nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒03‒21
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Simulating media platform mergers By Marc Ivaldi; Jiekai Zhang
  2. Behavior based price personalization under vertical product differentiation By Paolo Garella; Didier Laussel; Joana Resende
  3. Environmental Preferences and Technological Choices : Is Market Competition Clean or Dirty? By Philippe Aghion; Roland Bénabou; Ralf Martin; Alexandra Roulet
  4. Entry games for the airline industry By Christian Bontemps; Raquel Menezes Bezerra Sampaio
  5. Screening Adaptive Cartels By Juan Ortner; Sylvain Chassang; Jun Nakabayashi; Kei Kawai
  6. Challenged by technology: the audiovisual landscape and the evolving regulatory framework in Europe By Jean-Paul Simon; Pierre-Jean Benghozi
  7. Beyond Illyria: Workers' Firm in Mixed Oligopoly By Flavio Delbono; Diego Lanzi; Carlo Reggiani
  8. News Media, Digital Platforms and Content Sharing By Go, Geoffrey
  9. A Structural Empirical Model of R&D Investment, Firm Heterogeneity, and Industry Evolution By Yanyou Chen; Daniel Xu
  10. How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased? By Leemore Dafny; Kate Ho; Edward Kong
  11. Host type and pricing on Airbnb: Seasonality and perceived market power By Georges Casamatta; Sauveur Giannoni; Daniel Brunstein; Johan Jouve
  12. Regulatory Instruments for Fair Personalized Pricing By Renzhe Xu; Xingxuan Zhang; Peng Cui; Bo Li; Zheyan Shen; Jiazheng Xu
  13. Coasian Dynamics under Informational Robustness By Jonathan Libgober; Xiaosheng Mu
  14. Low Interest Rates, Market Power, and Productivity Growth By Ernest Liu; Atif Mian; Amir Sufi
  15. Rethinking capacity utilization choice: the role of surrogate inventory and entry deterrence By Thomas I. Palley
  16. Markups Across Space and Time By Eric Anderson; Sergio Rebelo; Arlene Wong

  1. By: Marc Ivaldi (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); Jiekai Zhang (Hanken School of Economics)
    Abstract: The empirical analysis of media platforms economics has often neglected the multi-homing behaviour of advertisers. Assuming away the cross-substitutability and/or complementarity between the advertising slots of different platforms could damage the quality and the robustness of counterfactual analysis. To evaluate the consequence of such an abstraction, we compare the simulation results of hypothetical platform mergers when the demand on the advertising side is derived from a Translog cost model which allows for multi-homing, and when it is approximated by using a simple log-linear inverse demand model that ignores the differentiation among media platforms' advertising slots. Ignoring the existence of substitutes or complements on the advertising side would result in overpredicting the losses of the viewers' surplus and in underpredicting the gains in platforms' revenues
    Keywords: Two-sided market,Platform merger,Advertising,TV market,Competition policy
    Date: 2021
  2. By: Paolo Garella (Department of Economics, Management and Quantitative Methods (DEMM) - UNIMI - Università degli Studi di Milano [Milano]); Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Joana Resende (Cef.up, Economics Department, University of Porto)
    Abstract: We study price personalization in a two period duopoly with vertically differentiated products. In the second period, a firm not only knows the purchase history of all customers, as in standard Behavior Based Price Discrimination models, but it also collects detailed information on its old customers, using it to engage in price personalization. The analysis reveals that there exists a natural market for each firm, defined as the set of customers that cannot be poached by the rival in the second period. The equilibrium is unique, except when firms are ex-ante almost identical. In equilibrium, only the firm with the largest natural market poaches customers from the rival. This firm has highest profits but not necessarily the largest market share. Aggregate profits are lower than under uniform pricing. All consumers gain, total welfare is higher herein than under uniform pricing if firms' natural markets are sufficiently asymmetric. The low quality firm chooses the minimal quality level and a quality differential arises, though the exact choice for the high quality depends upon the cost specification.
    Date: 2021–05
  3. By: Philippe Aghion (Collège de France); Roland Bénabou (Princeton University); Ralf Martin (Imperial College London); Alexandra Roulet (INSEAD)
    Abstract: We investigate the effects of consumers' environmental concerns and market competition on firms' decisions to innovate in "clean" technologies. Agents care about their consumption and environmental footprint; firms pursue greener products to soften price competition. Acting as complements, these forces determine R&D, pollution, and welfare. We test the theory using panel data on patents by 8,562 automobile-sector firms in 41 countries, environmental willingness-to pay, and competition. As predicted, exposure to prosocial attitudes fosters clean innovation, all the more so where competition is strong. Plausible increases in both together can spur it as much as a large fuel-price increase.
