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on Industrial Competition |
| By: | Bos, Iwan; Marini, Marco A.; Saulle, Riccardo D. |
| Abstract: | This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set solution concept and establish the existence of a unique pure-strategy price solution for any given level of capacity. This solution is shown to coincide with the set of pure-strategy Nash equilibria when capacities are large or small. For an intermediate range of capacities, it predicts a price interval that includes the mixed-strategy support. This stability concept thus encompasses all Nash equilibria and o ers a pure-strategy solution when there is none in Nash terms. It particularly provides a behavioral rationale for di erent pricing patterns, including Edgeworth price cycles and states of hypercompetition with supply shortages. We also analyze the impact of a change in firm size distribution. A merger among the biggest firms may lead to more price dispersion as it increases the maximum and decreases the minimum myopically stable price. |
| Keywords: | International Relations/Trade, Political Economy |
| Date: | 2021–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:317126&r= |
| By: | Petrakis, Emmanuel; Skartados, Panagiotis |
| Abstract: | We consider a vertically related market where an upstream monopolist supplies two downstream Cournot competitors. We allow the vertical contract terms to be either interim observable or secret. We address a dichotomy in the literature by endogenizing the disclosure regime of contract terms. The latter could be set via a Non-Disclosure Agreement. Firms bargain over both the disclosure regime and the contract terms. Our results indicate that when firms trade over two-part tariffs, universal interim observability is the unique equilibrium no matter the bargaining power distribution or the product differentiation. Yet, when firms trade over linear tariffs there may be a multiplicity of equilibria. We also show that under competing vertical chains we get universal interim observability as a unique equilibrium no matter the upstream structure. Our results qualitatively hold under Bertrand competition too. Our welfare analysis indicates that universal interim observability and two-part tariffs yield the highest consumer surplus and total welfare. |
| Keywords: | Bilateral Contracting; Vertical Relations; Two-Part Tariffs; Bargaining; Nondisclosure Agreements; Secret Contracts |
| JEL: | D43 L13 L14 |
| Date: | 2022–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:34144&r= |
| By: | Henry Thille (Department of Economics and Finance, University of Guelph, Guelph ON Canada); Sebastien Mitraille (Toulouse Business School) |
| Abstract: | We examine the e?ects of ?rm heterogeneity when ?rms can compete in advance for future demand by either entering forward contracts or by selling to agents that store the good to meet future demand. Firms’ sales in the second period are reduced by aggregate advance sales, so high-cost ?rms may produce zero output in equilibrium if aggregate advance sales induce a price below their marginal cost. The endogenous number of active ?rms leads to the possibility of a deterrence equilibrium in which lower-cost ?rms act to deter the activity of higher-cost ?rms. In this case, the presence of inactive higher-cost ?rms in the market results in a lower price than would otherwise obtain. In addition, the advance sales equilibrium with heterogeneous ?rms has higher market shares for relatively e?cient ?rms compared to that in both the heterogeneous ?rm Cournot equilibrium and the homogeneous ?rm advance sales equilibrium. Consequently, the equilibrium outcome results in industry output produced at a lower average cost, which represents an additional welfare gain associated with the pro-competitive e?ects of strategic advance sales even though the reallocation of market shares leads to higher measured concentration. |
| Keywords: | Advance sales, oligopoly, quantity competition |
| JEL: | C72 D43 L13 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2022-01&r= |
| By: | Sen, Neelanjan; Minocha, Priyansh; Dutta, Arghya |
| Abstract: | This paper considers the possibility of technology licensing and tacit collusion between firms that produce homogeneous goods under asymmetric cost structures and compete in quantities. We discuss the possibility of collusion under Grim-Trigger strategies when technology may be licensed via fixed fee or royalty or two-part tariff. Irrespective of the type of licensing contract, the possibility that a stable cartel is formed is the same. In the no-licensing stage, the cartel formation is more likely if the cost difference between the firms is higher. In contrast to Lin (1996), all forms of licensing facilitate (obstruct) collusion, if the initial cost difference between the firms is less (more). Technology will always be licensed in the first stage and the optimal form of licensing is either fixed-fee or royalty or two-part tariff. The cartel will be formed if the firms are relatively patient and welfare either increases or decreases in the post-licensing stage. |
