nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒03‒28
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Organizing Competition for the Market By Elisabetta Iossa; Patrick Rey; Michael Waterson
  2. Competitive effects of horizontal mergers with asymmetric firms By Edmond Baranes; Hung Cuong Vuong
  3. Organizational Structure and Pricing: Evidence from a Large U.S. Airline By Ali Hortacsu; Olivia R. Natan; Hayden Parsley; Timothy Schwieg; Kevin R. Williams
  4. Estimating Possible Subsidy Effects in Broadband Services and Deployment By Mohammadi, Mohammad Ali
  5. Strategic Behavior in a Serial Newsvendor By Nicole Perez Becker; Benny Mantin; Joachim Arts
  6. Competition, profitability and financial leverage By Banal Estanol, Albert; Siciliani, Paolo; Yoon, Kyoungsoo
  7. La era de las plataformas digitales y el desarrollo de los mercados de datos en un contexto de libre competencia By Da Silva, Filipe; Núñez Reyes, Georgina
  8. Information Design in Concave Games By Alex Smolin; Takuro Yamashita
  9. M&As and Their Economic Effects on Target Companies By Ali-Yrkkö, Jyrki; Mattila, Juri; Pajarinen, Mika; Ylhäinen, Ilkka
  10. An Econometric Model of Network Formation with an Application to Board Interlocks between Firms By Cristina Gualdani
  11. Market heterogeneity and the distributional incidence of soft-drink taxes: evidence from France By Fabrice Etilé; Sébastien Lecocq; Christine Boizot-Szantai
  12. The Effect of External Innovation on Firm Employment By Guillermo Arenas Díaz; Andrés Barge-Gil; Joost Heijs; Alberto Marzucchi
  13. The Dispersion of Mark-ups in an Open Economy By Stéphane Auray; Aurélien Eyquem
  14. Market innovation in the light of actor-network theory: state of the art and managerial implications By Ronan Le Velly

  1. By: Elisabetta Iossa (Unknown); Patrick Rey (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); Michael Waterson (Unknown)
    Abstract: The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefit from a cost advantage. The paper first compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other firms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms.
    Keywords: Dynamic procurement,incumbency advantage,local monopoly,competition,asymmetric auctions,synchronous contracts,staggered contracts
    Date: 2021–10–13
  2. By: Edmond Baranes (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier); Hung Cuong Vuong (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)
    Abstract: This paper aims at investigating the impacts of introducing cost asymmetry in horizontal merger analysis. In the absence of efficiency gains, previous literature states the negative competitive effects of a merger between symmetric firms. We go beyond the literature and show that the result is only likely to hold for a low level of asymmetry. In particular, we build a tractable model with three firms in which one of them has a different cost structure. After merging two symmetrical firms, the outsider always reduces (increases) price (investments), while the insiders choose the opposite strategies. In particular, if the outsider's cost is sufficiently low, the increase in its investment could outweigh the decreases in those of the merged entity, leading to higher total investments post-merger. Similarly, consumer surplus could be improved thanks to the decrease in the outsider's price.
    Date: 2021–04–11
  3. By: Ali Hortacsu (University of Chicago and NBER); Olivia R. Natan (University of California, Berkeley); Hayden Parsley (University of Texas, Austin); Timothy Schwieg (University of Chicago, Booth); Kevin R. Williams (Cowles Foundation, Yale University)
    Abstract: Although typically modeled as a centralized firm decision, pricing often involves multiple organizational teams that have decision rights over specific pricing inputs. We study team input decisions using comprehensive data from a large U.S. airline. We document that pricing at a sophisticated firm is subject to miscoordination across teams, uses persistently biased forecasts, and does not account for cross-price elasticities. With structural demand estimates derived from sales and search data, we find that addressing one team’s biases in isolation has little impact on market outcomes. We show that teams do not optimally account for biases introduced by other teams. We estimate that corrected and coordinated inputs would lead to a significant reallocation of capacity. Leisure consumers would benefit from lower fares, and business customers would face significantly higher fares. Dead-weight loss would increase in the markets studied. Finally, we discuss likely mechanisms for the observed pricing biases.
    Keywords: Pricing, Organizational Structure, Revenue Management, Pricing Frictions, Behavioral IO
    JEL: C11 C53 D22 D42 L10 L93
    Date: 2021–11
  4. By: Mohammadi, Mohammad Ali
    Abstract: In this work, the dynamic competition between firms providing internet services is studied. The framework is Markov equilibrium whereby structural parameters are obtained using two-step estimations, allowing for analyzing the situation in case of subsidies for service upgrade. The results show that such subsidy has little effect on the number of firms while increasing the number of fast firms.