    Keywords: climate change, Competition, Environment, Innovation, Patents, Social Responsibility
    JEL: D21 D22 D62 D64 H23 O30 O31
    Date: 2021–01
  4. By: Christian Bontemps (ENAC - Ecole Nationale de l'Aviation Civile, 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); Raquel Menezes Bezerra Sampaio (UFRN - Universidade Federal do Rio Grande do Norte [Natal])
    Abstract: In this paper we review the literature on static entry games and show how they can be used to estimate the market structure of the airline industry. The econometrics challenges are presented, in particular the problem of multiple equilibria and some solutions used in the literature are exposed. We also show how these models, either in the complete information setting or in the incomplete information one, can be estimated from i.i.d. data on market presence and market characteristics. We illustrate it by estimating a static entry game with heterogeneous firms by Simulated Maximum Likelihood on European data for the year 2015.
    Keywords: Estimation,Airlines,Multiple equilibria,Entry,Industrial organization
    Date: 2020–12
  5. By: Juan Ortner (Boston University); Sylvain Chassang (New York University); Jun Nakabayashi (Kindai University); Kei Kawai (U.C. Berkeley)
    Abstract: We propose a theory of equilibrium antitrust oversight in which: (i) regulators launch investigations on the basis of suspicious bidding patters; (ii) cartels can adapt to the statistical screens used by regulators; and may in fact use them to enforce cartel compliance. We emphasize the use of safe tests; i.e. tests that can be passed by competitive players under a broad class of environments. Such tests do not hurt competitive industries and do not help cartels support new collusive equilibria. We show that optimal collusive schemes in plausible environments fail natural safe tests; and that cartel responses to such tests explain unusual patterns in bidding data from procurement auctions held in Japan. This provides evidence that adaptive responses from cartels is a real concern that data-driven antitrust frameworks should take into account.
    Keywords: collusion, auctions, procurement, antitrust
    JEL: D44 D43
    Date: 2020–03
  6. By: Jean-Paul Simon; Pierre-Jean Benghozi (X-DEP-MIE - Département de Management de l'Innovation et Entreprenariat de l'École polytechnique - X - École polytechnique)
    Abstract: Over the last decades, media, IT and telecoms have been transitioning away from siloed markets dominated by legacy players. New entrants have been the engines of disruptive changes and the media sectors have witnessed new dynamics, opening up a phase of increased competition with competing business models. The context of convergence thus differs deeply from 20 years ago. The first section of the paper presents a picture of the European audio-visual markets, stressing its main features. It concentrates on the audiovisual service markets, describing its streams of revenue and structure. The second section tracks the way the European Commission has been dealing with the regulation of content over the last three decades. It sums up its main initiatives, goals and rationales. It shows how the European Commission has been catching up with technology with the progressive setting up of a two-pronged framework: sectoral (broadcasting-telecommunications) on the one hand, information society (e-commerce now digital services) framework on the other hand. The paper concludes with an assessment of the design and effectiveness of the policies, particularly DSA/DMA, and a view on the transition of the audiovisual markets. Based on a series of reports and research updated by desk research, the article reviews some of the existing literature, official publications and industry and consultancy data.
    Keywords: digital economy,audiovisual industry,convergence,European regulation
    Date: 2021
  7. By: Flavio Delbono; Diego Lanzi; Carlo Reggiani
    Abstract: We rationalize several facts emerging from the recent empirical research on cooperatives owned by workers (workers’ firms, WF) as: the concern of WFs for employment; the interplay between membership and workplace safeguard within WFs; the different reaction to shocks between WFs and profit-making firms. We do so by means of a new model of WFs short-run behavior in mixed duopoly. We consider an industry in which a WF competes with a profit maximizing company and we innovate with respect to the conventional Illyrian objective function. We then reconcile the literature on labor-concerned maximands in competitive markets and the one dealing with WFs in oligopolistic markets under the Illyrian maximand.
