nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒03‒14
fifteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Conditions for efficient entry and clustering By Smirnov, Vladimir; Waity, Andrew
  2. Capacity choice with upstream investment By Qing Hu; Tomomichi Mizuno
  3. Granular Search, Market Structure, and Wages By Gregor Jarosch; Jan Sebastian Nimczik; Isaac Sorkin
  4. Policy complementarities to curb market power and raise real wages By Eckardt, Marcel Steffen; Neugart, Michael
  5. The Inner Workings of a Hub-and-Spoke Caretl in the Automotive Fuel Industry By Daniel Chaves; Marco Duarte
  6. Inflated Recommendations By Martin Peitz; Anton Sobolev
  7. Market Pilot Operations: Lessons from Guangdong Province By Yang Liu; Zhigao Jiang; Bowei Guo
  8. Market Power in Small Business Lending: A Two-Dimensional Bunching Approach By Natalie Cox; Ernest Liu; Daniel Morrison
  9. Adjustable Product Attributes, Indirect Network Effects, and Subsidy Design: The Case of Electric Vehicles By Kevin Remmy
  10. Non-linear Effects of Market Concentration on the Underwriting Profitability of the Non-life Insurance Sector in Europe By Jan Janku; Ondrej Badura
  11. Macroeconomic dynamics and the role of market power. The case of Italy By Jasmine Mondolo
  12. The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act By Panagiotis Avramidis; George Pennacchi; Konstantinos Serfes; Kejia Wu
  13. Targeted Vouchers, Competition Among Schools, and the Academic Achievement of Poor Students By Christopher A. Neilson
  14. Market Volatility, Digital Transformation and Innovation changed the way of competition By Wijenayaka, Amal
  15. Pasar Persaingan Sempurna By Jannah, Miftahul; , Asrari; , NURFADILLAH; Puspitasari, Ayu

  1. By: Smirnov, Vladimir; Waity, Andrew
    Abstract: We outline the conditions for efficient entry order and clustering in a triopoly preemption game in which firms differ in their sunk costs of entry. The critical factor turns out to be how symmetric the potential entrants are. If the cost asymmetry between the firms is sufficiently large, entry is always in the efficient order. On the other hand, if firms are relatively symmetric, entry order can be inefficient in that the firm with the second-lowest entry cost enters first. Furthermore, if there is any difference in entry costs between the two most efficient firms, there is never clustering (which is when firms enter the market at the same time). Lastly, in contrast to the case with relatively symmetric firms, when the cost asymmetry between firms is large, the leader's entry time in the triopoly is always earlier than it is in a duopoly.
    Keywords: timing games; asymmetric firms; clustering; inefficient entry
    Date: 2021–11
  2. By: Qing Hu (Faculty of Economics, Kushiro Public University of Economics / Research Fellow, Graduate School of Economics, Kobe University); Tomomichi Mizuno (Graduate School of Economics, Kobe University)
    Abstract: We consider a vertically related market with an upstream firm engaging in cost-reducing investment and n downstream firms competing on quantity. We analyze the capacity choice by downstream firms and find that over-capacity occurs in equilibrium if the number of downstream firms is large or the upstream investment is efficient.
    Date: 2022–02
  3. By: Gregor Jarosch (Princeton University and NBER); Jan Sebastian Nimczik (ESMT Berlin and IZA); Isaac Sorkin (Stanford University and NBER)
    Abstract: We develop a model where labor market structure affects the division of surplus between firms and workers. In a model of random search and large employers, workers might apply to another job controlled by the same employer in the future. This possibility endows firms with size-based market power. The reason is that outside options are truly outside the firm: firms do not compete with their own vacancies. Hence, a worker’s outside option is worse when bargaining with a larger firm, and wages depend on market structure. We calibrate the model to Austrian data and find that such size-based market power depresses wages.
    Keywords: labor market, labor economics
    JEL: E20 J01
    Date: 2021–07
  4. By: Eckardt, Marcel Steffen; Neugart, Michael
    Abstract: Recent evidence suggests that anti-competitive behavior of firms negatively affects workers’ real wages. Typically, policy actions relate to antitrust regulation and rarely to measures that curb employers’ monopsony power. We show that policymakers who want to raise workers’ real wages should address both types of market power simultaneously to gain from a policy complementarity.