    Keywords: Structural estimation, dynamic competition, Markov perfect equilibrium, investment in Internet provision, subsidies
    JEL: C73 L13 L50 L86
    Date: 2021–07–31
  5. By: Nicole Perez Becker (LCL, Université du Luxembourg); Benny Mantin (LCL, Université du Luxembourg); Joachim Arts (LCL, Université du Luxembourg)
    Abstract: We study the interaction between an upstream seller and an intermediate buyer, both of whom face uncertainty related to downstream demand, over a two-period horizon. The buyer replenishes every period, whereas the seller has only one ordering opportunity at the beginning of the horizon. Since both agents make quantity decisions before demand realizes, they face demand mismatch risks and have incentives to limit these risks through their quantity decisions. We study the effects of varying degrees of buyer strategic behavior on inventory decisions and seller profitability
    Keywords: Strategic consumers; multi-unit purchases; inventory games.
    JEL: C73 D24 M11
    Date: 2022
  6. By: Banal Estanol, Albert (Universitat Pompeu Fabra); Siciliani, Paolo (Bank of England); Yoon, Kyoungsoo (Bank of Korea)
    Abstract: We investigate the relationship between profitability and financial leverage for US listed non-financial corporations by taking into account the degree of product similarity among competing firms, which can drive intense pricing rivalry thus undermining the sustainability of high price-cost mark-ups. We find that in markets characterized by high price-cost mark-ups notwithstanding high product similarity, the relationship between profitability and financial leverage is negative. Instead, in the rest of the markets we find a positive relationship, consistent with the dynamic trade-off theory of corporate finance, whereby firms increase their degree of financial leverage in response to profitability improvements. Not only do firms exposed to comparatively higher degree of product substitutability make less use of financial leverage, but they also rely relatively less on long-term debt. The difference is especially attributable to the period after the great financial crisis.
    Keywords: Financial leverage; competition; profitability
    JEL: D21 G32 L13 L41
    Date: 2022–02–18
  7. By: Da Silva, Filipe; Núñez Reyes, Georgina
    Abstract: La economía datificada ha planteado retos que van más allá del alcance de las políticas de competencia y marcos regulatorios tradicionales. En el centro del debate se ubica el impacto que generan los modelos de negocio basados en plataformas y las mismas plataformas digitales. En este contexto, muchas empresas, especialmente las pequeñas, deben hacer frente a la competencia desleal de las empresas nativas digitales. Por otro lado, la digitalización de la economía, el modelo de negocio de plataformas y la explotación intensiva de datos también crean oportunidades para las empresas y los gobiernos. La creación de mercados de datos y la eliminación de barreras al libre flujo de datos pueden impulsar las innovaciones y la productividad en la manufactura. Por lo tanto, comprender el papel de los datos y asignarles precios es crucial, desde el punto de vista tributario, para cerrar las brechas y garantizar una competencia en igualdad de condiciones. Asimismo, de la asignación de precios a las bases de datos se beneficiarán principalmente las empresas emergentes y las disruptivas.
    Date: 2021–12–09
  8. By: Alex Smolin; Takuro Yamashita
    Abstract: We study information design in games with a continuum of actions such that the players' payoffs are concave in their own actions. A designer chooses an information structure--a joint distribution of a state and a private signal of each player. The information structure induces a Bayesian game and is evaluated according to the expected designer's payoff under the equilibrium play. We develop a method that facilitates the search for an optimal information structure, i.e., one that cannot be outperformed by any other information structure, however complex. We show an information structure is optimal whenever it induces the strategies that can be implemented by an incentive contract in a dual, principal-agent problem which aggregates marginal payoffs of the players in the original game. We use this result to establish the optimality of Gaussian information structures in settings with quadratic payoffs and a multivariate normally distributed state. We analyze the details of optimal structures in a differentiated Bertrand competition and in a prediction game.
    Date: 2022–02
  9. By: Ali-Yrkkö, Jyrki; Mattila, Juri; Pajarinen, Mika; Ylhäinen, Ilkka
    Abstract: Abstract This study examines mergers and acquisitions and their economic impact on companies. The study examined which companies in Finland become the targets of acquisitions, how the economic activities of the target companies develop after the change of ownership and whether there is a difference between domestic and foreign acquisitions in these respects. The study was conducted using firm-level data that included nearly 2,000 acquisitions, supplemented by a qualitative review of 19 research interviews. The results of the study show that companies’ innovation activities have a positive relation to the likelihood of being acquired, especially by foreign buyers. However, foreign acquisitions did not have a significant impact on the development of the value added, productivity, profitability or employment of target companies when compared with the control group.
    Keywords: Mergers and acquisitions, M&A, Impact, Foreign ownership, Foreign company, Productivity
    JEL: D22 F23 G34 O30
    Date: 2022–03–23
  10. By: Cristina Gualdani (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)
    Abstract: We study identification of the players' preferences in a network formation game featuring complete information, nonreciprocal links, and a spillover effect. We decompose the network formation game into local games such that the network formation game is in equilibrium if and only if each local game is in equilibrium. This decomposition helps us prove equilibrium existence, reduce the number of moment inequalities characterising the identified set, and simplify the calculation of the integrals entering those moment inequalities. The developed methodology is used to investigate Italian firms' incentives for having their executive directors sitting on competitors' boards.