| Keywords: | Technology licensing; Oligopoly; Cartel; Grim-Trigger Strategy; Cournot Competition |
| JEL: | D24 L13 L24 |
| Date: | 2022–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111639&r= |
| By: | Xiaojuan Yu (Zhongnan University of Economics and Law); Vincent van den Berg (VU Amsterdam); Erik Verhoef (VU Amsterdam); ZhiChun Li (Huazhong University of Science and Technology) |
| Abstract: | Autonomous cars allow safe driving with a smaller headway than that required for normal human-driven cars, thereby potentially improving road capacity. To attain this capacity benefit, cooperation among autonomous cars is vital. However, the future market may have multiple car brands and the incentive for them to cooperate is unknown. This paper investigates competition and cooperation between multiple car brands, which may offer both autonomous and normal cars. In particular, we develop a two-stage game theoretic model to investigate brands' strategic interactions and evaluate, from both policy and organizational perspectives, the implications of their cooperation incentives and pricing competition. We compare four market structures: duopoly competition, perfect competition, a public welfare-maximizing monopoly, and a private profit-maximizing monopoly. Various parameters are evaluated, including factors such as price elasticity, capacity effects, and cooperation cost. This evaluation provides policy insights into actions that could be considered by regulators and organizations for the operation of autonomous cars. |
| Keywords: | Autonomous cars, Cooperation strategy, Duopoly competition, Game theory, Regulatory policy |
| JEL: | D21 R41 D43 |
| Date: | 2022–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20220003&r= |
| By: | David Card |
| Abstract: | I discuss the recent literature that has led to new interest in the idea of monopsonistic wage setting. Building on advances in search theory and in models of differentiated products, researchers have used a number of different strategies to identify the elasticity of firm-specific labor supply. A growing consensus is that firms have some wage-setting power, though many questions remain about the sources of that power. |
| JEL: | J30 J42 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29683&r= |
| By: | Ma, Siyu; Sen, Debapriya; Tauman, Yair |
| Abstract: | We consider the licensing of a cost-reducing innovation in a Cournot oligopoly where an outside innovator uses three part tariffs that are combinations of upfront fees, per unit royalties and ad valorem royalties. The key insight of our analysis is per unit royalties have a location effect and ad valorem royalties have a scale effect on marginal costs. Using these two effects, we show that the same market outcome (price, quantities, operating profits) can be sustained by multiple combinations of per unit and ad valorem royalties. In the monopoly case, under three part tariffs it is optimal to set a pure upfront fee while the unique optimal two part royalty is a pure ad valorem royalty. In the case of a general oligopoly with linear demand, for relatively insignificant innovations, it is optimal to set a pure upfront fee; otherwise there is a continuum of optimal policies and there always exists an optimal policy consisting of a positive per unit royalty and upfront fee but no ad valorem royalty. For intermediate innovations, provided the demand intercept is relatively large, there exists an optimal policy that has both kinds of royalties but no fees. Finally in a Cournot duopoly it is illustrated that when the innovator is one of the incumbent firms rather than an outsider, market outcomes separately depend on two kinds of royalties and a pure ad valorem royalty is optimal among all three part tariffs. |
| Keywords: | patent licensing; per unit royalties; ad valorem royalties; three part tariffs; acceptability and feasibility constraints |
| JEL: | D43 D45 L13 L14 |
| Date: | 2022–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111624&r= |
| By: | Serra-Sastre, Victoria; Bianchi, Simona; Mestre-Ferrandiz, Jorge; O’Neill, Phill |
| Abstract: | The aim of this paper is to examine generic competition in the UK, with a special focus on the role of Health Technology Assessment (HTA) on generic market entry and diffusion. In the UK, where no direct price regulation on pharmaceuticals exists, HTA has a leading role for recommending the use of medicines providing a non-regulatory aspect that may influence the dynamics in the generic market. The paper focuses on the role of Technology Appraisals issued by the National Institute for Health and Care Excellence (NICE). We follow a two-step approach. First, we examine the probability of generic entry. Second, conditional on generic entry, we examine the determinants of generic market share. We use data from IQVIA British Pharmaceutical Index (BPI) for the primary care market for 60 products that lost patent between 2003 and 2012. Our results suggest that market size remains one of the main drivers of generic entry. After controlling for market size, intermolecular substitution and difficulty of manufacturing increase the likelihood of generic entry. After generic entry, our estimates suggest that generic market share is highly state dependent. Our findings also suggest that while NICE recommendations do influence generic uptake, there is only marginal evidence they affect generic entry. |
