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on Industrial Competition |
| By: | Martin Peitz; Lily Samkharadze |
| Abstract: | Platform competition can be intense when offering non-differentiated services. However, competition is somewhat relaxed if platforms cannot set negative prices. If platforms collude they may be able to implement the outcome that maximizes industry profits. In an infinitely repeated game with perfect monitoring, this is feasible if the discount factor is sufficiently large. When this is not possible, under some condition, a collusive outcome with one-sided rent extraction along the equilibrium path can be sustained that leads to higher profits than the non-cooperative outcome. |
| Keywords: | Two-sided markets, tacit collusion, cartelization, price structure, platform competition |
| JEL: | L41 L13 D43 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_331&r= |
| By: | Garrett, Daniel F.; Gomes, Renato; Maestri, Lucas |
| Abstract: | We study competition by firms that simultaneously post (potentially nonlinear) tariffs to consumers who are privately informed about their tastes. Market power stems from informational frictions, in that consumers are heterogeneously informed about firms’ offers. In the absence of regulation, all firms offer quantity discounts. As a result, relative to Bertrand pricing, imperfect competition benefits disproportionately more consumers whose willingness to pay is high, rather than low. Regulation imposing linear pricing hurts the former but benefits the latter consumers. While consumer surplus increases, firms’ profits decrease, enough to drive down utilitarian welfare. By contrast, improvements in market transparency increase utilitarian welfare, and achieve similar gains on consumer surplus as imposing linear pricing, although with limited distributive impact. On normative grounds, our analysis suggests that banning price discrimination is warranted only if its distributive benefits have a weight on the societal objective. |
| Keywords: | oligopoly,; nonlinear pricing,; linear pricing; informational frictions; asymmetric information |
| JEL: | D82 |
| Date: | 2022–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126354&r= |
| By: | Atayev, Atabek |
| Abstract: | We analyze competition on nonlinear prices in homogeneous goods markets with consumer search. In equilibrium firms offer two-part tariffs consisting of a linear price and lump-sum fee. The equilibrium production is socially efficient as the linear price of equilibrium two-part tariffs equals to the production marginal cost. Firms thus compete in lump-sum fees, which are dispersed in equilibrium. We show that sellers enjoy higher profit, whereas consumers are worse-off with two-part tariffs than with linear prices. The competition softens because with two-part tariffs firms can make effective per-consumer demand less elastic than the actual demand. |
| Keywords: | Nonlinear prices,consumer search,homogeneous goods |
| JEL: | D11 D43 D83 L13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:21092&r= |
| By: | Buehler, Stefan; Eschenbaum, Nicolas |
| Abstract: | This paper studies dynamic monopoly pricing for a class of settings that includes multiple durable, multiple rental, or a mix of varieties. We show that the driving force behind pricing dynamics is the seller’s incentive to switch consumers—buyers and non-buyers—to higher-valued consumption options by lowering prices (“trading up”). If consumers cannot be traded up from the static optimal allocation, pricing dynamics do not emerge in equilibrium. If consumers can be traded up, pricing dynamics arise until all trading-up opportunities are exhausted. We study the conditions under which pricing dynamics end in finite time and characterize the final prices at which dynamics end. |
| Keywords: | price discrimination, inter-temporal pricing, Coasian dynamics |
| JEL: | D42 L12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2021:13&r= |
| By: | Steffen Juranek; Øivind Anti Nilsen; Simen A. Ulsaker |
| Abstract: | In this paper we analyse the bank merger between DnB and Gjensidige Bank in 2003, ranked by market share as number one and number three in the Norwegian bank market. Focusing on loans to firms, our difference-in-differences analysis shows no increase of concentration of new loans. The concentration in affected markets (markets where both merging parties were present) developed similarly to unaffected markets. Moreover, the interest rate tended to be lower in the affected markets relative to unaffected markets, but this relationship is weak and not statistically significant. The merger also affected the riskiness of loans only marginally. These weak effects could be the result of efficiency gains in the form of lower costs being pass-through to customers, and the increased market power (and consequently higher interest rates) cancelled each other out. The remedial measures imposed by the Norwegian Competition Authority on the two merging parties are also likely to explain some of the modest effects of the merger. The weak effects are largely coincident with international literature showing the effects of mergers and acquisitions in the banking sector to be modest. |
| Keywords: | banking, local competition, risk taking, firm behaviour |
| JEL: | G21 L41 D53 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9480&r= |
| By: | Atayev, Atabek |
| Abstract: | In markets with search frictions, consumers can acquire information about goods either through costly search or from friends via word-of-mouth (WOM) communication. How do sellers' market power react to a very large increase in the number of consumers' friends with whom they engage in WOM? The answer to the question depends on whether consumers are freely endowed with price information. If acquiring price quotes is costly, equilibrium prices are dispersed and the expected price is higher than the marginal cost of production. This implies that firms retain market power even if price information is disseminated among a very large number of consumers due to technological progress, such as social networking websites. |