    JEL: L13 L21 P13
    Date: 2022–03
  8. By: Go, Geoffrey (Monash University)
    Abstract: The recent ‘News Media Bargaining Code’ has raised controversy as Australia attempts to force digital platforms to pay news publishers for their links and snippets. To understand the impacts of the bargaining code on both the sustainability and quality of journalism, we develop a model where there are two types of news content available to consumers : full news from the news publisher and snippets on the platform. We show that the bargaining code strictly improves the news publisher’s welfare but increases their joint investment incentives if and only if the relative investment in snippets is suffciently large. We further establish that commercial agreements are a promising alternative that strictly increases both the welfare of news publishers and the quality of their news. Our results suggest that the bargaining code is better used as an indirect threat to promote fair commercial negotiations, rather than used directly.
    Keywords: advertising ; online platforms ; content sharing ; journalism JEL Classification: L52 ; L82
    Date: 2021
  9. By: Yanyou Chen; Daniel Xu
    Abstract: This paper develops and estimates an industry equilibrium model of manufacturing plants in the Korean electric motor industry from 1991 to 1996. Plant-level decisions on R&D, physical capital investment, entry, and exit are integrated in a dynamic setting with knowledge spillovers. We use a simulated method of moments estimator and the novel approximation method of Weintraub, Benkard and Van Roy (2008) to estimate the R&D cost, magnitude of knowledge spillovers, adjustment costs of physical investment, and plant scrap value distribution. Knowledge spillovers are essential to explaining the firm-level productivity evolution and the equilibrium market configuration. A counterfactual experiment reveals that a 15% R&D subsidy maximizes industry output and is broadly consistent with a past policy initiative of the Korean government.
    JEL: L11 O33
    Date: 2022–02
  10. By: Leemore Dafny; Kate Ho; Edward Kong
    Abstract: Drug copayment coupons to reduce patient cost-sharing have become nearly ubiquitous for high-priced brand-name prescription drugs. Medicare bans such coupons on the grounds that they are kickbacks that induce utilization, but they are commonly used by commercially-insured enrollees. We estimate the causal effects of coupons for branded drugs without bioequivalent generics using variation in coupon introductions over time and comparing differential responses across enrollees in commercial and Medicare Advantage plans. Using data on net-of-rebate prices and quantities from a large Pharmacy Benefits Manager, we find that coupons increase quantity sold by 21-23% for the commercial segment relative to Medicare Advantage in the year after introduction, but do not differentially impact net-of-rebate prices, at least in the short-run. To quantify the equilibrium price effects of coupons, we employ individual-level data to estimate a discrete choice model of demand for multiple sclerosis drugs. We use our demand estimates to parameterize a model of drug price negotiations. For this category of drugs, we estimate that coupons raise negotiated prices by 8% and result in just under $1 billion in increased U.S. spending annually. Combined, the results suggest copayment coupons increase spending on couponed drugs without bioequivalent generics by up to 30 percent.
    JEL: I11 I13 L13
    Date: 2022–02
  11. By: Georges Casamatta (LISA - Lieux, Identités, eSpaces, Activités - UPP - Université Pascal Paoli - CNRS - Centre National de la Recherche Scientifique, 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); Sauveur Giannoni (LISA - Lieux, Identités, eSpaces, Activités - UPP - Université Pascal Paoli - CNRS - Centre National de la Recherche Scientifique); Daniel Brunstein (LISA - Lieux, Identités, eSpaces, Activités - UPP - Université Pascal Paoli - CNRS - Centre National de la Recherche Scientifique); Johan Jouve (LISA - Lieux, Identités, eSpaces, Activités - UPP - Université Pascal Paoli - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The literature on short-term rental emphasises the heterogeneity of the hosts population. Some argue that professional and opportunistic hosts differ in terms of their pricing strategy. This study highlights how differences in market perception and information create a price differential between professional and non-professional players. Proposing an original and accurate definition of professional hosts, we rely on a large dataset of almost 9,000 properties and 73,000 observations to investigate the pricing behaviour of Airbnb sellers in Corsica (France). Using OLS and the double-machine learning methods, we demonstrate that a price differential exists between professional and opportunistic sellers. In addition, we assess the impact of seasonality in demand on the size and direction of this price differential. We find that professionals perceive a higher degree of market power than others during the peak season and it allows them to enhance their revenues.