| Keywords: | generic competition; generic entry; market share; NICE |
| JEL: | I11 I18 |
| Date: | 2021–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:113639&r= |
| By: | Paolo Bertoletti |
| Abstract: | The quantity-setting (Cournot) oligopoly with perfect complements is dual to the price-setting (Bertrand) oligopoly with homogeneous goods. Under mild technical conditions, the former setting has a unique (pure strategy) Nash equilibrium with null quantities. |
| Keywords: | Cournot duopoly; Bertrand duopoly; perfect complements; homogeneous products. |
| JEL: | D11 D43 D61 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:490&r= |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2022-16&r= |
| By: | Han, Minsoo (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Kim, Subin (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)) |
| Abstract: | In recent years, inequality has grown worse worldwide. Recent studies have pointed out weakening market competition and deepening industrial concentration as one of factors for this phenomenon. Therefore, the role of competition policies in promoting market competition should also be considered as a countermeasure against deepening inequality beyond the traditional view about competition policies. Against this backdrop, we empirically analyze cases of the US, the EU and Korea, and then propose a competition policy direction to achieve inclusive and innovative growth pursued by the Korean government. |
| Keywords: | competition policy; market competition; US; EU; Korea; inclusive and innovative growth |
| Date: | 2022–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kiepwe:2022_002&r= |
| By: | Thierry Kirat (IRISSO - Institut de Recherche Interdisciplinaire en Sciences Sociales - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Frédéric Marty (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal = University of Québec in Montréal, GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur, OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po) |
| Abstract: | The article presents the late convergence process from American economists that led them to support a strong antitrust enforcement in the Second New Deal despite their long-standing distrust toward this legislation. It presents the path from which institutionalist economists, on the one side, and members of the First Chicago School, on the other one, have converged on supporting the President F.D. Roosevelt administration towards reinvigorating antitrust law enforcement as of 1938, putting aside their initial preferences for a regulated competition model or for a classical liberalism. The appointment of Thurman Arnold at the head of the Antitrust Division in 1938 gave the impetus to a vigorous antitrust enforcement. The 1945 Alcoa decision crafted by Judge Hand embodied the results of this convergence: in this perspective, the purpose of antitrust law enforcement does consist in preventing improper uses of economic power. |
| Keywords: | Economic Power,Institutional Economics,Antitrust,Efficiency,Chicago School,New Deal |
| Date: | 2021–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03261721&r= |
| By: | Soumendu Sarkar (Department of Economics, Delhi School of Economics); Dhritiman Gupta (O.P. Jindal Global University,Sonipat, India.) |
| Abstract: | An assembly problem refers to a situation where a buyer wants to purchase a fixed number of complementary items from sellers holding an item each. We model complementarity using graphs where nodes represent items, and edges between two nodes represent a complementary relationship between these items. The buyer wants to purchase a feasible path in the graph, i.e., a path of desired length, where the sum of valuations of the sellers owning the items do not exceed buyer’s own valuation. A seller is critical if he lies on every feasible path. We examine subgame perfect equilibria of an infinite horizon alternate-offer bargaining game between the buyer and the sellers. We show that there exist equilibria where the buyer can extract full surplus within two periods if and only if (a) there are no critical sellers and (b) there exist at least two feasible paths with minimum sum of seller valuations. We also characterize the upper bounds on buyer’s surplus when she cannot extract full surplus. Thus we characterize the trade-off between complementarity and competition in terms of buyer’s equilibrium surplus share in assembly problems. Key Words: Assembly, Bargaining, Competition, Complementarity, Contiguity, Holdout JEL Codes: C78 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:319&r= |
