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on Industrial Competition |
| By: | Dominic A. Smith; Sergio Ocampo |
| Abstract: | Increases in national concentration have been a salient feature of industry dynamics in the U.S. and have contributed to concerns about increasing market power. Yet, local trends may be more informative about market power, particularly in the retail sector where consumers have traditionally shopped at nearby stores. We find that local concentration has increased almost in parallel with national concentration using novel Census data on product-level revenue for all U.S. retail stores. The increases in concentration are broad based, affecting most markets, products, and retail industries. We implement a new decomposition of the national Herfindahl-Hirschman Index and show that despite similar trends, national and local concentration reflect different changes in the retail sector. The increase in national concentration comes from consumers in different markets increasingly buying from the same firms and does not reflect changes in local market power. We estimate a model of retail competition which links local concentration to markups. The model implies that the increase in local concentration explains one-third of the observed increase in markups. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.07609&r= |
| By: | Renjie Bao; Jan de Loecker; Jan Eeckhout |
| Abstract: | To answer the question whether managers are paid for market power, we propose a theory of executive compensation in an economy where firms have market power, and the market for managers is competitive. We identify two distinct channels that contribute to manager pay in the model: market power and firm size. Both increase the profitability of the firm, which makes managers more valuable as it increases their marginal product. Using data on executive compensation from Compustat, we quantitatively analyze how market power affects Manager Pay and how it changes over time. We attribute on average 45.8% of Manager Pay to market power, from 38.0% in 1994 to 48.8% in 2019. Over this period, market power accounts for 57.8% of growth. We also find there is a lot of heterogeneity within the distribution of managers. For the top managers, 80.3% of their pay in 2019 is due to market power. Top managers are hired disproportionately by firms with market power, and they get rewarded for it, increasingly so. |
| Keywords: | market power, manager pay, executive compensation, markups, reallocation, superstars |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1834&r= |
| By: | Edona Reshidi |
| Abstract: | Manufacturers often engage in practices that impede consumer search. Examples include proliferating product varieties, imposing vertical informational restraints, and banning online sales to make it more difficult for consumers to compare prices. This paper models vertical bargaining over wholesale prices and obfuscation levels and finds that obfuscation arises in equilibrium whenever retailers have some bargaining power. Once the bargaining power rests with the manufacturer, the equilibrium involves no obfuscation. The final consumers, however, are worse off compared with settings when retailers have all the bargaining power. We show that in vertical markets, policies that impose caps on obfuscation may induce higher wholesale and retail prices. Instead, we propose caps on wholesale prices as an effective consumer protection policy. |
| Keywords: | Economic models; Market structure and pricing |
| JEL: | C70 L42 L13 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-13&r= |
| By: | Wenji Xu (College of Business, City University of Hong Kong); Kai Hao Yang (Cowles Foundation and School of Management, Yale University) |
| Abstract: | This paper examines the welfare effects of informational intermediation. A (short-lived) seller sets the price of a product that is sold through a (long-lived) informational intermediary. The intermediary can disclose information about the product to consumers, earns a fixed percentage of the sales revenue in each period, and has concerns about its prominence—the market size it faces in the future, which in turn is increasing in past consumer surplus. We characterize the Markov perfect equilibria and the set of subgame perfect equilibrium payoffs of this game and show that when the market feedback (i.e., how much past consumer surplus affects future market sizes) increases, welfare may decrease in the Pareto sense. |
| Keywords: | Informational intermediary, market size, market feedback, consumer surplus, Pareto-inferior outcomes, Markov perfect equilibrium, subgame perfect equilibrium. |
| JEL: | C73 D61 D82 D83 L15 M37 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2321&r= |
| By: | Piolatto, A. (Tilburg University, School of Economics and Management); Schuett, Florian (Tilburg University, School of Economics and Management) |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:ac184e2f-0492-4738-b455-82a1385114f6&r= |
| By: | Chen Yeh (Federal Reserve Bank of Richmond); Claudia Macaluso (Federal Reserve Bank of Richmond); Brah J. Hershbein (W.E. Upjohn Institute for Employment Research) |
| Abstract: | This paper quantifies the extent to which the U.S. manufacturing labor market is characterized by employer market power and how such market power has changed over time. We find that the vast majority of U.S. manufacturing plants operate in a monopsonistic environment and, at least since the early 2000s, the labor market in U.S. manufacturing has become more monopsonistic. To reach this conclusion, we exploit rich administrative data for U.S. manufacturers and estimate plant-level markdowns—the ratio between a plant’s marginal revenue product of labor and its wage. In a competitive labor market, markdowns would be equal to unity. Instead, we find substantial deviations from perfect competition, as markdowns average 1.53. This result implies that a worker employed at the average manufacturing plant earns 65 cents on each dollar generated on the margin. To investigate long-term trends in employer market power, we propose a novel measure for the aggregate markdown that is consistent with aggregate wedges and also incorporates the local nature of labor markets. We find that the aggregate markdown decreased between the late 1970s and the early 2000s, but has been sharply increasing since. |
