nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒02‒21
twenty papers chosen by
Russell Pittman
United States Department of Justice

  1. Contracts as a Barrier to Entry: Impact of Buyer's Asymmetric Information and Bargaining Power By David Martimort; Jérôme Pouyet; Thomas Trégouët
  2. Self-Preferencing and Competitive Damages: A Focus on Exploitative Abuses By Patrice Bougette; Oliver Budzinski; Frédéric Marty
  3. Opportunism Problems of Colluding Manufacturers By Jana Gieselmann; Matthias Hunold; Johannes Muthers; Alexander Rasch
  4. Combinable products, price discrimination, and collusion By Döpper, Hendrik; Rasch, Alexander
  5. Behavior-based price discrimination and signaling of product quality By Li, Jianpei; Zhang, Wanzhu
  6. Consumer inertia and firm incumbency in liberalised retail electricity markets: an empirical investigation By Massimo Dragotto; Marco Magnani; Paola Valbonesi
  7. Entry and Spatial Competition of Intermediaries: Evidence from Thailand’s Rice Market By Bunyada Laoprapassorn
  8. Nonlinearity of Competition-Stability Nexus: Evidence from Bangladesh By Dutta, Kumar Debasis; Saha, Mallika
  9. Money, Credit and Imperfect Competition Among Banks By Allen Head; Timothy Kam; Sam Ng; Isaac Pan
  10. Employer market power in Silicon Valley By Matthew Gibson
  11. When and Why Do Buyers Rate in Online Markets? By Xiang Hui; Tobias J. Klein; Konrad Stahl
  12. Imitative Pricing: The Importance of Neighborhood Effects in Physicians' Consultation Prices By Benjamin Montmartin; Marcos Herrera-Gomez
  13. The Prices That Commercial Health Insurers and Medicare Pay for Hospitals’ and Physicians’ Services By Congressional Budget Office
  14. Mergers and Acquisitions by Chinese Multinationals in Europe: The Effect on the Innovation Performance of Acquiring Firms By Tian Xiong
  15. The European Union renews its offensive against US technology firms By Gary Clyde Hufbauer; Megan Hogan
  16. Industrial Subsidies and Firm Innovation: New Evidence from China (Japanese) By ZHANG Hongyong
  17. The Impacts of Private Hospital Entry on the Public Market for Elective Care in England By Elaine Kelly; George Stoye
  18. Prices and the demand for mobile voice communication By Fayçal Sawadogo
  19. Multi-Product Establishments and Product Dynamics By Masashige Hamano; Keita Oikawa
  20. Impact de la concurrence sur la qualité des soins hospitaliers : l’exemple de la chirurgie du cancer du sein en France By Zeynep Or; Mariama Touré; Emeline Rococo; Julia Bonastre

  1. By: David Martimort (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EHESS - École des hautes études en sciences sociales); Jérôme Pouyet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School - Essec Business School); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)
    Abstract: An incumbent seller contracts with a buyer and faces the threat of entry. The contract stipulates a price and a penalty for breach if the buyer later switches to the entrant. Sellers are heterogenous in terms of the gross surplus they provide to the buyer. The buyer is privately informed on her valuation for the incumbent's service. Asymmetric information makes the incumbent favor entry as it helps screening buyers. When the entrant has some bargaining power vis-à-vis the buyer and keeps a share of the gains from entry, the incumbent instead wants to reduce entry. The compounding effect of these two forces may lead to either excessive entry or foreclosure, and possibly to a fixed rebate for exclusivity given to all buyers.
