nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒03‒07
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Horizontal Merger Analysis with Endogenous Product Range Choice By Nisvan Erkal; Lijun Pan
  2. Oligopoly under incomplete information: on the welfare effects of price discrimination By Daniel F. Garrett; Renato Gomes; Lucas Maestri
  3. Monopoly Persistence under the Threat of Supply Function Competition By Saglam, Ismail
  4. How Do Top Acquirers Compare in Technology Mergers? New Evidence from an S&P Taxonomy By Ginger Zhe Jin; Mario Leccese; Liad Wagman
  5. Identification of Direct Socio-Geographical Price Discrimination: An Empirical Study on iPhones By Davidson Cheng
  6. Shelving or Developing? The Acquisition of Potential Competitors under Financial Constraints By Chiara Fumagalli; Massimo Motta; Emanuele Tarantino
  7. Third-Degree Price Discrimination in the Age of Big Data By Charlson, G.
  8. Visa's Abandoned Plan to Acquire Plaid: What Could Have Been a Textbook Case of a Killer Acquisition By Frédéric Marty; Thierry Warin
  9. Informational switching costs, bank competition, and the cost of finance By José Renato Haas Ornelas; Marcos Soares da Silva; Bernardus F Nazar Van Doornik
  10. An Empirical Analysis of Pricing in the U.S. Beef Industry By Bolotova, Yuliya V.
  11. Using Bid Rotation and Incumbency to Detect Collusion: A Regression Discontinuity Approach By Kei Kawai; Jun Nakabayashi; Juan Ortner; Sylvain Chassang
  12. Taking firms’ margin targets seriously in a model of competition in supply functions By Denis Claude; Mabel Tidball
  13. Tracing Professor Fox in South Africa’s Competition Jurisprudence By Klaaren, Jonathan; Radebe, Sibusiso
  14. Large Firms, Consumer Heterogeneity and the Rising Share of Profits By Robert C. Feenstra; Luca Macedoni; Mingzhi Xu
  15. A New Era of Midnight Mergers: Antitrust Risk and Investor Disclosures By John M. Barrios; Thomas G. Wollmann
  16. Cournot meets Bayes-Nash : A Discontinuity in Behavior Infinitely Repeated Duopoly Games By Argenton, Cedric; Ivanova-Stenzel, Radosveta; Müller, Wieland
  17. Logistical Competition for Corn Shipments from the United States and Ukraine to Targeted International Market By Wilson, William W.; Lakkakula, Prithviraj; Bullock, David W.
  18. Environmental services and market power By Damien Sans; Sonia Schwartz; Hubert Stahn
  19. The Scope for Strategic Asymmetry Under International Rivalry By John Gilbert; Onur A. Koska; Reza Oladi
  20. The end of 'set it and forget it' pricing? Opportunities for market-based freight contracts By Angela Acocella; Chris Caplice; Yossi Sheffi
  21. Price Premiums for Private Labelled Milk in German Retail: A Hedonic Price Analysis By Bittmann, Thomas; Scharnhop, Johann

  1. By: Nisvan Erkal; Lijun Pan
    Abstract: We consider mergers between multi-product firms in a market with monopolistically competitive fringe of single-product firms. Aggregate product variety is determined by product variety choices of multi-product firms and entry/exit decisions of single-product firms. Mergers can generate marginal cost synergies (affecting marginal cost of quantity) or fixed cost synergies (affecting marginal cost of variety). We show that with marginal cost synergies, consumer welfare decreases whenever aggregate variety increases following a merger. However, with fixed cost synergies, an increase in aggregate variety can indicate that the merger is beneficial. Our results also show high synergies do not necessarily improve consumer welfare.