    Keywords: Short-term rental,Pricing,Professionalism,Double machine learning,Seasonality,Market-power
    Date: 2022
  12. By: Renzhe Xu; Xingxuan Zhang; Peng Cui; Bo Li; Zheyan Shen; Jiazheng Xu
    Abstract: Personalized pricing is a business strategy to charge different prices to individual consumers based on their characteristics and behaviors. It has become common practice in many industries nowadays due to the availability of a growing amount of high granular consumer data. The discriminatory nature of personalized pricing has triggered heated debates among policymakers and academics on how to design regulation policies to balance market efficiency and equity. In this paper, we propose two sound policy instruments, i.e., capping the range of the personalized prices or their ratios. We investigate the optimal pricing strategy of a profit-maximizing monopoly under both regulatory constraints and the impact of imposing them on consumer surplus, producer surplus, and social welfare. We theoretically prove that both proposed constraints can help balance consumer surplus and producer surplus at the expense of total surplus for common demand distributions, such as uniform, logistic, and exponential distributions. Experiments on both simulation and real-world datasets demonstrate the correctness of these theoretical results. Our findings and insights shed light on regulatory policy design for the increasingly monopolized business in the digital era.
    Date: 2022–02
  13. By: Jonathan Libgober; Xiaosheng Mu
    Abstract: This paper studies durable good monopoly without commitment under an informationally robust objective. A seller cannot commit to future prices and does not know the information arrival process available to a representative buyer. We consider the case where the seller chooses prices to maximize her profit guarantee against a time-consistent worst-case information structure. In the gap case, the solution to this model is payoff-equivalent to a particular known-values environment, immediately delivering a sharp characterization of the equilibrium price paths. Furthermore, for a large class of environments, arbitrary (possibly time-inconsistent) information arrival processes would not lower the seller's profit as long as these prices are chosen. We call a price path with this property a reinforcing solution. As certain versions of the informationally robust objective under limited commitment may very well involve time-inconsistency, we posit that the notion of a reinforcing solution may be useful for researchers seeking to tractably analyze these settings. To highlight the non-triviality of these conclusions, we comment that while the analogy to known values can hold under an equilibrium selection in the no-gap case, it does not hold more generally.
    Date: 2022–02
  14. By: Ernest Liu (Princeton University); Atif Mian (Princeton University); Amir Sufi (University of Chicago Booth School of Business)
    Abstract: This study provides a new theoretical result that a decline in the long-term interest rate can trigger a stronger investment response by market leaders relative to market followers, thereby leading to more concentrated markets, higher profits, and lower aggregate productivity growth. This strategic effect of lower interest rates on market concentration implies that aggregate productivity growth declines as the interest rate approaches zero. The framework is relevant for anti-trust policy in a low interest rate environment, and it provides a unified explanation for rising market concentration and falling productivity growth as interest rates in the economy have fallen to extremely low levels.
    Keywords: Interest rates, investment
    JEL: E20 E22 G01 G12
    Date: 2020–08
  15. By: Thomas I. Palley
    Abstract: This paper presents a macroeconomics-friendly Post Keynesian model of the firm describing both an inventory theoretic approach and an entry deterrence approach to choice of excess capacity. The model explains why firms may rationally choose to have excess capacity. It also shows the two approaches are complementary and reinforcing of each other. Analytically, the paper makes three principal contributions. First, it provides a simple framework for understanding the microeconomics of capacity utilization choice. Second, it reframes the Post Keynesian discussion of capacity utilization by making excess capacity choice the key to understanding normal capacity utilization. Third, it implicitly challenges Neo-Kaleckian wage-led growth theory as the model shows choice of the optimal excess capacity rate is independent of the level of demand.
    Keywords: Capacity utilization, excess capacity, surrogate inventory, entry deterrence, wage-led growth
    JEL: D21 D24 E12
    Date: 2021
  16. By: Eric Anderson (Northwestern University); Sergio Rebelo (Northwestern University); Arlene Wong (Princeton University)
    Abstract: In this paper, we provide direct evidence on the behavior of markups in the retail sector across space and time. Markups are measured using gross margins. We consider three levels of aggregation: the retail sector as a whole, the firm level, and the product level. We find that: (1) markups are relatively stable over time and mildly procyclical; (2) there is large regional dispersion in markups; (3) there is positive cross-sectional correlation between local income and local markups; and (4) differences in markups across regions are explained by differences in assortment within each goods category, not by deviations from uniform pricing. We propose an endogenous assortment model consistent with these facts.
    Keywords: Gross margins, prices, marginal costs, business cycles
    JEL: E30
    Date: 2020–11

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