    Keywords: excessive entry,foreclosure,exclusionary behavior,incomplete information
    Date: 2021–12
  2. By: Patrice Bougette (Université Côte d'Azur; GREDEG CNRS); Oliver Budzinski (Technische Universität Ilmenau); Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: Conceived as a theory of competitive harm, self-preferencing has been at the core of recent European landmark cases (e.g., Google Android, Google Shopping). In the context of EU competition law, beyond the anti-competitive leveraging effect, self-preferencing may lead to vertical and horizontal exclusionary abuses, encourage exploitation abuses, and generate economic dependence abuses. In this paper, we aim at characterizing the various forms of self-preferencing, investigating platforms' capacity and incentives to do so through their dual role, by shedding light on the economic assessment of these practices in an effects-based approach. We analyze the different options for remedies in this context, by insisting on their necessity, adequacy, and proportionality.
    Keywords: Self-preferencing, antitrust, regulation, European Union competition law, exploitative abuse, Digital Markets Act
    JEL: K21 L12 L40 L42
    Date: 2022–01
  3. By: Jana Gieselmann (HHU); Matthias Hunold; Johannes Muthers; Alexander Rasch
    Abstract: In a market with two exclusive manufacturer-retailer pairs, we show that colluding manufacturers may not be able to attain supra-competitive profits when contracts with retailers are secret. The stability of manufacturer collusion depends on the retailers’ beliefs. We consider various dynamic beliefs and find that industry-profit-maximizing collusion is feasible for some. Collusion is even renegotiation-proof under trigger beliefs if a novel condition of opportunism-proofness holds, which can be more demanding than the standard stability condition. Trigger beliefs are not flexible enough to allow for formation of collusion. We demonstrate that adaptive beliefs may be necessary for the formation of manufacturer collusion in a non-collusive industry.
    Keywords: opportunism, credible punishment, cartel formation, manufacturer collusion, vertical relations, renegotiation-proof, secret contracting
    JEL: C73 D43 L13 L41 L81
    Date: 2021–12
  4. By: Döpper, Hendrik; Rasch, Alexander
    Abstract: We analyze the effect of different pricing schemes on horizontally differentiated firms' ability to sustain collusion when customers have the possibility to combine (or mix) products to achieve a better match of their preferences. To this end, we compare two-part tariffs with linear prices and quantity-independent fixed fees in two different scenarios. First, we consider exogenously determined pricing schedules such as in the case of legal or third-party restrictions. We find that the additional price component of the two-part tariff makes it more difficult to sustain collusion. Additionally, the pricing schedule that is most beneficial for customers in absence of collusion harms customers most in presence of (partial) collusion. Second, we consider the scenario in which firms endogenously choose collusive tariffs. We find that firms can commit to using only the fixed price component of the two-part tariff to facilitate collusion at maximum prices. However, once we consider partial collusion, firms prefer to use both price components of the two-part tariffs. We discuss policy implications in the context of the media and entertainment industry.
    Keywords: Collusion,Combinable products,Media markets,Mixing,Price discrimination,Two-part tariff
    JEL: D43 L13 L41 L82
    Date: 2022
  5. By: Li, Jianpei; Zhang, Wanzhu
    Abstract: We analyse a two-period model in which a monopolistic seller may adopt behavior-based price discrimination (BBPD) and charge consumers different prices based on their purchasing histories. We show that if there is quality uncertainty and prices convey valuable information about product quality, BBPD can be profitable for the seller both when the seller can and can not commit to future prices, contrasting the traditional view that the seller would like to avoid BBPD due to strategic delay of consumption on the consumers' side. BBPD increases consumers' sensitivity to a price change in the first period and enables the high type seller to signal product quality with relatively low prices, effectively reducing signaling costs in comparison to uniform pricing. In the separating equilibria that survive the intuitive criterion, first-time purchasers pay lower prices than repeat purchasers.