    Date: 2022
  5. By: Daniel Chaves (University of Western Ontario); Marco Duarte
    Abstract: We analyze a hub-and-spoke cartel in the Brazilian automotivefuel industry. Using the court documents and detailed data on the supply chain we uncover three mechanisms beyond information sharing used by wholesalers (hub) to help retailers (spokes) solve the obstacles of price coordination: vertical transfers across asymmetric spokes; subsidies during punishment; and cost stabilization. We argue that wholesalers benefited from the cartel by being the exclusive supplier during the scheme. We use the synthetic control approach to quantify how successful the cartel was in increasing markups. We find that not only retailers, but wholesalers benefited from the cartel.
    Keywords: antitrust; Hub-and-Spoke collusion; vertical restraints
    JEL: K21 L12 D43
    Date: 2021
  6. By: Martin Peitz; Anton Sobolev
    Abstract: Biased recommendations arise naturally in a market with heterogeneous consumers: A seller o ers a product to a mix of "picky" and "flexible" consumers who can purchase through an intermediary or directly from the seller. A picky consumer either encounters a good or a bad match, while a "flexible" consumer is indifferent about the product design. Consumers know whether they are picky or flexible, but picky consumers observe match quality only after purchase and, therefore, rely on the intermedi- ary's recommendation. We provide conditions under which the intermediary decides to recommend a welfare-reducing bad match with positive probability, resulting in inflated recommendations. A regula- tory intervention that prohibits recommending bad matches may backfire. The optimal regulation that limits the rate at which the product can be recommended performs better than the laissez-faire.
    Keywords: intermediation, digital platforms, recommendation bias, recommender system, asymmetric information, experience good, e-commerce
    JEL: L12 L15 D21 D42 M37
    Date: 2022–02
  7. By: Yang Liu (Renmin University of China); Zhigao Jiang (Energytalent Consulting Co., Ltd); Bowei Guo (Renmin University of China)
    Keywords: China power market reform, market failures, local market power, electricity spot market
    JEL: Q41 Q48 D61
    Date: 2021–09
  8. By: Natalie Cox (Princeton University); Ernest Liu (Princeton University); Daniel Morrison (Princeton University)
    Abstract: Do government-funded guarantees and interest rate caps primarily benefit borrowers or lenders under imperfect competition? We study how bank concentration impacts the effectiveness of these policy interventions in the small business loan market. Using data from the Small Business Administration's (SBA) Express Loan Program, we estimate a tractable model of bank competition with endogenous interest rates, loan size, and take-up. We introduce a novel methodology that exploits loan "bunching" in the two dimensional contract space of loan size and interest rates, utilizing a discontinuity in the SBA's interest rate cap. In concentrated markets, we find that a modest decrease in the cap would increase borrower surplus by up to 1.5%, despite the rationing of some loans. In concentrated markets with a 50% loan guarantee, each government dollar spent raises borrower surplus by $0.64, boosts lender surplus by $0.34, and generates $0.02 of deadweight loss.
    Keywords: government, small business, loans, interest rates
    JEL: H81 E43
    Date: 2021–08
  9. By: Kevin Remmy
    Abstract: This paper develops a structural model of endogenous product attribute choice in the presence of indirect network effects to study electric vehicle (EV) subsidies. Using data on the German EV market from 2012-2018, I find that a support scheme increased EV sales by 98% but led to strong range distortions. When designing subsidies, these distortions create a trade-off between optimizing different policy objectives. Large purchase subsidies maximize EV sales whereas large charging station subsidies maximize consumer and total surplus. The results suggest that policymakers should carefully weigh the benefits of increasing EV sales against the distortions this causes.
    Keywords: network externalities, product attribute choice, elctric vehicles, subsidies
    JEL: D12 D62 H23 L62 Q55
    Date: 2022–02
  10. By: Jan Janku; Ondrej Badura
    Abstract: Recent studies argue that more attention needs to be paid to the insurance sector in analyses of the financial sector, as it may be a significant factor in maintaining overall financial stability. In this paper, we analyze the relationship between market concentration and the underwriting profitability of the non-life insurance sector. We find that an increasing level of concentration over time leads, on average, to an increase in underwriting profitability (as proxied by the loss ratio). At high levels of concentration, however, this effect reverses, with rising concentration reducing underwriting profitability. The convex (U-shaped) nature of this relationship implies that the strongest incentives for collusive behavior arise when concentration is lowest. Additionally, we show that during a period of lower rates, weaker interest returns are offset by stronger underwriting results. However, this effect seems to be conditional on a high level of concentration.