    Keywords: Network formation,Board interlocks,Partial identification,Multiple equilibria
    Date: 2021–10
  11. By: Fabrice Etilé (INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Sébastien Lecocq (Université Paris-Saclay); Christine Boizot-Szantai (Université Paris-Saclay)
    Abstract: Market heterogeneity may affect the distributional incidence of nutritional taxes if households sort by income across markets with different characteristics. We use scanner data to analyse the distributional incidence of the 2012 French soda tax on Exact Price Indices that measure consumer welfare from the price and availability of softdrinks at a local level. While the average pass-through was small-about 45 per cent-, tax incidence was significantly higher in low-income and less-competitive markets. Market heterogeneity ultimately has substantial distributional effects: it accounts for at least 33 per cent of the difference in welfare variation between low-and high-income consumers.
    Keywords: consumer price index,market structure,inequality,tax incidence,soft-drink tax,France
    Date: 2021
  12. By: Guillermo Arenas Díaz (Dipartimento di Politica Economica, DISCE, Università Cattolica del Sacro Cuore); Andrés Barge-Gil (Department of Economic Analysis, Complutense University of Madrid, ICAE and GRIPICO, Madrid, Spain); Joost Heijs (Department of Applied Economics, Structure and History, Complutense University of Madrid, Madrid, Spain); Alberto Marzucchi (Gran Sasso Science Institute, Social Sciences, L'Aquila, Italia)
    Abstract: This paper analyses the effects of product innovations introduced by firms in upstream and downstream sectors and firms in the same sector on firm employment. To this aim, we extend the Harrison et al. (2014) model to analyse the relationship between firm innovation and employment to account for innovation in the same and related sectors. We employ panel data for the innovation activities of Spanish firms together with input–output data. The results show that product innovation by firms in the same sector harms the firm's employment, which is consistent with a business-stealing mechanism. A negative effect on employment is found for the introduction of new products in upstream sectors, which results in the reduction of labour in the focal firm. The type of labour that is displaced by innovations introduced by both same-sector and upstream firms is predominantly low-skilled. No significant effects are found for innovations introduced in downstream industries.
    Keywords: same sector, downstream and upstream sectors, product innovation, employment growth
    JEL: J23 O31 O33 L6
    Date: 2022–02
  13. By: Stéphane Auray (CREST-Ensai and ULCO, France); Aurélien Eyquem (Université Lumière Lyon2, France)
    Abstract: We introduce heterogeneous mark-ups through Bertrand competition in a two-country model with endogenous firms' entry and tradability à la Ghironi and Melitz (2005). Bertrand competition generates a distribution of mark-ups according to which firms that are larger and more productive charge lower prices, attract larger market shares and extract larger mark-ups. First, we characterize first-best allocations and their implementation. We find that they are independent from the degree of mark-ups' heterogeneity, suppress the dispersion of mark-ups and imply zero distortions on labor as well as substantial subsidies to preserve firm's incentives to enter. Second, second-best alternative policies with a restricted number ofi nstruments and a balanced budget significantly reduce the potential welfare gains from fiscal policies. Third, the total welfare losses from passive policies are lower under heterogeneous mark-ups than under homogeneous mark-ups: while th edispersion of mark-ups has negative effects on the intensive margin, output per firm, it also raises expected profits for potential entrants and raises the extensive margin, the number of firms in both domestic and export markets, pushing them closer to their efficient levels. Fourth, we also investigate the dynamic properties of allocations under passive and optimal policies considering aggregate productivity shocks and trade liberalization experiments.
    Keywords: Heterogeneous firms, Endogenous Entry, Open economy, Strategic pricing, Optimal taxation
    JEL: D4 E20 E32
    Date: 2021–06–15
  14. By: Ronan Le Velly (UMR Innovation - Innovation et Développement dans l'Agriculture et l'Alimentation - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: In this review article, the author explains that actor-network theory comprehends market innovation as a joint reconfiguration of the different socio-technical components of the market. He then distinguishes eight "framing" processes identified in the literature and thus proposes a typology of concrete practices of market innovation. Finally, he specifies the contributions and limits of this perspective and highlights its managerial implications.
    Abstract: Dans cet article de synthèse, l'auteur explique que l'ancrage dans la théorie de l'acteur-réseau amène à concevoir l'innovation marchande comme une reconfiguration conjointe des différentes composantes sociotechniques du marché. Il distingue ensuite huit processus de "cadrage" identifiés dans la littérature et propose ainsi une grammaire des pratiques concrètes de constitution des marchés innovants. Il précise enfin les apports et limites de cette perspective et en souligne les implications managériales.
    Keywords: Théorie de l'acteur-réseau,Innovation
    Date: 2021

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