matthieu Bellon |
| Abstract: | We examine the role of market characteristics and timing in explaining observed heterogeneity in VAT pass-through. We first extend existing theory to characterize the roles of imperfect competition and product differentiation, then investigate these relationships empirically using a panel of 14 Eurozone countries between 1999 and 2013. We find important roles for product market regulation and product quality, and little impact of advance announcement of reforms. Our findings have important implications for policy-makers considering VAT rate adjustments, by illuminating which of the consumers or the producers would experience the brunt of a reform across different settings. |
| Keywords: | Value added tax; Price effect; Pass through; Competition; Product Differentiation; pass-through heterogeneity; VAT pass-through; pass-through effect; baseline pass-through; elasticity coefficient; imperfect competition; pass-through adjustment; Value-added tax; Consumption; Commodity markets; Consumer prices; Europe |
| Date: | 2021–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/061&r= |
| By: | John Spray |
| Abstract: | I develop a model of firm-to-firm search and matching to show that the impact of falling trade costs on firm sourcing decisions and consumer welfare depends on the relative size of search externalities in domestic and international markets. These externalities can be positive if firms share information about potential matches, or negative if the market is congested. Using unique firm-to-firm transaction-level data from Uganda, I document empirical evidence consistent with positive externalities in international markets and negative externalities in domestic markets. I then build a dynamic quantitative version of the model and show that, in Uganda, a 25% reduction in trade costs led to a 3.7% increase in consumer welfare, 12% of which was due to search externalities. |
| Keywords: | Firm-to-Firm Trade; VAT Data; Search-and-Matching; Importing; transport cost reduction; buyer-supplier search; search externality; welfare gains from trade; consumer welfare; Imports; Labor market frictions; Search models; Value-added tax; East Africa; Global |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/091&r= |
| By: | Alexandre Chirat |
| Abstract: | Baumol’s impact on the development of managerial theories of the firm is investigated here through material found in Galbraith’s archives. In 1957 Galbraith published a paper claiming that the impact of macroeconomic policies varies with market structures (competitive versus oligopolistic). That publication prompted Baumol (1958b) to send Galbraith a manuscript dealing extensively with a crucial question of managerial theories of the firm, namely, the trade-off between sales and profits. I argue that Baumol’s critiques and Galbraith’s answers largely explain the way Baumol (1958a, 1959) framed his alternative model of the behavior of corporations. He reasoned in terms of maximization of sales with a profit constraint as their main objective. In return, Business Behavior, Value and Growth fostered the development of Marris’ (1964) and Galbraith’s (1967) theories of the corporation. While Tullock (1978) provides a narrative in which the sales maximization hypothesis has two main branches – Baumol for the one and Galbraith-Marris for the other – the paper demonstrates that these branches are intimately connected. |
| Keywords: | Baumol – Galbraith – Theory of the firm – Managerialism – Marginalisme |
| JEL: | B21 B22 D43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2021-35&r= |
| By: | Mr. Damien Capelle |
| Abstract: | This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For large adverse shocks, the system enters a zone with high leverage and possibly runs. The length of time the system remains in this zone depends on the degree of concentration through a franchise value, price-drop and recapitalization channels. The speed of entry of new banks after a collapse has a stabilizing effect. |
| Keywords: | franchise value; recapitalization channel; net worth; price-drop channel; real asset; Asset prices; Competition; Shadow banking; Investment banking; Bank deposits; Global |
| Date: | 2021–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/102&r= |
| By: | Nobuyuki Hanaki; Yutaka Kayaba; Jun Maekawa; Hitoshi Matsushima |
| Abstract: | We experimentally examine the impact of a cycle path on the trading of a copyable information good in networks. A cycle path in a network permits a buyer to become a reseller that can compete against existing sellers by replicating the good. Theory predicts that the price of the information good, even with the first transaction where there is not yet a reseller competing with the original seller, will be lower in networks with a cycle path than otherwise. However, our experiment reveals that the observed price for the first transaction is significantly higher in networks with a cycle path. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1151&r= |
| By: | Narang, Unnati (Stanford University) |
| Abstract: | In this study, we causally examine complementarity in usage across a set of related soft- ware products from a multi-product firm. Digital contexts are characterized by little price variation, bundled pricing plans, and infrequent purchase or subscription renewal decisions. In these settings, computing typical cross-price elasticity measures for complementarities is often infeasible. We employ a novel experimental approach to causally identify complementarities, leveraging rich usage data and advertising experiments that affect usage of one product at a time. Though this approach, we directly measure complementarities based on usage rather than purchase. We test our approach using data from a software company with a suite of related products, and find evidence for varying degrees of complementarity between products in the suite. We also explore variation in these effects across user populations, finding that they vary across both product and consumer segments. We show that accounting for complementarity significantly affects the measurement of ad effective- ness. We also document the impact of our estimates on ad targeting decisions by the firm. Ours is one of the first studies to causally examine complementarity and substitutability between products in this context of subscription products, and our identification strategy has application in a variety of contexts. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3975&r= |