    Keywords: Concentration, insurance sector, loss ratio, low interest rates, underwriting profitability
    JEL: C33 G22 G23
    Date: 2021–12
  11. By: Jasmine Mondolo
    Abstract: In recent years, the US and other advanced countries have experienced macroeconomic dynamics which raise some concerns and which, according to the literature, are at least partly attributable to a rise in product market power. This study mainly aims to understand how Italy performs in terms of five relevant economic variables (i.e., domestic investment rate, labour share, labour force participation, wage inequality and economic dynamism), and whether firms’ markups are on the rise. The picture that emerges is mixed, and the negative performance in terms of business dynamism and wage dispersion may be ascribable to an increase in product market power. The firm-level analysis of the Italian manufacturing sector for the years 2011- 2018, which complements previous empirical analysis on product market power in this country and accounts for labour market power as well, reveals an increment in the average markup which, however, is not particularly pronounced and unsettling, and which is preceded by a period of steady decline. Moreover, this trend is accompanied by a more remarkable increase in the workers’ labour market power, which helps explain the modest growth in the revenue- based labour share observed during the same period.
    Keywords: labour share, market power, markup, investment, inequality
    JEL: E25 J42 L11
    Date: 2021
  12. By: Panagiotis Avramidis; George Pennacchi; Konstantinos Serfes; Kejia Wu
    Abstract: This paper analyzes how bank regulation that promotes greater access to credit impacts the financing of targeted small firms. It develops a model where banks compete with trade creditors to fund small firms and applies it to study the effects of the Community Reinvestment Act (CRA). The empirical tests reveal that a CRA-induced increase in bank loans reduces small firms’ use of relatively expensive trade credit. The effect is more profound in low- and medium-income areas where financial constraints are tighter due to low bank competition. The effect is also larger for small firms that operate in trade credit-dependent industries.
    Keywords: Competition; Regulation; Trade credit; Small business loans
    JEL: G14 G21 L13 L50 L49
    Date: 2022–02–17
  13. By: Christopher A. Neilson (Princeton University)
    Abstract: I develop a model of supply and demand with imperfect competition to study the primary education market in Chile. I use this framework to empirically analyze how voucher policy affects competitive incentives for schools to supply quality. First, I show descriptive and causal evidence that the introduction of a voucher targeted at poorer students led private schools to improve quality, especially in the poorest neighborhoods. Then, I use my estimated demand model to quantify the mechanisms that incentivized for-profit schools to improve. My estimates indicate that schools mark down quality below the competitive benchmark, and this markdown is larger in poorer areas. The targeted voucher policy induced nuanced changes in the two mechanisms that drive the observed improvements in quality in my model market power and marginal revenue. The results indicate that the policy improved equity by providing more resources and increasing competition in neighborhoods where incentives to invest in quality are weakest.
    Keywords: School Choice, School Competition, Targeted Vouchers, Market Power, Chile
    JEL: I20
    Date: 2021–05
  14. By: Wijenayaka, Amal
    Abstract: The world is rapidly changing. As a result, organizations have to find new ways to compete with close competitors. It is challenging to use traditional methods and ways. Advertising and price war are not gaining sustainable competitive advantage further. Most past researches mentioned that Innovation is the key to future success. Furthermore, it is required to transform to digitalization. It provides new insight into the organization. Market volatility is a huge challenge to the organization. However, it can be managed with digitalization and Innovation.
    Date: 2022–01–05
  15. By: Jannah, Miftahul; , Asrari; , NURFADILLAH; Puspitasari, Ayu
    Abstract: Pasar persaingan sempurna merupakan jenis pasar dimana tidak ada pelaku ekonomi yang mempunyai kekuasaan pasar (market power) terhadap harga suaru produk yang homogen. Pembeli maupun penjual tidak mempunyai kekuatan untuk empengaruhi harga pasar. Mereka hanya bertindak sebagai pengambil harga (price taker) dan bukan sebagai pembuat harga (price maker). Dalam pasar persaingan sempurna, harga dipengaruhi oleh permintaan, (demand) dan penawaran (suplay) antara penjual dan pembeli. Pembeli memberikan permintaan antara sifat barang yang akan dibeli, sedangkan penjual menawarkan nilai barang yang akan dijual. Pertukaran antara nilai keduanya adalah salah satu keseimbangan harga.
    Date: 2021–12–23

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