nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒04‒18
twenty papers chosen by
Russell Pittman
United States Department of Justice

  1. Collusion and Artificial Intelligence: A Computational Experiment with Sequential Pricing Algorithms under Stochastic Costs By Gonzalo Ballestero
  2. Content-distribution strategies in markets with locked-in customers By Joeffrey Drouard
  3. Cournot meets Bayes-Nash : A Discontinuity in Behavior Infinitely Repeated Duopoly Games By Argenton, Cedric; Ivanova-Stenzel, Radosveta; Müller, Wieland
  4. Treating Symmetric Buyers Asymmetrically By Shraman Banerjee
  5. Bargaining over a Divisible Good in the Market for Lemons By Dino Gerardi; Lucas Maestri; Ignacio Monzón
  6. Price discrimination under nonuniform calling circles and call externalities By Clavijo, R
  7. How to Reach the Land of Cockaigne? Edgeworth Cycle Theory and Why a Gasoline Station is the First to Raise Its Price By Mats Petter Kahl; Thomas Wein
  8. How do retailers compete on price promotions? Evidence from a temporary promotion ban in Belgium By Hindriks, Jean; Madio, Leonardo; Serse, Valerio
  9. Linking the Cs of Financial Stability: Crises, Competition, and Concentration By Bagsic, Cristeta
  10. Of Shrimp and Men By Amanda De Pirro; Renaud Foucart
  11. Web scraping of food retail prices: An analysis of internet food retail sales prices By Loy, Jens-Peter; Ren, Yanjun
  12. Syndicated Lending, Competition and Relative Performance Evaluation By Thomas Schneider; Philip Strahan; Jun Yang
  13. A note on the equilibrium of a monopoly providing a pure network good and the stand-alone effect: A reconsideration of the coordination problem By Tsuyoshi Toshimitsu
  14. The impact of competitionfor the market regulatory designs on intercity bus prices By Javier Asensio Ruiz de Alda; Anna Matas Prats
  15. Doubling Back on Double Marginalization By Laurent Linnemer
  16. Financial Constraints and Markups By HOSONO Kaoru; TAKIZAWA Miho; YAMANOUCHI Kenta
  17. R&D expenditures and firm survival By Redha Fares; Amélie Guillin
  18. Voluntary health insurance markets in France: . Economic rationales and legal mechanisms By Philippe Batifoulier; Anne-Sophie Ginon
  19. A Review of Platform Business Models By Markéta MlÄ úchová
  20. Can Social Media Inform Corporate Decisions? Evidence from Merger Withdrawals By Cookson, J. Anthony; Niessner, Marina; Schiller, Christoph M.

  1. By: Gonzalo Ballestero (Universidad de San Andrés)
    Abstract: Firms increasingly delegate their strategic decisions to algorithms. A potential concern is that algorithms may undermine competition by leading to pricing outcomes that are collusive, even without having been designed to do so. This paper investigates whether Q-learning algorithms can learn to collude in a setting with sequential price competition and stochastic marginal costs adapted from Maskin and Tirole (1988). By extending a previous model developed in Klein (2021), I find that sequential Q-learning algorithms leads to supracompetitive profits despite they compete under uncertainty and this finding is robust to various extensions. The algorithms can coordinate on focal price equilibria or an Edgeworth cycle provided that uncertainty is not too large. However, as the market environment becomes more uncertain, price wars emerge as the only possible pricing pattern. Even though sequential Q-learning algorithms gain supracompetitive profits, uncertainty tends to make collusive outcomes more dicult to achieve.
    Keywords: Competition Policy, Artificial Intelligence, Algorithmic Collusion
    JEL: D43 K21 L13
    Date: 2022–02
  2. By: Joeffrey Drouard (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We study how the presence of locked-in customers in a downstream market affects the distribution choice of an upstream content provider. Two asymmetric distributors compete in a mature market and the content provider sells its rights using lump-sum fees. A higher number of locked-in customers reduces the need to resort to exclusivity to relax downstream competition. The content provider therefore sells its rights to both distributors when there is a sufficiently-high proportion of locked-in customers. We show that an exclusive affiliation with the smaller rather than the larger distributor facilitates distributors' rent-extraction, in particular for low-quality content. When there are few locked-in customers, the content provider sells low-quality content to the smaller distributor and high-quality content to the larger distributor. Our results suggest that competition authorities should cautiously evaluate the effects of lower switching costs on consumer welfare. By encouraging exclusive distribution, a lower proportion of locked-in customers may reduce consumer welfare. © 2021 Elsevier B.V.