    Keywords: Behavior-based Price Discrimination (BBPD); Quality Uncertainty; Signaling
    JEL: D82 L11 L15
    Date: 2022–01–17
  6. By: Massimo Dragotto (Dept. of Economics and Management, University of Padova, Italy); Marco Magnani (Dept. of Economics and Management, University of Padova, Italy and Italian Regulatory Authority for Energy, Network and the Environment (ARERA)); Paola Valbonesi (Dept. of Economics and Management, University of Padova, Italy and Higher School of Economics, National Research University, (HSE-NRU), Moscow)
    Abstract: By exploiting an original 4-year dataset on the Italian retail electricity market, we investigate the relationship between firm incumbency — measured by market concentration at the regional level — and consumer inertia — identified by the yearly percentage of consumers switching providers and/or contract, both from the regulated to the free market and within the free market. Our main results show that i) regions recording stronger firm incumbency exhibit larger consumer inertia in leaving the regulated market, this effect being reinforced by the number of active free market retailers; ii) switching by consumers who already are in the free market is, instead, positively affected by firm incumbency. In light of these results, we provide prescriptions for policymakers targeting the migration of consumers towards free-market contracts and, consequently, full energy market liberalisation.
    Keywords: Electricity Retail Markets, Liberalisation in Electricity Markets, Incumbency, Consumer Behaviour
    JEL: D12 L11 L98 Q48
    Date: 2021–11
  7. By: Bunyada Laoprapassorn
    Abstract: How does the market power along the agricultural value chains mediate the effects of policies on the welfare of farmers? Using microdata on farmers and rice mills in Thailand, I document heterogeneity in the spatial density of rice mills. I further provide reduced-form evidence that a one standard deviation increase in local competition among rice mills leads to a 7.7% increase in farmer prices. Informed by the empirical findings, I propose and estimate a quantitative spatial model that accounts for the market power and entry-location choices of intermediaries. I then simulate two policy counterfactuals. I find that gains to farmers from a country-wide improvement in road infrastructure are regressive; the percentage increase in income of the top decile farmers is on average 11% larger than that of the bottom decile. Changes in the entry decisions of the rice mills further exacerbate the regressive effect, more than doubling the gap between the percentage change in income of the top and bottom decile farmers. The second counterfactual simulation shows that the market power of intermediaries could lead to a lower than socially optimal level of technology adoption among farmers.
    Keywords: Intermediaries; Spatial Competition; Trade costs
    JEL: D43 F12 L13 O13
    Date: 2022–01
  8. By: Dutta, Kumar Debasis; Saha, Mallika
    Abstract: Financial deregulation since the 1980s has been stimulating fierce competition among banks and influencing financial stability across the world. In pace with this, Bangladesh’s banking industry is also experiencing intense competition since it is composed of many banks. Te empirical evidence on competition and stability widely debate to date, perhaps for not considering the potential nonlinearity. Therefore, our study aims to explore the nonlinear impact of competition on the financial stability of Bangladeshi banks over 2010-2017. For achieving this objective, we compute the Boone indicator and Z-score using bank-level data to measure competition and stability, respectively, and examine the nonlinear dynamics of competition-stability nexus employing threshold analysis in a panel setup. Our findings confirm that the competition-stability relationship is nonlinear and implies that financial stability is more substantial (weaker) in a less (more) competitive market. Our results bear specific policy implications.
    Keywords: Boone’s indicator, competition, fnancial stability, panel threshold analysis
    JEL: G21
    Date: 2020–06–12
  9. By: Allen Head; Timothy Kam; Sam Ng; Isaac Pan
    Abstract: Using micro-level data for the U.S., we provide new evidence—at national and state levels—of a positive (negative) relationship between the standard deviation (coefficient of variation) and the average in bank lending-rate markups. In a quantitative theory consistent with these empirical observations, banks’ lending market power is determined in equilibrium and is a novel channel of monetary policy. At low inflation, banks tend to extract higher markups from existing loan customers rather than competing for additional loans. As a result, banking activity need not be welfare-improving if inflation is sufficiently low. This result speaks to concerns regarding market power in the banking sectors of low-inflation countries. Normatively, under a given inflation target, welfare gains arise if a central bank can use additional liquidity-provision (or tax-and-transfer) instruments to offset banks’ market-power incentives.