    Date: 2022–02
  2. By: Daniel F. Garrett (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Renato Gomes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Lucas Maestri (FGV-EPGE - Universidad de Brazil)
    Abstract: We study competition by firms that simultaneously post (potentially nonlinear) taris to consumers who are privately informed about their tastes. Market power stems from informational frictions, in that consumers are heterogeneously informed about firms' oers. In the absence of regulation, all firms oer 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: Asymmetric information,Informational frictions,Linear pricing,Nonlinear pricing,Oligopoly
    Date: 2021
  3. By: Saglam, Ismail
    Abstract: Can a monopoly persist by expanding its operation to a new market after strategically bidding for an exclusive license under the threat of supply function competition with a potential entrant? The answer may be yes or no depending on how the monopolist's existing product and the new product are related. The monopolist can win the bidding for the new market and thus expand its operation if the marginal cost (to produce a unit output) is sufficiently low with respect to the degree of product differentiation, while its likelihood of winning is higher if the two products are substitutes than if they are complements.
    Keywords: Monopoly persistence; supply function competition; strategic bidding.
    JEL: D42 D43 L13
    Date: 2022–02–04
  4. By: Ginger Zhe Jin; Mario Leccese; Liad Wagman
    Abstract: Some argue that large platforms, such as Alphabet/Google, Amazon, Apple, Facebook and Microsoft (or GAFAM), are unusual in their number, pace and concentration of technology mergers, with the potential to harm market competition. Using a unique taxonomy developed by S&P Global Market Intelligence, we compare the M&A activities of GAFAM to other top acquirers from 2010 to 2020. We find: (i) GAFAM completed more tech acquisitions per firm than other groups of top acquirers, and acquired younger and more consumer-facing firms on average. (ii) The top 25 private equity firms outpaced GAFAM in tech acquisitions per firm since 2018. (iii) GAFAM acquisitions are less concentrated across tech categories than other top acquirer groups, due, in part, to an “acquire-adjacent-and-then-expand” strategy. (iv) Over time, more and more GAFAM and other top acquirers acquire in the same categories. (v) No evidence suggesting that a GAFAM acquisition in a category, compared to similar categories without GAFAM acquisitions, is correlated with a slowdown in the number of new acquirers acquiring in that category. Overall, we find that technology acquisitions do not shield GAFAM from competition, at least not from other GAFAM members or other firms that acquire in the same categories.
    JEL: G34 L40 O33 O38
    Date: 2022–01
  5. By: Davidson Cheng
    Abstract: Price discrimination is a practice where firms utilize varying sensitivities to prices among consumers to increase profits. The welfare effects of price discrimination are not agreed on among economists, but identification of such actions may contribute to our standing of firms' pricing behaviors. In this letter, I use econometric tools to analyze whether Apple Inc, one of the largest companies in the globe, is practicing price discrimination on the basis of socio-economical and geographical factors. My results indicate that iPhones are significantly (p $
    Date: 2022–01
  6. By: Chiara Fumagalli (Università Bocconi, CSEF and CEPR); Massimo Motta (ICREA-Universitat Pompeu Fabra and Barcelona Graduate School of Economics); Emanuele Tarantino (Luiss University, EIEF and CEPR)
    Abstract: A start-up and an incumbent negotiate over an acquisition price under asymmetric information about the start-up's ability to succeed in the market. The acquisition may result in the shelving of the start-up's project or the development of a project that would otherwise never reach the market because of financial constraints. Despite this possible pro-competitive effect, the optimal merger policy commits to standards of review that prohibit high-price takeovers, even if they may be welfare-beneficial ex post. Ex ante this pushes the incumbent to acquire startups lacking the financial resources to develop independently, and increases expected welfare.
    Keywords: Optimal merger policy, selection effect, nascent competitors.