    Keywords: Customer base,Distribution of content,Exclusivity,Locked-in customers,Switching costs
    Date: 2022–01
  3. By: Argenton, Cedric (Tilburg University, TILEC); Ivanova-Stenzel, Radosveta; Müller, Wieland (Tilburg University, TILEC)
    Keywords: cournot; Bayesian game; Bayes-Nash equilibrium; repeated games; collusion; cooperation; experimental economics
    Date: 2022
  4. By: Shraman Banerjee (Department Of Economics, Shiv Nadar University)
    Abstract: We investigate a finite-horizon dynamic pricing problem of a seller under limited commitment. Even when the buyers are ex-ante symmetric to the seller, the seller can charge different prices to different buyers. We show that under the class of posted-price mechanisms this asymmetric treatment of symmetric buyers strictly revenue-dominates symmetric treatment. The seller implements this by using a priority-based deterministic tie-breaking rule instead of using a random tie-breaking rule. The effect of asymmetric treatment on revenue increment increases monotonically as we increase the time horizon of the game.
    Keywords: Dynamic Pricing, Asymmetric Mechanism.
    JEL: C70 D42 D44 D82
    Date: 2022–03–25
  5. By: Dino Gerardi (Collegio Carlo Alberto/University of Turin); Lucas Maestri (FGV/EPGE); Ignacio Monzón (Collegio Carlo Alberto/University of Turin)
    Abstract: We study bargaining with divisibility and interdependent values. A buyer and a seller trade a divisible good. The seller is privately informed about its quality, which can be high or low. Gains from trade are positive and decreasing. The buyer makes offers over time. Divisibility introduces a new channel of competition between the buyer’s present and future selves. The buyer’s temptation to split the purchases of the high-quality good is detrimental to him. As bargaining frictions vanish and the good becomes arbitrarily divisible, the high-quality good is traded smoothly over time and the buyer’s payoff shrinks to zero.
    Keywords: : bargaining, gradual sale, Coase conjecture, divisible objects, interdependent valuations, market for lemons.
    Date: 2022–01
  6. By: Clavijo, R
    Abstract: This work develops a competition model between two asymmetrical networks with calling circles, allowing subscribers to derive utility by receiving calls. Unlike the traditional literature predictions, in equilibrium firms have strategies to set off-net price below on-net price. In markets where consumers display strongly concentrated calling patterns, firms can only extract limited surplus from off-net calls. This is reinforced if consumers display weak call externalities, languishing the price strategies to discourage off-net calls. Furthermore, regulating price differential of the large firm can lead consumers to face higher fees compared to discriminatory setting. Therefore, regulators should broaden efforts to measure call externalities and calling circles strength before making decisions on retail tariff regulation.
    Keywords: Calling circles; Call externalities; Network competition; Price differentials.
    JEL: D43 D62 L14
    Date: 2022–04–08
  7. By: Mats Petter Kahl (Leuphana Universität Lüneburg, Institut für Volkswirtschaftslehre); Thomas Wein (Leuphana Universität Lüneburg, Institut für Volkswirtschaftslehre)
    Abstract: Competition in the German gasoline retail market is characterized by strong intraday price cycles. The cycles are described in the literature as corresponding to the well-known Edgeworth cycles. Cyclical pricing patterns are observable all over Germany and throughout the world. So far, research has focused on analyzing price patterns using average prices. We are the first to study the initiation of new price cycles by looking at the exact timing of competition in the daily cycle. We modified the data to be able to analyze local competition on a second-by-second level. What determines that a certain gasoline station increases its price to initiate a new price cycle? We are the first to empirically analyze whether the theoretically and economically significant price differences of the Edgeworth cycles explain the cyclical patterns throughout a day, or whether brand affiliation, local characteristics, or services offered predict the behavior of price increases. To provide first evidence and to do justice to the complexity of analyzing second-by-second intraday price cycles, we limit ourselves to one local market in Germany. We find that price considerations, as well as services offered, play a minor role in explaining why a gasoline station is the first to increase its price. Brand affiliation, as well as location parameters, are much more important in a gasoline stations’ decision on whether they will be the first to increase prices. Furthermore, we show that the dominant suppliers Aral and Shell, who jointly account for more than 80 percent of price increases in the market, are the major drivers of the size of the price cycles. Together, the strong results for oligopoly players Aral and Shell suggest that market power is the major driver of the cyclical pricing pattern in the gasoline market.