| Keywords: | Monopsony, labor market power, markdowns, secular trends |
| JEL: | E2 J2 J3 J42 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:upj:weupjo:22-364&r= |
| By: | Zhiguo He (University of Chicago, Booth School of Business); Jing Huang (University of Chicago, Booth School of Business); Jidong Zhou (Cowles Foundation, Yale University) |
| Abstract: | Open banking facilitates data sharing consented to by customers who generate the data, with the regulatory goal of promoting competition between traditional banks and challenger fintech entrants. We study lending market competition when sharing banks’ customer transaction data enables better borrower screening. Open banking can make the entire financial industry better off yet leave all borrowers worse off, even if borrowers have the control of whether to share their banking data. We highlight the importance of the equilibrium credit quality inference from borrowers’ endogenous sign-up decisions. We also study extensions with fintech affinities and data sharing on borrower preferences. |
| Keywords: | Open banking, Data sharing, Banking competition, Digital economy, Winner's curse, Privacy |
| JEL: | G21 L13 L52 O33 O36 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2262r&r= |
| By: | Christina Brinkmann (University of Bonn) |
| Abstract: | Since the push towards central clearing in derivatives markets after the global financial crisis, an open question has been how the development has affected competition. This paper models imperfect competition between dealers in derivatives markets. Two risk-neutral dealers offer derivatives to risk-averse clients with a hedging need, and compete in price (fee) and quality (default probability). I find that with such two-dimensional competition, for given default probabilities, an equilibrium in prices exists that is preferred by both dealers. In this equilibrium the dealer with the lower default probability makes larger profits - a feature, that can produce market discipline to keep the own default probability low. If a central counterparty (CCP) is introduced as an innovation that removes the quality dimension of the competition, this market force pushing for higher qualities vanishes. |
| Keywords: | Derivatives, OTC Markets, Central Clearing, Imperfect Competition, Vertical Product Differentiation |
| JEL: | G12 G23 G28 L13 L15 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:153&r= |
| By: | Kim Huynh; Gradon Nicholls; Oleksandr Shcherbakov |
| Abstract: | The market for payments is an important two-sided one, where consumers benefit from increased merchant acceptance of payment cards and vice versa. The dependence between the decisions that are made on each side of the market results in various network externalities that are often discussed but rarely quantified. We construct and estimate a structural two-stage model of equilibrium in a market for payments in order to quantify the network externalities and identify the main determinants of consumer and merchant decisions. The estimation results suggest significant heterogeneity in consumer adoption costs and benefits. We discuss the critical characteristics that determine which payment instrument is used at the point of sale. Our counterfactual simulation measures the degree of excessive intermediation by credit card providers. |
| Keywords: | Bank notes; Digital currencies and fintech; Econometric and statistical methods; Financial services |
| JEL: | C51 D12 E42 L14 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-15&r= |
| By: | Jackie Y. Luan (Lavector); K. Sudhir (Cowles Foundation, Yale University; Cowles Foundation, Yale University) |
| Abstract: | Marketers routinely use timing as a segmentation device through sequential product releases.While there has been much theoretical research on the optimal introduction strategy of sequential releases, there is little empirical research on this problem. This paper develops an econometric model to empirically solve the inter-release timing problem: it involves (1) developing and estimating a structural model of consumers’ choice for sequentially released products and (2) using the estimates of the structural model to solve for the optimal inter-release time. The empirical application focuses on the movie industry, where we specifically address the issue of the inter-release time between a theatrical movie and its DVD version. We find that consumers are indeed forward looking; a shrinking movie-DVD release window does negatively impact box office revenues, but there is a tradeoff in that there is greater residual buzz from the movie marketing that supports the sales of DVD due to the shorter time window. This leads to an inverted U shaped relationship between movie-DVD release window and revenues, and the theater-DVD window that maximizes industry revenue for the average movie during the data period is 2.5 months. |
| Keywords: | Movies, sequential releases, entertainment industry, structural model, segmentation. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2325&r= |
| By: | Carlos Lourenço; Els Gijsbrechts |
| Abstract: | In this paper, we develop a model of consumer patronage decisions to evaluate the effect of store price images vis-Ã -vis that of objective basket prices. Within this dual retail price model, the two types of price information are linked through the dynamic formation of price images over time, itself based on actual prices. We show that not accounting for the effect of (dynamic) price perceptions may seriously bias store traffic estimation in response to price changes. Finally, we explore which demographic and shopping characteristics of consumers may explain or shed light on differences in sensitivity to different price information. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp022022&r= |
| By: | Victor Aguirregabiria; Francis Guiton |