    JEL: L41 L13 K21
    Date: 2022–02–09
  7. By: Charlson, G.
    Abstract: A platform holds information on the demographics of its users and wants maximise total surplus. The data generates a probability over which of two products a buyer prefers, with different data segmentations being more or less informative. The platform reveals segmentations of the data to two firms, one popular and one niche, preferring to reveal no information than completely revealing the consumer's type for certain. The platform can improve profits by revealing to both firms a segmentation where the niche firm is relatively popular, but still less popular than the other firm, potentially doing even better by revealing information asymmetrically. The platform has an incentive to provide more granular data in markets in which the niche firm is particularly unpopular or in which broad demographic categories are not particularly revelatory of type, suggesting that the profit associated with big data techniques differs depending on market characteristics.
    Keywords: Strategic interaction, network games, interventions, industrial organisation, platforms, hypergraphs
    JEL: D40 L10 L40
    Date: 2021–08–19
  8. By: Frédéric Marty; Thierry Warin
    Abstract: The applicability of the notion of killer acquisition to digital platforms has long been debated. The case of the proceedings brought by the U.S. Department of Justice against Visa in November 2020 (before their joint dismissal in January 2021) is even more interesting insofar as it makes it possible to illustrate and discuss its different facets ranging from the notion of competition suppression to that of consolidation and extension of the dominant position. Even if the acquisition project was eventually withdrawn, the complaint analysis also makes it possible to question inter-digital ecosystem competition and shed light on the issues related to monitoring acquisitions undertaken by dominant companies. L'application de la notion d'acquisition tueuse aux plateformes numériques fait depuis longtemps l'objet de débats. Le cas de la procédure engagée par le Département de la Justice américain contre Visa en novembre 2020 (avant leur rejet conjoint en janvier 2021) est d'autant plus intéressant qu'il permet d'illustrer et de discuter de ses différentes facettes allant de la notion de suppression de la concurrence à celle de consolidation et d'extension de la position dominante. Même si le projet d'acquisition a finalement été retiré, l'analyse de la plainte permet également de s'interroger sur la concurrence au sein de l'écosystème interdigital et de mettre en lumière les enjeux liés au contrôle des acquisitions réalisées par les entreprises dominantes.
    Keywords: mergers control,killer acquisitions,digital ecosystems,foreclosure,damage to innovation,fintech, contrôle des fusions,killer acquisitions,écosystèmes numériques,verrouillage,dommages causés à l'innovation,fintech
    JEL: L12 L25 L41
    Date: 2021–10–26
  9. By: José Renato Haas Ornelas; Marcos Soares da Silva; Bernardus F Nazar Van Doornik
    Abstract: This paper studies the links between competition in the lending market and spreads of bank loans in Brazil. Evidence from a dataset of more than 13 million loan-level observations from private banks shows a positive relationship between market power, measured by the Lerner index, and the cost of finance, measured by loan spreads over the treasury curve. Furthermore, there is evidence of the holdup problem, originating from informational switching costs faced by firms. Private banks engage in a strategy of first competing fiercely for clients by offering a lower loan interest rate and later increasing interest rates as the bank-firm relationship duration increases. Both results are stronger for micro and small firms than for medium and large firms.
    Keywords: banking, Competition, switching costs, information asymmetry, holdup problem, lock-in.
    JEL: D43 G21 L10 L14
    Date: 2022–01
  10. By: Bolotova, Yuliya V.
    Abstract: The U.S. beef packing industry has historically raised competition concerns related to marketing and pricing of cattle and beef. In 2019 cattle producers, a meat wholesaler and consumers filed class action antitrust lawsuits alleging that the four largest beef packers in the country unlawfully conspired to decrease fed cattle prices and to increase wholesale and retail prices of beef and thus violated Section 1 of the Sherman Act. The supply restraints are claimed to be the primary method of implementing this price-fixing conspiracy. The research presented in the paper conducts an econometric analysis of wholesale and retail price behavior in the U.S. beef industry during the period of alleged cartel of the four largest beef packers and the prior (more competitive) period. The empirical evidence on wholesale price behavior indicates a shift from a perfectly competitive pricing of beef packers (wholesalers) during a more competitive period to an oligopoly/monopoly pricing during the alleged cartel period. The empirical evidence on retail price behavior indicates that the pricing of food retailers was consistent with oligopoly pricing during both periods of interest.