| By: | Kimani, Stephanie; Atiti, Faith; Agung, Raphael |
| Abstract: | Literature has divergent views on the relationship between market structure and allocation of credit by banks. Using quarterly bank scope data from 23 banks operating in Kenya between 2006 and 2018, we find that, while an increase in competition may improve allocation of credit in the short run, in the long run, increased competition may be detrimental to the amount of credit supplied to the private sector by commercial banks. This finding provides policy makers with evidence of how the structure of the Kenyan banking industry affects banks' credit allocation decisions. The findings may help inform the ongoing banking sector consolidation narrative given that changes to the competition structure of the market may not materially alter banks' lending behavior in the short and long run. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kbawps:50&r= |
| By: | Muriithi, David |
| Abstract: | This study investigates the nexus between market structures on the banks' pricing behaviour in Kenya using the panel VAR model for 2003 - 2018 period. Bank-level annual data sourced from audited financial statements and macroeconomic data sourced from Central Bank of Kenya were used. Estimation results reveal that the market concentration measures all positively shock net interest margin. Further, the Impulse Response Function results indicate the positive shock of the Lerner index is short-lived, but the HerfindahlHirschman Index shock is long-lived. The concentration of the top five banks shock was found to be negative at first but immediately reversed, taking a sharp continual rise for the rest of the period. Therefore, policies on enhancing banking industry competitiveness would be appropriate in promoting market - based - pricing in the industry. |
| Keywords: | Behaviour,Pricing,Market Structure,Kenya |
| JEL: | D43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kbawps:52&r= |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper considers a two-stage game model with a nonlinear concave demand function where two socially concerned firms compete with each other. In the first stage, each firm decides simultaneously and independently whether to offer lifetime employment as a strategic commitment device. In the second stage, after observing the rival’s choice in the first stage, each firm chooses simultaneously and independently an actual output level. Each socially concerned firm maximizes its own profit plus a fraction of consumer surplus. The paper discusses the equilibrium outcomes of the model. |
| Keywords: | Concave demand function; Cournot duopoly model; Lifetime employment; Socially concerned firms |
| JEL: | C72 D21 L20 |
| Date: | 2022–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111625&r= |
| By: | Kepler, John D. (Stanford U); Nikolaev, Valeri V. (U of Chicago); Scott-Hearn, Nicholas (U of Chicago) |
| Abstract: | Transparency of quality in the healthcare sector primarily aims to facilitate patients’ care decisions, however, it also provides useful information to competing healthcare providers. We study how competitors respond to increased transparency about rivals’ quality by exploiting a regulatory change that initiated disclosure about the quality of all kidney dialysis facilities in the United States. We show that competitors are 27% more likely to open new facilities near low-quality incumbents after the transparency program is implemented. We also show that the effect of transparency on competition is concentrated in states without licensing requirements that create barriers to entry. Evidence from patient referrals indicates that the new transparency regime increases the sensitivity of demand to quality and that the increase in competition is costly to low-quality incumbents, as they lose 31% of their referrals—equivalent to a $3.74 million loss of a facility’s annual revenue—to higher-quality entrants. Finally, losing referrals leads incumbents to invest in better patient care through an immediate increase in the use of nurse practitioners and social workers. |
| JEL: | D83 G14 L14 M41 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:4007&r= |
| By: | Emanuela Ciapanna (Bank of Italy); Sara Formai (Bank of Italy); Andrea Linarello (Bank of Italy); Gabriele Rovigatti (Bank of Italy) |