| By: | Kotaro Ishi; Mr. Takuji Komatsuzaki; Mr. Ippei Shibata; Suchanan Tambunlertchai; Jasmin Sin |
| Abstract: | This paper revisits the competitive environment of the banking system in Latin America and the Caribbean (LAC) and investigates the early impact of fintech development in the region thus far. Against the backdrop of high net interest margins (NIMs) and limited financial depth in the region, panel regressions broadly confirm results of existing literature on the association of NIMs with the changes in the financial sector structure, including market concentration, administrative costs, and foreign banks, although differences between domestic and foreign banks narrowed after the 2008-09 Global Financial Crisis. Difference-in-difference regressions and case studies on Brazil and Mexico suggest that fintech is associated with a reduction in NIMs and defensive responses by incumbent banks that benefit consumers. The case studies also shed light on regulatory approaches and prudential considerations in fostering financial innovation and banking sector competition. |
| Keywords: | banking sector competition; panel regression; net interest margins; market share; r p rotec tio n; Fintech; Commercial banks; Foreign banks; Competition; Real interest rates; Caribbean; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/114&r= |
| By: | Greg Lewis; Bora Ozaltun; Georgios Zervas |
| Abstract: | We discuss estimation of the differentiated products demand system of Berry et al (1995) (BLP) by maximum likelihood estimation (MLE). We derive the maximum likelihood estimator in the case where prices are endogenously generated by firms that set prices in Bertrand-Nash equilibrium. In Monte Carlo simulations the MLE estimator outperforms the best-practice GMM estimator on both bias and mean squared error when the model is correctly specified. This remains true under some forms of misspecification. In our simulations, the coverage of the ML estimator is close to its nominal level, whereas the GMM estimator tends to under-cover. We conclude the paper by estimating BLP on the car data used in the original Berry et al (1995) paper, obtaining similar estimates with considerably tighter standard errors. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.12397&r= |
| By: | Kresova, Svetlana; Hess, Sebastian |
| Keywords: | Demand and Price Analysis, Livestock Production/Industries |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315064&r= |
| By: | Khanal, Binod; Lopez, Rigoberto |
| Keywords: | Marketing, Demand and Price Analysis |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315369&r= |
| By: | Lee, Yunkyung; Giannakas, Konstantinos |
| Keywords: | Marketing, Food Consumption/Nutrition/Food Safety |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315203&r= |
| By: | Patrick Mellacher |
| Abstract: | I develop a simple Schumpeterian agent-based model where industries are born and evolve endogenously and use it to study the interrelation between technological change, economic growth, market concentration and inequality. This theoretical model combines features of the Schumpeter Mark I (centering around the entrepreneur) and Mark II model (emphasizing the innovative capacities of firms), and is capable of reproducing a large set of stylized facts concerning growth, market concentration, inequality and productivity. In particular, the model can reproduce the industry life-cycle, a Kuznets curve, a Piketty-style increase of inequality in "mature" economies, as well as recent stylized facts on "declining business dynamism". I conduct an extensive policy analysis to identify the parameters that produce these stylized facts in the model. Notably, the empirically-grounded assumption that the difficulty to imitate a firm depends on its technological distance to the imitator can explain prominent stylized facts of economic development since the 1980s. However, growth in the number of industries triggered by the exploitation of new technological opportunities can prove to be a counteracting force to these tendencies in the short run. Thus, the model suggests a wave-like evolution of growth, inequality and market concentration centered around advances in basic research. Extensive sensitivity analysis suggest that policies aimed at increasing the innovative capacities of firms increase the rate of growth of output and real wages (dynamic efficiency) at the expense of increasing market concentration (static inefficiency) and inequality. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.09407&r= |
| By: | Botham, Craig |
| Abstract: | The literature on craft guilds assigns them many roles, variously promoting skill acquisition and innovation, reducing transaction costs and asymmetries of information, providing solidarity for members, and wasteful rent seeking. Debate on the latter has typically centred on whether rent seeking was the primary goal of guilds, or whether it was essentially a necessary evil to allow guilds to fulfil their true institutional purpose by incentivizing collective action. It is rarely suggested that guild lobbying may have been a defensive measure against predatory elites, which served to increase economic efficiency and reduce extractive behaviour in the economy as a whole. An implicit assumption seems to be that guild rent seeking disturbs a pre-existing competitive equilibrium in markets and introduces inequality in previously equitable political rights. This essay approaches the topic by synthesising the literature on the rent seeking role of European guilds with that of the role of guilds in urban politics and the literature on firm theory and market structure. It argues that such a synthesis offers insights on imbalances of political and market power that call for a reinterpretation of ‘rent seeking’ behaviour by guilds. Guilds typically faced monopolies and monopsonies backed by an inequality of political power, which their own ‘rent seeking’ sought to overcome. Guilds therefore may have reduced aggregate rent seeking and improved efficiency. A renewed focus on urban politics and market functioning could help paint a more accurate picture of the true nature of guild rent seeking. |
| JEL: | R14 J01 N0 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112746&r= |