    Keywords: Demand and Price Analysis, Livestock Production/Industries
    Date: 2021–02
  11. By: Kei Kawai (UC Berkeley); Jun Nakabayashi (Kindai University); Juan Ortner (Boston University); Sylvain Chassang (Princeton University)
    Abstract: Cartels participating in procurement auctions frequently use bid rotation or incumbency priority to allocate market shares. However, establishing a tight link between observed allocation patterns and firm conduct has been difficult: there are cost-based competitive explanations for such behavior. We show that by focusing on the set of auctions in which the winning and losing bids are very close, it is possible to distinguish allocation patterns reflecting cost differences across firms from patterns reflecting noncompetitive behavior. We apply our tests to two datasets: the sample of Ohio school milk auctions studied in Porter and Zona (1999), and a sample of municipal procurement auctions held in Japan.
    Keywords: procurement, collusion, backlog, incumbency, regression discontinuity, antitrust
    JEL: D40 D43
    Date: 2021–12
  12. By: Denis Claude (LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE]); Mabel Tidball (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We introduce price-markup objectives into a model of supply function competition. We characterize the corresponding supply-function equilibrium and study its qualitative properties. Adherence to price-markup targets is conducive to reduced market competition and increased firm profitability. While pursuing such goals reduces social welfare, welfare never drops below the level corresponding to a Cournot oligopoly. Finally, we establish conditions under which consumer preference for fair pricing inhibits the industry's use of markups as a collusive device.
    Keywords: supply function,markup pricing,price fixing,oligopoly
    Date: 2022–01–31
  13. By: Klaaren, Jonathan; Radebe, Sibusiso
    Abstract: This chapter identifies several locations where one might look to trace how Professor Eleanor Fox has contributed to the South African competition regime. Choosing one of those, her contributions to its published jurisprudence, we survey decisions of the competition authorities to find those referring to Professor Fox and her work. Those decisions include ones in the areas of extraterritorial jurisdiction and anticompetitive exclusionary practices. Discussing several prominent cases in those areas, we observe that Professor Fox has been part of the debates within South African jurisprudence from their beginnings, and that her work is considered highly and cited effectively as authority in itself. We argue that, while she has never held the formal position of a litigant or an adjudicator, South Africa’s competition regime is the richer for Professor Fox’s participation and engagement.
    Date: 2021–10–31
  14. By: Robert C. Feenstra; Luca Macedoni; Mingzhi Xu
    Abstract: We examine the relationship between large firms and the rising profit share in a model that features oligopolistic competition and consumer heterogeneity. Conditional on the sales distribution, the presence of consumer heterogeneity increases the profit share because it increases firm-level markups. Using data on purchases at the household-barcode level from Nielsen, we quantify the role of consumer heterogeneity, finding that the aggregate markup and the profit share are 8 and 3 percentage points larger than those predicted by a model of a representative consumer. Furthermore, we find that the profit share has been increasing over time and that firm targeting of consumer types plays a role in explaining this rise.
    JEL: D12 L11 L25 O51
    Date: 2022–01
  15. By: John M. Barrios; Thomas G. Wollmann
    Abstract: Antitrust authorities search public documents to discover anticompetitive mergers. Thus, investor disclosures may alert them to deals that would otherwise escape scrutiny, creating disincentives for managers to divulge transactions. We study this behavior in publicly traded US companies. First, we estimate a regression discontinuity that exploits mandatory disclosure thresholds stipulated by securities law. We find that releasing information to investors poses antitrust risk. Second, we present a method for measuring undisclosed merger activity that relies on financial accounting reporting requirements. We find that undisclosed mergers total $2.3 trillion between 2002 and 2016.