| Abstract: | This paper examines the effects of decentralizing decision-making in multi-establishment firms. Using a unique dataset from the Liquor Control Board of Ontario (LCBO), we assess the impact of allowing store managers to control the inventory replenishment decisions of their stores. We first present evidence of strong heterogeneity across the inventory decisions of the 634 store managers in the retail chain. We then study the sources of this heterogeneity by focusing on differences across stores in the structure of the profit function. We estimate a separate dynamic structural model of inventory management for each store manager in the retail chain using two years of daily data. We find very substantial heterogeneity across stores in unit costs of holding inventory, placing orders, and stockouts, and in fixed ordering costs. Using counterfactual experiments based on the estimated model, we find that a centralized inventory management system would yield a 0.4% increase in annual profit for LCBO, equivalent to $6.8 million. This modest effect is the result of combining two substantial effects with opposite signs: the negative effect of delaying the processing of information is more than compensated by the large reduction in ordering and storage costs from eliminating store managers' behavioral biases and heterogeneous skills (i.e., 25.5% on average, 6.3% for the median store). Furthermore, the gains from centralization are very heterogeneous across stores in the retail chain, with both very substantial losses and gains. These distributional effects within multi-divisional companies can be relevant when deciding whether to adopt an organizational change. |
| Keywords: | Inventory management; Dynamic structural model; Decentralization; Information processing in organizations; Retail chains; Managerial skills; Store managers |
| JEL: | D22 D25 D84 L22 L81 |
| Date: | 2022–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-722&r= |
| By: | van Vlokhoven, Has (Tilburg University, School of Economics and Management) |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:0b616f62-13a7-46f2-b285-9c4788dcb952&r= |
| By: | Da Silva, Filipe; Núñez Reyes, Georgina |
| Abstract: | The data economy has presented challenges that go far beyond the scope of traditional regulatory frameworks and competition policies. The role of data, digitalization and the dynamic those factors have imposed on the economy have created significant challenges that the regulatory authorities must confront. At the heart of the debate is the impact of digitally-enabled business models and the digital platforms themselves. In this context, many enterprises, particularly small ones, are facing unfair competition from digitally native companies. The digitalization of the economy, the digitally-enabled business model and the intensive use of data are generating opportunities for enterprises and governments. The creation of data marketplaces and the elimination of barriers to the free flow of data have the potential to improve innovation and productivity in the economy. From a fiscal perspective, understanding the role of data and pricing them are therefore essential to closing gaps and levelling the playing field. Moreover, it is primarily start-ups and disruptor companies that benefit from the pricing of databases.The data economy has presented challenges that go far beyond the scope of traditional regulatory frameworks and competition policies. The role of data, digitalization and the dynamic those factors have imposed on the economy have created significant challenges that the regulatory authorities must confront. At the heart of the debate is the impact of digitally-enabled business models and the digital platforms themselves. In this context, many enterprises, particularly small ones, are facing unfair competition from digitally native companies. The digitalization of the economy, the digitally-enabled business model and the intensive use of data are generating opportunities for enterprises and governments. The creation of data marketplaces and the elimination of barriers to the free flow of data have the potential to improve innovation and productivity in the economy. From a fiscal perspective, understanding the role of data and pricing them are therefore essential to closing gaps and levelling the playing field. Moreover, it is primarily start-ups and disruptor companies that benefit from the pricing of databases. |
| Keywords: | ECONOMIA BASADA EN EL CONOCIMIENTO, TECNOLOGIA DIGITAL, MERCADOS, BASES DE DATOS, COMERCIALIZACION, ESTRATEGIA EMPRESARIAL, TECNOLOGIA DE LA INFORMACION, TECNOLOGIA DE LAS COMUNICACIONES, INTERNET, BANCOS, OPERACIONES BANCARIAS, COMPETENCIA, KNOWLEDGE-BASED ECOMOMY, DIGITAL TECHNOLOGY, MARKETS, DATABASES, MARKETING, CORPORATE STRATEGIES, INFORMATION TECHNOLOGY, COMMUNICATION TECHNOLOGY, INTERNET, BANKS, BANKING, COMPETITION |
| Date: | 2022–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecr:col022:47773&r= |
| By: | KAWASHIMA Fujio |
| Abstract: | Since December 2020 when the Central Political Bureau of the Communist Party of China and the Central Economic Work Council adopted a priority policy to ‘strengthen the Anti-Monopoly and prevent disorderly expansion of capital,’ regulation based on the Anti-Monopoly Law has actually been strengthened, particularly against digital platform businesses such as Alibaba and Tencent, who had been regarded as operating outside of the scope of its regulation and thus as ‘sanctuary’ businesses. This discussion paper firstly examines the background behind the strengthening of its regulation and secondly introduces and analyzes concrete cases of the application of the Anti-Monopoly Law regulation against digital platform business. Thirdly, it introduces the trends in the application of the regulations of other laws such as the Network Security Law to such business and clarifies the trends and characteristics related to the Antimonopoly Law regulations in comparison with other regulations. Towards the design and creation of multilateral rules on digital trade, this discussion paper's examination has practical implications as a foundational work, describing the state-of-play of relevant regulations in China, which can significantly affect the future direction of said rules. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:22009&r= |