| Abstract: | In this paper, we provide an assessment of the evolution of markups in Italy in the last twenty years. To this aim, we resort to both macro and micro data and estimation techniques, namely reduced forms accounting measures (price-cost margins) and production function model-based indicators. When using aggregate data, we adopt a comparative approach and analyse markup dynamics in the four main euro area countries, whereas the micro-level analysis is focused on Italy. According to our findings i) markups have shown flat/slightly decreasing dynamics in the last decades in the major EU countries, settling on average in level at 1.1; ii) aggregate dynamics hide substantial across sector and firms heterogeneity in markups patterns; iii) the micro-level analysis for Italy indicates the within-firms component as the most relevant in explaining markups behavior; iv) no top firms-driven dynamics emerge; v) our evidence conflicts with the results obtained in De Loecker and Eeckhout (2018) because the latter suffers of two main sources of bias: a strong sample selection, and the assumption of a common technology parameter across countries. Finally, we propose an encompassing measure of market power, summarizing the several indices investigated in a principal component framework. This synthetic indicator describes the markups evolution for the Italian economy and we confirm its effectiveness based on a set of validation variables. |
| Keywords: | Markups, competition measures, Euro Area, micro-macro data |
| JEL: | D2 D4 E2 L1 O3 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_672_22&r= |
| By: | Argenton, Cedric (Tilburg University, Center For Economic Research); Ivanova-Stenzel, Radosveta; Müller, Wieland (Tilburg University, Center For Economic Research) |
| Keywords: | cournot; Bayesian game; Bayes-Nash equilibrium; repeated games; collusion; cooperation; experimental economics |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:bec182fc-5222-4ec2-9632-3369a281269f&r= |
| By: | Osoro, Jared; Josea, Kiplangat |
| Abstract: | Contrary to predictions that brick-and-mortar banking declines with increased financial innovations and technological adoptions, bank branch network between 2006 and 2018 has tripled and ATM networks have increased four-fold. In this paper, we examine whether network convenience matter for price competition. Using a panel data framework over the 2006 to 2019 period for thirty-eight commercial banks, we find that non-price competition indicators matter for the bank's pricing behaviour. In particular: (i) the provision of an extensive branch network is associated with a higher operating costs per unit of deposits, a 'shadow price' of deposits, but is not directly priced in the case of ATMs network; (ii) the effect of network convenience on the deposit rate is negative for both bank branch network and ATMs network albeit insignificant, while the a higher deposit to branch network ratio is associated with a significant reduction in the deposit rate and but seems to be offset by a higher labour to branch network ratio, with the net effect being positive thus suggesting that deposit rates tend to rise with increased network convenience; (iii) a more extensive branch network and a higher labour-to-branch staffing ratio are significantly associated with higher loan rate, while inversely and significantly associated with a higher depositto-branch network ratio suggesting that the benefits of higher branch output productivity (and revenues) is passed on to borrowers in the form of a lower loan rates; (iv) differences in bank branch and ATMs significantly affects fee income albeit inversely in the case of branch network and positively in the case of ATMs network. |
| Keywords: | Banks,Competition,Branch,ATMs,Pricing Behaviour |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kbawps:47&r= |
| By: | Erwan Gautier; Magali Marx; Paul Vertier |
| Abstract: | Using several millions of daily prices collected over the period 2007-2018 in France, we investigate how gasoline retail prices respond to a common shock on marginal cost (i.e. the wholesale gasoline price quoted on the Rotterdam market). We find that the pass-through is complete: a 1% change in Rotterdam price translates to a change in retail price of 0.8%, in line with the share of the wholesale gasoline in total costs. The adjustment is gradual: the full pass through takes about 3 weeks. In a broad class of sticky price models, the ratio of the kurtosis over the frequency of price changes is shown to be a sufficient statistic for the cumulative impulse response of prices (CIRP) to a nominal shock. We provide evidence that the sufficient statistic prediction holds when we look at how gasoline prices respond to a common cost shock. Relating, at the gas station level, the CIRP to moments of the price change distribution, we find that the CIRP correlates with the ratio of kurtosis over frequency, but also with both frequency and kurtosis taken separately. The sign and the magnitude of the correlations are fully in line with theoretical predictions. We also show that other moments do not correlate with CIRP as robustly as the frequency and the kurtosis. |
| Keywords: | Price Rigidity, Gasoline, Sufficient Statistic |
| JEL: | E31 D43 L11 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:861&r= |