    JEL: G3 G34 L0 L4 L40 M4
    Date: 2022–01
  16. By: Argenton, Cedric (Tilburg University, School of Economics and Management); Ivanova-Stenzel, Radosveta; Müller, Wieland (Tilburg University, School of Economics and Management)
    Date: 2022
  17. By: Wilson, William W.; Lakkakula, Prithviraj; Bullock, David W.
    Keywords: International Relations/Trade, Marketing
    Date: 2022–02–14
  18. By: Damien Sans; Sonia Schwartz (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Hubert Stahn
    Abstract: The market for environmental goods and services is booming. It enables firms to reduce their polluting emissions and comply with environmental policies. However, this sector is highly concentrated. While the economic literature has established the optimal environmental policy in this context, it considers environmental goods and not environmental services. Considering this point, it is shown that a first-best environmental policy can be implemented by public authorities despite the market power in the eco-industry.
    Abstract: Le marché des biens et services environnementaux est en plein essor. Il permet aux entreprises de réduire leurs émissions polluantes et de se mettre en conformité vis-à-vis des politiques environnementales. Toutefois, ce secteur est fortement concentré. Si la littérature économique a établi la politique environnementale optimale dans ce contexte, elle considère les biens et non pas les services environnementaux. Considérant ce point, il est montré qu'une politique environnementale de premier rang peut être mise en œuvre par les pouvoirs publics malgré le pouvoir de marché dans l'éco-industrie.
    Keywords: Politique environnementale,Environnement
    Date: 2020–03
  19. By: John Gilbert; Onur A. Koska (University of Canterbury); Reza Oladi
    Abstract: In the context of a model of international trade through reciprocal dumping with horizontally differentiated goods, we study the endogenous choice of quantities and prices as strategic variables. We show that while a Cournot outcome prevails under conditions of export rivalry, strategic asymmetry under foreign direct investment rivalry may be observed, especially when it is possible to initially deter FDI by committing to a price contract, and when switching is costly and/or takes time.
    Keywords: Exports vs. FDI; Horizontal Product Differentiation; Cournot-Bertrand-Nash Equilibrium
    JEL: D43 F12 F23
    Date: 2022–02–01
  20. By: Angela Acocella; Chris Caplice; Yossi Sheffi
    Abstract: In the for-hire truckload market, firms often experience unexpected transportation cost increases due to contracted transportation service provider (carrier) load rejections. The dominant procurement strategy results in long-term, fixed-price contracts that become obsolete as transportation providers' networks change and freight markets fluctuate between times of over and under supply. We build behavioral models of the contracted carrier's load acceptance decision under two distinct freight market conditions based on empirical load transaction data. With the results, we quantify carriers' likelihood of sticking to the contract as their best known alternative priced load options increase and become more attractive; in other words, carriers' contract price stickiness. Finally, we explore carriers' contract price stickiness for different lane, freight, and carrier segments and offer insights for shippers to identify where they can expect to see substantial improvement in contracted carrier load acceptance as they consider alternative, market-based pricing strategies.
    Date: 2022–02
  21. By: Bittmann, Thomas; Scharnhop, Johann
    Abstract: Private labels are positioned at different price and quality levels. Premium private labels offer exceptional product benefits. The price premium a consumer is willing to pay over a standard private label depends on the perceived quality of the product. The objective of this paper is to investigate the size of these price premiums. The price premium can be interpreted as a measure of the retailer image and the extent to which each retailer is able to generate consumer loyalty through its own premium private label. To control for other product characteristics, we employ a hedonic price analysis. We find that major German discounters can generate the highest price premium for their premium brands. There is one other hybrid premium label that generates the highest premium, which is a private label sold at multiple retailers. National brands still generate the highest average prices overall, but the introduction of premium labels reduces the gap. Packaging, fat content, and special product labels explain a significant part of the variation in retail prices. These price differences have also important implications for cost-pass through and the frequency of retail price adjustment.
    Keywords: Agribusiness, Consumer/Household Economics, Marketing
    Date: 2021–11–18

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