| Keywords: | Consumer Search,Word-of-Mouth Communication,Social Networks |
| JEL: | D43 D83 D85 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:21090&r= |
| By: | Atayev, Atabek; Janssen, Maarten C. W. |
| Abstract: | Consumers can acquire information through their own search efforts or through their social network. Information diffusion via word-of-mouth communication leads to some consumers free-riding on their 'friends' and less information acquisition via active search. Free-riding also has an important positive effect, however, in that consumers that do not actively search themselves are more likely to be able to compare prices before purchase, imposing competitive pressure on firms. We show how market prices depend on the characteristics of the network and on search cost. For example, if the search cost becomes small, price dispersion disappears, while the price level converges to the monopoly level, implying that expected prices are decreasing for small enough search cost. More connected societies have lower market prices, while price dispersion remains even in fully connected societies. |
| Keywords: | Consumer Search,Word-of-Mouth Communication,Social Networks |
| JEL: | D43 D83 D85 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:21091&r= |
| By: | Crémer, Jacques; Biglaiser, Gary; Veiga, André |
| Abstract: | We study incumbency advantage in markets with positive consumption externalities. Users of an incumbent platform receive sto- chastic opportunities to migrate to an entrant and can either accept them or wait for a future opportunity. In some circumstances, users have incentives to delay migration until others have migrated. If they all do so, no migration takes place, even when migration would have been Pareto-superior. We use our framework to identify environments where incumbency advantage is larger. A key result is that having more migration opportunities actually increases incumbency advantage. |
| Keywords: | Platform; Migration; Standardization and Compatibility; Industry Dynamics |
| JEL: | D85 L14 R23 L15 L16 |
| Date: | 2022–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126336&r= |
| By: | Casey B. Mulligan |
| Abstract: | This paper revisits Peltzman (1973) in light of two recent opportunities to quantitatively assess tradeoffs in drug regulation. First, reduced regulatory barriers to drug manufacturing associated with the 2017 reauthorization of Generic Drug User Fee Amendments were followed by significantly more entry and lower consumer prices for prescription drugs. Using a simple and versatile industry model and historical data on entry, I find that easing generic restrictions discourages innovation, but this welfare cost is more than offset by consumer benefits from enhanced competition, especially after 2016. Second, accelerated vaccine approval in 2020 had unprecedented net benefits as it not only improved health but substantially changed the trajectory of the wider economy. The evidence suggests that cost-benefit analysis of FDA regulation is incomplete without accounting for substitution toward potentially unsafe and ineffective treatments that are both outside FDA jurisdiction and heavily utilized prior to FDA approval. Moreover, the policy processes initiating these 21st century regulatory changes show a clear influence of Peltzman’s 1973 findings. |
| JEL: | I18 L51 L65 O31 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29574&r= |
| By: | Brown, David P. (University of Alberta, Department of Economics); Sappington, David E.M. (University of Florida) |
| Abstract: | We examine the distinct impacts of forward contracting on generators and buyers of electricity. Increased forward contracting systematically reduces the variance of a generator's profit but can increase the variance of a buyer's profit. Consequently, increased risk aversion or market uncertainty can lead buyers, but not generators, to prefer reduced levels of forward contracting. We examine how the extent of equilibrium forward contracting varies with industry conditions, including the number of generators, the number of buyers, their aversion to profit variation, and the structure of retail electricity prices. |
| Keywords: | forward contracting; risk aversion; electricity sector |
| JEL: | L51 L94 Q28 Q40 |
| Date: | 2021–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2021_012&r= |
| By: | Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics); Olmstead, Derek E.H. (University of Calgary) |
| Abstract: | A challenge in setting regulated rates for default retail electricity products is the presence of both price and quantity risk faced by retailers. To address this challenge, regulators have been increasingly employing competition via full-load (load following) auctions to value these risks. In a full-load auction, firms bid to supply a fixed percentage of the regulated utility's hourly demand at a fixed price. In this paper, we develop a model of break-even pricing of electricity forward products under risk aversion, based on a mean-variance utility function. We use this model to evaluate the performance of full-load auctions in Alberta, where the largest regulated retail provider adopted such auctions in December 2018. We find that winning full-load bids exceed break-even levels, even allowing for risk-aversion, but that the difference falls over time. This reduction coincides with an increase in the number of bidders active in the full-load auctions. Our paper highlights the importance of sufficient participation for the success of full-load auctions and the potential role for competitive markets in determining the value of risk faced by retailers. |
| Keywords: | Electricity; Forward Contracts; Regulation; Procurement Auctions |
| JEL: | L51 L94 Q48 |
| Date: | 2021–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2021_014&r= |