    Keywords: Banking and Credit; Markups Dispersion; Market Power; Stabilization Policy; Liquidity
    JEL: E41 E44 E51 E63 G21
    Date: 2022–02
  10. By: Matthew Gibson (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 eects 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: ,
    JEL: J42 K21 J30 L41
    Date: 2021–10–15
  11. By: Xiang Hui; Tobias J. Klein; Konrad Stahl
    Abstract: Anonymous markets would be very difficult to successfully operate without the possibility that buyers rate the seller. Yet many empirical results yield that ratings are non-random and concentrate on extreme experiences. We develop a model of rating decisions in which the buyer is willing to share publicly her opinion about a transaction, if its realized quality differs much from the quality expected by her, where expected quality is influenced by an aggregate of the seller’s past ratings. We demonstrate our results empirically using raw data from eBay. In spite of the non-randomness of responses, unweighted rating aggregates appear to rather well reflect reported buyer experience as long as expectations are not extreme.
    Keywords: Online Markets, Rating, Reputation
    JEL: D83 L12 L13 L81
    Date: 2022–01
  12. By: Benjamin Montmartin (SKEMA Business School; Université Côte d'Azur; OFCE Sciences.Po; GREDEG CNRS); Marcos Herrera-Gomez (CONICET - IELDE; National University of Salta, Argentina)
    Abstract: During the last 30 years in France, concerns about healthcare access have grown as physician fees have increased threefold. In this paper, we developed an innovative structural framework to provide new insights into free-billing physician pricing behavior. We test our theoretical framework using a unique geolocalized database covering more than 4,000 private practitioners in three specializations (ophthalmology, gynecology and pediatrics). Our main findings highlight a low price competition environment driven by local imitative pricing between physicians, which increases with competition density. This evidence in the context of growing spatial concentration and an increasing share of free-billing physicians calls for new policies to limit additional fees.
    Keywords: Imitative pricing, Health care access, Local competition, Spatial effects
    JEL: H51 C21 I11 I18
    Date: 2022–01
  13. By: Congressional Budget Office
    Abstract: Commercial health insurers pay much higher prices for hospitals’ and physicians’ services than the Medicare fee-for-service (FFS) program does. In addition, commercial insurers’ prices increase more rapidly and vary much more, both among and within geographic areas, than Medicare FFS’s prices do. CBO looked at possible explanations for those differences, including market power and concentration, input prices, quality of care, and cost shifting.
    JEL: I11 I13 I18
    Date: 2022–01–20
  14. By: Tian Xiong (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: This study aims to investigate the effects of mergers and acquisitions (M&As) by Chinese multinational firm in the EU28 on the subsequent innovation performance of acquiring firms with different technological intensities and types of corporate ownership The study does so by applying the Zero-Inflated Negative Binomial estimation to analyze novel longitudinal firm-level data covering the period from 2010 to 2018. The empirical evidence suggests that Chinese acquiring firms are generally able to enhance their innovation performance after merging or acquiring firms from the EU28 countries. Furthermore, this study reveals that medium low- and low-tech firms significantly improved their innovation performance after undertaking M&As, but the same effect cannot be identified for firms in the high- and medium high-tech groups. Finally, strong evidence confirms the significant increase in innovation output of private-owned enterprises in the post-acquisition era compared with state-owned or -controlled enterprises.