    Keywords: Edgeworth cycles, gasoline prices, dynamic pricing, gasoline market
    JEL: L13 L41 K21
    Date: 2022–04
  8. By: Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Madio, Leonardo (Université catholique de Louvain, LIDAM/CORE, Belgium); Serse, Valerio (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: In March 2020, the Belgian government imposed a two-week promotion ban to contain panic buying at the beginning of the Covid-19 Pandemic. Using a unique daily dataset tracking list prices and promotions in different retail chains at the store level, we investigate how retailers set price promotions once the ban was lifted. We find that both frequency and size of promotions reverted to the pre-ban but only several months after the ban was lifted. This effect presents large heterogeneity across retailers: one chain acted as a promotion leader, reintroducing promotions quicker than others. Another large chain acted as a promotion follower, reintroducing promotions more gradually but eventually setting more frequent and larger price promotions than in the pre-ban period. Overall, the promotion ban was a major factor driving up sale prices in Belgian stores.
    Keywords: Price promotions ; promotion ban ; retailers ; competition
    JEL: D22 E30 E31 L11
    Date: 2022–02–01
  9. By: Bagsic, Cristeta
    Abstract: This paper is a replication and extension of Schaeck, Cihak, and Wolfe (2009). In contrast to results for a heterogeneous set of countries in Schaeck, Cihak, and Wolfe (2009), findings herein indicate that there is a chance that competition engenders systemic banking crisis for ASEAN EMEs, and that although concentration may not increase the probability of a banking crisis, at decreasing levels of competition, increasing concentration could damage financial stability. When controls for regulation and macroprudential tools are introduced, the opposite effects of competition and concentration on financial stability becomes more apparent.
    Keywords: financial stability; concentration; competition; banking crises
    JEL: E5 G1
    Date: 2021–12–12
  10. By: Amanda De Pirro; Renaud Foucart
    Abstract: Building on a model of competition with endogenous product differentiation and using data from the shrimp aquaculture industry, we show how a cost-reducing innovation can hurt the profit of the innovator by decreasing product diversity and strengthening competition. In the late 1990s, a US governmental program designed a new pathogen-free breed reducing the production cost of white legs shrimp. This innovation gave a temporary boost to the profit of American producers, largely specialized in that variety. However, over time other countries abandoned their native production to adopt the new breed. In this phase of technological catch-up US producers thus not only lost their cost advantage, but also the market power derived from the pre-innovation product differentiation.
    Keywords: innovation, cost paradox, product differentiation, shrimp
    JEL: D43 F61 L1 L81 O3 Q22
    Date: 2022
  11. By: Loy, Jens-Peter; Ren, Yanjun
    Abstract: In this paper, we develop a theory of food retail promotional strategy. We test the theory using online food retail prices. A python code is applied to retrieve information from the web page is an online grocery outlet that belongs to the Bünting Group, a food retailer in North-West Germany. The promotional sales on show a complementary relationship between breadth and depth of sales, indicating that in order to attract consumers, stores raise both the number (breadth) and the depth of price promotions.
    Keywords: e-food retailing,promotional sales,Germany
    Date: 2022
  12. By: Thomas Schneider; Philip Strahan; Jun Yang
    Abstract: Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks’ willingness to participate in loans underwritten by banks named in their RPE contracts. Lead arranger banks which are more frequently named in RPE hold larger shares of the loans they syndicate, and their borrowers face higher spreads. These banks, in turn, lose market share to banks less likely to be named in RPE. Our results highlight the tension between the normal benefits of competition versus the need for cooperation in loan syndication.
    JEL: G20
    Date: 2022–03
  13. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: In this note, we reconsider the coordination problem in the case of a monopoly providing a pure network good, such as telecommunications: a problem previously examined by Rohlfs (1974). As in Lambertini and Orsini (2004), we find that the coordination problem relating to critical mass is not associated with the presence of network effects but is more the property of consumer expectations. Assuming a pure network good and passive expectations, we demonstrate this from the perspective of Rohlfs (1974; 2001), i.e., the coordination problem is associated with critical mass and the role of a stand-alone effect.
    Keywords: pure network good, network effect, stand-alone value, critical mass, coordination problem, start-up problem, passive expectations, monopoly.
    JEL: D42 D62 L12
    Date: 2022–04
  14. By: Javier Asensio Ruiz de Alda (Department of Applied Economics, Univ. Autonoma de Barcelona, 08193 Bellaterra, Spain); Anna Matas Prats (EDepartment of Applied Economics, Univ. Autonoma de Barcelona, 08193 Bellaterra, Spain)
    Abstract: Spain regulates its intercity bus market by means of a ‘competition for the market’ mechanism, whose design has been modified several times in the last years. This implies that current services are operated under contracts whose conditions are heterogeneous. We take advantage of such fact to empirically measure the impact that regulatory designs may have on fares paid by the users. The results show very large differences between routes whose contracts were awarded under relatively open conditions compared to regionally regulated routes or very old contracts whose concessions were extended and have not been retendered.