| By: | Samuel Dodini; Kjell Salvanes; Alexander L.P. Willén; Kjell G. Salvanes |
| Abstract: | This paper brings together the modern literatures on monopsony power and labor unions by empirically examining the effects of unionization on the dynamics of worker earnings across differently concentrated markets. Exploiting tax reforms to union due deductions as exogenous shocks to unionization, we demonstrate that there is a steep unionization gradient over labor market concentration. We show that there is an equally steep gradient in the union wage premium over concentration and that the premium loads almost exclusively on highly concentrated markets. This result implies a potentially important role of unions as alleviating market failures induced by imperfect competition. To validate our findings and examine robustness to different types of shocks, we extend the analysis by exploiting the emergence of import competition from China as an exogenous shock to employer concentration. This analysis suggest that the negative earnings effect of labor market concentration is eliminated upon reaching a union density of approximately 63 percent at the firm. |
| Keywords: | monopsony, skills, unions, market power |
| JEL: | J23 J24 J42 J51 J52 J63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9495&r= |
| By: | Haji Ali Beigi, Maryam |
| Abstract: | There are different determinants for organizational innovation. By taking an encompassing look into dynamics of organizational innovation, this paper examines how organizational innovation is an outcome to interaction of knowledge search strategies and underlying market conditions. Although the role of knowledge management capabilities on organizational innovation have been studied in literature but the effects of external knowledge strategies as an external KM enabler on different parts of organizational innovation has not been covered. To fill that gap and to capture deep dynamics of organizational innovation this paper analyzes the relationship between external knowledge diversity and organizational innovation under the influence of competition intensity and uncertain demand trends which is the second contribution of this study. It is demonstrated that the effects of competition intensity or uncertain demand trends on organizational innovation are diminished through their interactive manifestation with knowledge search diversity. By applying quantile regression in different levels, we additionally indicate that such diminishing effect varies among different industries depending on their organizational innovation intensity as the third novel analytics of this paper. |
| Keywords: | Organizational innovation,External Search diversity,Competition intensity,Uncertaindemand |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:159&r= |
| By: | Alon Bergman; Matthew Grennan; Ashley Swanson |
| Abstract: | We draw upon newly merged administrative data sets to study the relationship between payments from medical technology firms to physicians and medical device procurement by hospitals. These payments (and the interactions that accompany them) may facilitate the transfer of valuable information to and from physicians. However, they may also influence physicians’ treatment decisions, and in turn hospital device procurement, in favor of paying firms. Payments are pervasive: 87 percent of device sales in our sample occurred at a hospital where a relevant physician received a payment from a device firm. Payments are also highly correlated with spending within a firm-hospital pair: event studies suggest that a large positive increase in payments to a given hospital from a given firm ($438 per physician on average, or 112 percent of the mean) is associated with 27 percent higher expenditures on the paying firm’s devices post-event. Finally, we explore how payments mediate the relationship between expertise and device procurement patterns. Hospitals affiliated with the top Academic Medical Centers (AMCs), which plausibly represent an expert benchmark, purchase a different mix of devices than other hospitals, and payments to hospitals outside the top AMCs are correlated with larger deviations from the procurement patterns of top AMC hospitals. |
| JEL: | D23 D73 I11 L15 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29583&r= |
| By: | Budzinski, Oliver |
| Abstract: | Der Beitrag liefert eine kritische Würdigung der geplanten europäischen Regulierung digitaler Onlinedienste - Digital Markets Act (DMA) und Digital Services Act (DAS) - aus medienökonomischer Perspektive. Dabei werden Schwerpunkte auf Gatekeeper-Effekte und die Rolle von algorithmischen Such- und Empfehlungssystemen gelegt. Der Beitrag zieht ein kritisches Fazit und drückt Skepsis aus, ob die geplante Regulierung in der vorgeschlagenen Form der richtige Weg zur notwendigen Eindämmung der ökonomischen Macht großer Onlinedienste ist. |
| Keywords: | Digitalisierung,Medienökonomik,Online-Dienste,Plattformen,Digital MarketsAct,Digital Services Act,Streaming-Märkte,Regulierungsökonomik,GAFA,Gatekeeper,Empfehlungssysteme |
| JEL: | K21 K23 K24 L40 L50 L81 L82 L86 Z10 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:158&r= |
| By: | Haji Ali Beigi, Maryam |
| Abstract: | Purpose: This paper analyzes the association of searching diversely as a strategy to capture external knowledge and that of competition intensity with innovation in logistics. Secondly it studies how these associations interact by examining whether they intensify or mitigate one another when jointly occur. Thirdly, it is explored whether correlations of search diversity, competition intensity and their interaction effect with logistics innovation demonstrate differences in their strength depending on logistics innovativeness of target industries. Design/methodology/approach: By discriminating between diversifying and expanding search scope, a new search mode is identified which is more precise in examining diversity of acquired external knowledge in comparison to search breadth. External search diversity is formulated based on a classification of external sources according to similarities in their knowledge supply. Quantile regression is applied for the purpose of this study due to its ability in estimating different models in different quantiles of the response variable. |