    Keywords: mergers and acquisitions, M&A, innovation performance, emerging market multinationals (EMNEs), learning, China, EU
    JEL: O1 O3 F23
    Date: 2022–01
  15. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Megan Hogan (Peterson Institute for International Economics)
    Abstract: The European Union's proposed Digital Markets Act (DMA) contemplates extensive regulation of "gatekeeper" digital platforms--firms that perform a "core platform service" in the European Union (defined as online intermediation, online search, social networking, video sharing, electronic communication, cloud services, or online advertising), have a significant impact on the EU internal market, serve as an important gateway between business users and end-users, and enjoy an entrenched and durable position. Although a couple of European firms would qualify as gatekeepers, Hufbauer and Hogan say, the DMA discriminates against American technology firms by singling them out for the label of "gatekeepers." The DMA targets both US tech giants such as Google, Amazon, Facebook, Apple, and Microsoft and smaller (albeit huge) US tech firms such as Airbnb, Oracle, PayPal, and Zoom. The authors say the EU goal is to confer competitive advantage on European digital firms, breaching the EU commitment to national treatment of foreign firms, violating their intellectual property rights, and imposing high expenses on the "gatekeepers." At the same time, France is planning to enact its own steep barriers against US and other foreign cloud services. The technology giants are not uniformly beloved in the United States either, where Congress has found bipartisan support for new regulation that would restrain their power. But unlike the DMA, these proposals apply equally to US and foreign tech firms. A much stronger US response is needed to ensure that the proposed EU rules do not deter US tech firms and equally apply to EU firms that compete with them.
    Date: 2022–02
  16. By: ZHANG Hongyong
    Abstract: Using detailed information on more than 250,000 subsidy projects to Chinese listed manufacturing firms from 2007 to 2019, this paper empirically analyzes the relationship between industrial subsidies and firm innovation. Main results are as follows. First, both the number of projects and the amounts of industrial subsidies increased rapidly in recent years. In 2019, 97% of firms received at least one subsidy project and the average subsidy intensity reached to 1.8%. Importantly, the scale of subsidies for R&D and patent are larger than the subsidies for production, trade, and foreign investment. Furthermore, state-owned enterprises' share in total subsidies is declining but on average they still receive 2~3 times more subsidies than private firms. Second, at the industry- and firm- levels, subsidies are positively associated with R&D investment and patent applications. There are large variations across industries, but the positive correlations became very strong after 2015. Third, using project-level data on subsidies and difference-in-difference (DID) estimations, we examine the effects of Made in China 2025 (MIC2025) program. We find that compared with firms not receiving MIC2025-related subsidies, firms received MIC2025-related subsidies see significant increases in R&D investment (14.9%), the number of patent applications (18.3%), and the number of patent registrations (24.9%). Our results suggest that the industrial subsidies contribute to the innovation activities of Chinese firms. However, though industrial subsidies significantly increased firms' investment and sales, their effects on firm productivity were very limited.
    Date: 2021–12
  17. By: Elaine Kelly (Institute for Fiscal Studies and Institute for Fiscal Studies); George Stoye (Institute for Fiscal Studies and Institute for Fiscal Studies)
    Abstract: This paper examines the impacts of private hospital entry on publicly funded elective care in England. From 2006, private hospitals were encouraged to enter certain publicly funded markets to compete with existing public hospitals and stimulate quality improvements. Studying elective hip replacements, we compare changes in outcomes across areas that were differentially exposed to private hospital entry, instrumenting hospital entry with the location of private hospitals in the pre-reform period. We ?nd private hospital entry led to a 12% increase in the overall number of annual publicly funded admissions, and an 11% reduction in waiting times, but had no effect on the number of admissions at public hospitals or emergency readmissions. Additional publicly funded admissions were not associated with reduced privately funded volumes, and patients became observably healthier on average. These ?ndings indicate the reform successfully increased publicly funded capacity but did little to improve quality at existing public hospitals.
    Date: 2020–01–09
  18. By: Fayçal Sawadogo (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: Demand for mobile phone communication is more sensitive to price variations in developed countries. Although this may seem counter-intuitive, the evolution of the telecommunications sector, particularly in developing countries, explains this result. The sector's characteristics in developed countries also come into play.
    Abstract: La demande de minutes de communication par téléphone mobile est plus sensible aux variations de prix dans les pays développés. Bien que cela paraisse à priori contre-intuitif, l'évolution du secteur des télécommunications, particulièrement dans les pays en développement, explique ce résultat. Les caractéristiques du secteur dans les pays développés entrent également en jeu.