    Keywords: intercity buses, prices, tendering, competition for the market.
    Date: 2022–01
  15. By: Laurent Linnemer (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: "Double marginalization" and "Elimination of Double marginalization" are catch-phrases commonly used in the IO literature. In this note, I trace back the origin of the idea to Chapter IX, on complementary goods monopolies, of Cournot (1838). Through the years Cournot's contribution remained a reference but ended being viewed as a special case of the bilateral monopoly model. Yet, it is worth wondering why the most cited paper on this issue is nowadays Spengler (1950) which contains only an informal treatment of the question. In addition to retracing the origin of the idea, I emphasize the elegant proof of Cournot for the simultaneous game and extend it to the sequential game. I also show that prices are usually higher in the sequential game but that they could be lower if demand is very convex.
    Keywords: JEL codes: B160,B210,K210,L120,L13,L420,Cournot,Complements,Successive monopolies
    Date: 2022–02–24
    Abstract: We analyze the effects of financial constraints on markups. Using a firm-level dataset from Japan, we first find that financially constrained firms decreased markups and this effect was heightened during the Global Financial Crisis. Second, we find that financially constrained firms decreased inventories and tangible capital investment. These results are consistent with the liquidity management hypothesis that posits that financially constrained firms lower prices to shed inventories, but not with the customer market hypothesis that predicts that constrained firms raise prices to invest less in the customer base and decrease their market shares. Third, although the extent to which the dispersion in markups due to financial constraints results in aggregate TFP losses through inefficient resource allocation is economically small, the magnitude almost doubled during the Global Financial Crisis. Our results indicate that financial constraints matter for product market competition as well as investment.
    Date: 2022–02
  17. By: Redha Fares; Amélie Guillin
    Date: 2022
  18. By: Philippe Batifoulier (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); Anne-Sophie Ginon
    Abstract: In France, there are two types of health insurance: compulsory public health insurance and voluntary private health insurance which is organized as a market. This paper deals with private health insurance. We define the market place (position and scope) according to two criteria. On the one hand, the standardization or differentiation strategies of the insurance companies, which structure competition through quality and innovation. Secondly, the type of pooling (or mutualisation) at work in insurance contracts, distinguishing between commercial pooling and solidarity-based pooling. We draw up a typology of four "ideal-type" market configurations: residual market, educated market, polarized market and autonomous market.
    Date: 2022–02–22
  19. By: Markéta MlÄ úchová (Department of Finance, Faculty of Business and Economics, Mendel University in Brno, ZemÄ›dÄ›lská 1, 613 00 Brno, Czech Republic)
    Abstract: The paper focuses on platform business models as ubiquitous features of the digital economy whose economic importance is continuously increasing. Considering their varying definitions and diverse typology, this review of platform business models aims to discuss and evaluate the current heterogeneous literature. In line with fulfilling the aim of the paper, the following research question is addressed: ‘What are the main attributes of platform business models?’ Based on a vast literature review, the paper coins a unified definition and devises a novel typology, distinguishing four main types of platform business models: transaction, innovation, integrated and investment. Furthermore, the importance of both digital data and network effects as the main identified attributes is highlighted. Additionally, the paper devises a novel typology of network effects, amplifying users’ value-creating activities and interconnected relationships. The novel typology of network effects is distinguishing direct, indirect (cross-sided, cross-network or two-sided), data, positive and negative network effects.
    Keywords: Digital economy, business model, platform business model, digital data, network effects
    JEL: F23 L86
    Date: 2022–04
  20. By: Cookson, J. Anthony; Niessner, Marina; Schiller, Christoph M.
    Abstract: This paper examines the role of social media in informing corporate decision-making by studying the decision of firm management to withdraw an announced merger. A standard deviation decline in abnormal social media sentiment following a merger announcement predicts a 0.73 percentage point increase in the likelihood of merger withdrawal (18.9% of the baseline rate). The informativeness of social media for merger withdrawals is not explained by abnormal price reactions or news sentiment, and in fact, it is stronger when these other signals disagree. Consistent with learning from external information, we find that the social media signal is most informative for complex mergers in which analyst conference calls take a negative tone, driven by the Q&A portion of the call. Overall, these findings imply that social media is not a sideshow, but an important aspect of firm information environment.
    Date: 2022–03–16

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