| Keywords: | logistics innovation,search diversity,competition intensity,knowledge management |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:157&r= |
| By: | Beck, Thorsten; Cecchetti, Stephen G.; Grothe, Magdalena; Kemp, Malcolm; Pelizzon, Loriana; Sánchez Serrano, Antonio |
| Abstract: | This report discusses the impact of digitalization on the structure of the European banking system. The recent wave of financial innovation based on the opportunities digitalisation offers, however, has come mostly from outside the incumbent banking system in the form of new financial service providers, either in competition or cooperation with incumbent banks but with the potential for substantial disruption. After discussing how identified risks may evolve and the emergence of new sources of risks, the report introduces three different scenarios for the future European banking system: (i) incumbent banks continue their dominance; (ii) incumbent banks retrench; and (iii) central bank digital currencies (under certain specifications). It also derives macroprudential policy measures. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkasc:202212&r= |
| By: | James J. Feigenbaum; Daniel P. Gross |
| Abstract: | AT&T was the largest U.S. firm for most of the 20th century. Telephone operators once comprised over 50% of its workforce, but in the late 1910s it initiated a decades-long process of automating telephone operation with mechanical call switching—a technology first invented in the 1880s. We study what drove AT&T to do so, and why it took one firm nearly a century to automate this one basic function. Interdependencies between operators and nearly every other part of the business were obstacles: the manual switchboard was the fulcrum of a complex system which had developed around it, and automation only began after the firm and automatic technology were adapted to work together. Even then, automatic switching was only profitable for AT&T in larger markets—hence diffusion expanded as costs declined and service areas grew. We show that automation supported AT&T's continued growth, generating a positive feedback loop between scale and automation that reinforced AT&T's high market share in local markets. |
| JEL: | J23 L11 L23 M11 M15 M54 N32 O33 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29580&r= |
| By: | Barigozzi, Francesca (University of Bologna); Cremer, Helmuth (Toulouse School of Economics) |
| Abstract: | We study how workers' concern for coworkers' ability (CfCA) affects competition in the labor market. We consider two firms offering nonlinear contracts to a unit mass of prospective workers. Firms may differ in their marginal productivity, while workers are heterogeneous in their ability (high or low), and in their taste for being employed by any of the two firms. Workers receive a utility premium when employed by the firm hiring the workforce with larger average ability and they suffer a utility loss in the opposite case. These premiums/losses are endogenously determined. When workers' ability is observable and the difference in firms' marginal productivities is strictly positive, we show that CfCA increases surplus but it also increases firms' competition for high-ability workers. As a result, CfCA benefits high-ability workers but is detrimental to firms. In addition, CfCA exacerbates the existing distortion in sorting of high-ability workers to firms: too many workers are hired by the least efficient firm. When ability is not observable, the additional surplus appropriated by high-ability workers is eroded by overincentivization (countervailing incentives) and the more so when CfCA is high. Conversely, high-types' sorting improves when CfCA is low and remains the same when it is high. |
| Keywords: | screening, competition, concern for coworkers’ quality, sorting |
| JEL: | D82 L13 M54 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14855&r= |
| By: | Takalo, Tuomas; Tanayama, Tanja; Toivanen, Otto |
| Abstract: | We construct a model of innovation incorporating R&D externalities, R&D participation, financial market imperfections, and application and allocation of R&D subsidies, estimate it using Finnish R&D project level data and conduct a welfare analysis. The intensive, not the extensive R&D margin is important. Financial market imperfections are small.Tax credits and subsidies do not reach first best R&D but increase R&D 29-47% compared to laissez-faire. Welfare effects are small: Tax credits increase welfare 1%; subsidies reduce welfare once application costs are taken into accout. In terms of fiscal cost, tax credits are 90% more expensive than R&D subsidies. |
| Date: | 2022–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2022_002&r= |
| By: | Kurmas Akdogan; Laura Werner |
| Abstract: | This article examines hysteresis in export entry-exit decisions of the Turkish manufacturing sector using the Preisach method. As the argument goes, sunk costs imply threshold levels of the exchange rate affecting the export market entry-exit behaviour of firms. The wait-and-see behaviour of firms in between these thresholds results in hysteresis in export markets at the aggregated level. Our results suggest sunk cost hysteresis for five subsectors of the Turkish manufacturing sector: clothing, textiles, machinery, tobacco products and communication equipment. The article also provides a more detailed look on the determinants of hysteresis behaviour in the clothing sector. |
| Keywords: | Hysteresis, Exports, Preisach method, Nonlinearity, Path-dependency |
| JEL: | C19 F14 L60 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2136&r= |