    Keywords: analyse comparative,service de télécommunications,analyse de panel dynamique,modèle économétrique de demande
    Date: 2021–07
  19. By: Masashige Hamano; Keita Oikawa
    Abstract: The current paper builds a general equilibrium model based on heterogeneous productivities of establishments and heterogeneous tastes at the product level. Establishments choose endogenously their product mix over the business cycle given different income elasticities across products in consumer preferences. We calibrate and estimate the model's shock processes with Japanese data and find that (de)regulation policy at entry, incumbent firms or establishments and each product level provide substantially different outcomes, thereby providing a caveat for policy debate.
    Date: 2022–02
  20. By: Zeynep Or (IRDES Institut de recherche et documentation en économie de la santé); Mariama Touré (IRDES Institut de recherche et documentation en économie de la santé); Emeline Rococo (Union diaconale du Var, ISPED Institut de santé publique, d'épidémiologie et de développement); Julia Bonastre (Institut Gustave Roussy, Inserm-CESP Institut national de la santé et de la recherche médicale-Centre de recherche en épidémiologie et santé des populations)
    Abstract: Les conséquences de la concurrence entre les hôpitaux sur la qualité des soins font débat. D’une part, la théorie économique suggère que lorsque les prix sont réglementés, la qualité des soins augmente dans les marchés compétitifs. A l’inverse, les économies d’échelle et l’existence d’une relation positive entre le volume d’activité et la qualité des soins plaident en faveur de la concentration de l’offre de soins hospitaliers. En utilisant des données individuelles du Programme de médicalisation des systèmes d’information (PMSI) sur deux années (2005 et 2012), nous suivons l’évolution de la concurrence entre les hôpitaux pratiquant la chirurgie du cancer du sein en France. Nous utilisons la pratique de deux techniques chirurgicales innovantes comme une mesure de la qualité des soins : la Reconstruction mammaire immédiate (RMI) après une mastectomie et la Technique du ganglion sentinelle (GS). Nous calculons un indice de concurrence de Herfindahl-Hirschmann à partir des flux théoriques de patients esti­més par un modèle logit multinomial de choix hospitalier qui permet de s’affranchir du biais d’endogénéité. Nous estimons ensuite le lien entre le niveau de concurrence dans le marché hospitalier et la probabilité de bénéficier d’une RMI ou de la technique du GS au moyen de modèles multiniveaux prenant en compte à la fois les caractéristiques observables des patientes et des hôpitaux. La probabilité de bénéficier de ces interventions chirurgicales (respectivement RMI et GS) est significativement plus élevée dans les hôpitaux opérant sur des marchés plus compétitifs. Néanmoins, le volume d’activité en chirurgie du cancer du sein est posi­tivement associé à la qualité. Les bénéfices de la concurrence sont sensibles aux esti­mations de l’impact du volume sur les processus de soins. En France, la politique de concentration de l’offre hospitalière, avec l’application de seuils minimaux d’activité pour autoriser les établissements à pratiquer certaines chirurgies du cancer, a contribué à l’amélioration du traitement du cancer du sein entre 2005 et 2012. Trouver un juste niveau de concentration de l’offre de soins hospitaliers n’est pas simple. Au travers de l’exemple de la chirurgie du cancer du sein, nos résultats montrent que, dans les marchés monopolistiques où il n’y a pas d’autre choix pour les patientes, les hôpitaux sont moins enclins à l’innovation. A contrario, une forte concurrence, avec de nombreux hôpitaux ayant des volumes d’activité très faibles, n’est pas non plus optimale car la qualité des soins est positivement liée au volume d’activité.
    Keywords: Concurrence, Volume d’activité, Qualité, Soins en cancérologie, France
    JEL: I11 H44
    Date: 2021–09

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