nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒04‒25
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Nonlinear Pricing in Oligopoly: How Brand Preferences Shape Market Outcomes By Gomes, Renato; Lozachmeur, Jean-Marie; Maestri, Lucas
  2. Regulating Platform Fees under Price Parity By Gomes, Renato; Mantovani, Andrea
  3. Marshall Lecture 2020: the measure of monopsony By Langella, Monica; Manning, Alan
  4. Chamberlin without differentiation: Soft-capacity constrained price competition with free entry By Marie-Laure Cabon-Dhersin; Nicolas Drouhin
  5. Wage-rise contract and mixed Cournot duopoly competition with profit-maximizing and socially concerned firms By Ohnishi, Kazuhiro
  6. Renegotiation and Discrimination in Symmetric Procurement Auctions By Leandro Arozamena; Federico Weinschelbaum; Juan-José Ganuza
  7. Bertrand competition in vertically related markets By Tomomichi Mizuno; Kazuhiro Takauchi
  8. Cournot meets Bayes-Nash : A Discontinuity in Behavior Infinitely Repeated Duopoly Games By Argenton, Cedric; Ivanova-Stenzel, Radosveta; Müller, Wieland
  9. Competition, Antitrust, and Agricultural Development in Asia By Balisacan, Arsenio
  10. Most-Favored Entry Clauses in Drug Patent Litigation Settlements as a Potential Reverse Payment By Keith M. Drake; Thomas McGuire
  11. The Dynamics of Takeovers through Exchange Offers in the Presence of Competition By Miyata, Ryo; Suzuki, Teruyoshi; Yagi, Kyoko
  12. Competing with precision: incentives for developing predictive biomarker tests By Brekke, Kurt R.; Dalen, Dag Morten; Straume, Odd Rune
  13. Нови приступи оцењивању степена концентрације и конкуренције: пример сектора осигурања у Србији By Bukvić, Rajko
  14. Measuring Concentration in the Japanese Loan and Deposit Markets By UESUGI, Iichiro; HIRAGA, Kazuki; MANABE, Masashi; YOSHINO, Naoyuki
  15. Conflicts of Interest, Ethical Standards, and Competition in Legal Services By Bouckaert, Jan; Stennek, Johan
  16. Market Effects of New Product Introduction: Evidence from the Brew-at-home Coffee Market By Gayle, Philip; Lin, Ying
  17. The Impact of Acquisitions on Inventors' Turnover in the Biotechnology Industry By Luca Verginer; Federica Parisi; Jeroen van Lidth de Jeude; Massimo Riccaboni
  18. Multiproduct Cost Passthrough: Edgeworth’s Paradox Revisited By Mark Armstrong; John Vickers
  19. Two-dimensional Geographical Position as a Factor in Determining the Growth and Decline of Retail Agglomeration By Aizawa, Hiroki; Kono, Tatsuhito
  20. Too Much of A Good Thing? By Sanktjohanser, Anna; Hörner, Johannes
  21. The Biases in Applying Static Demand Models under Dynamic Demand By Takeshi Fukasawa

  1. By: Gomes, Renato; Lozachmeur, Jean-Marie; Maestri, Lucas
    Abstract: We study oligopolistic competition by firms practicing second-degree price discrimination. In line with the literature on demand estimation, our theory allows for comovements between consumers’ taste for quality and propensity to switch brands. If low-type consumers are sufficiently less (more) brand loyal than high types, (i) quality provision is inefficiently low at the bottom (high at the top) of the product line, and (ii) informational rents are negative (positive) for high types, while positive (negative) for low types. We produce testable comparative statics on pricing and quality provision, and show that more competition (in that consumers become less brand-loyal) is welfare-decreasing whenever it tightens incentive constraints (so much so that monopoly may be welfare-superior to oligopoly). Interestingly, pure-strategy equilibria fail to exist whenever brand loyalty is sufficiently different across consumers types. Accordingly, price/quality dispersion ensues from the interplay between self-selection constraints and heterogeneity in brand loyalty.
    Keywords: competition; price discrimination; asymmetric information; preference correlation; price dispersion
    JEL: D82
    Date: 2022–03–29
  2. By: Gomes, Renato; Mantovani, Andrea
    Abstract: Online intermediaries greatly expand consumer information, but also raise sellers’ marginal costs by charging high commissions. To prevent disintermediation, some platforms adopted price parity and anti-steering provisions, which restrict sellers’ ability to use alternative sales channels. Whether to uphold, reform, or ban these provisions has been at the center of the policy debate, but, so far, little consensus has emerged. As an alternative, this paper studies how to cap platforms’ commissions. The utilitarian cap reflects the Pigouvian precept according to which the platform should charge net fees no greater than the informational externality it exerts on other market participants.
    Keywords: platforms, price parity; regulation; commission caps; extreme value theory
    JEL: D83 L10 L41
    Date: 2022–03–28
  3. By: Langella, Monica; Manning, Alan
    Abstract: There has been increasing interest in recent years in monopsony in the labour market. This paper discusses how we can measure monopsony power by combining insights from models based on both frictions and idiosyncrasies. It presents some evidence from the United Kingdom and the United States about how monopsony power varies across the wage distribution within markets, over the business cycle and over time.
    Keywords: 834455 “LPIGMANN”
    JEL: I21
    Date: 2021–12–30
  4. By: Marie-Laure Cabon-Dhersin (LERN - Laboratoire d'Economie Rouen Normandie - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université); Nicolas Drouhin (CREM - Centre de recherche en économie et management - CNRS - Centre National de la Recherche Scientifique - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - UNICAEN - Université de Caen Normandie - NU - Normandie Université, UNICAEN UFR SEGGAT - Université de Caen Normandie - UFR de Sciences Économiques, Gestion, Géographie et Aménagement des Territoires - UNICAEN - Université de Caen Normandie - NU - Normandie Université)
    Abstract: We show that the long-term properties of price and cost in Chamberlin's (1933) monopolistic competition model can be reproduced with a soft-capacity constrained price competition oligopoly model for a homogeneous good with free entry.
    Keywords: price competition,soft-capacity constraint,free entry,U-shaped cost function,monopolistic competition,Chamberlin
    Date: 2022
  5. By: Ohnishi, Kazuhiro
    Abstract: This paper investigates a Cournot game model with a nonlinear demand function where a profit-maximizing firm competes against a socially concerned firm. The timing of the game is as follows. In stage one, each firm non-cooperatively decides whether to offer a wage-rise contract policy as a strategic commitment device. In stage two, after observing the rival’s decision in stage one, each firm non-cooperatively chooses its actual output. The paper presents the equilibrium solutions of the model.
    Keywords: Cournot model; Corporate social responsibility; Profit-maximizing firm; Socially concerned firm; Wage-rise contract
    JEL: C72 D21 L20
    Date: 2022–03–24
  6. By: Leandro Arozamena; Federico Weinschelbaum; Juan-José Ganuza
    Abstract: In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favorite supplier can be treated preferentially (opening the door to home bias and corruption) even when explicit discrimination is not allowed. We analyze a procurement setting in which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favorite supplier than for its rivals. Given this comparative advantage, the favored firm bids more aggressively and then, it wins more often than standard firms. Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specication is a tool for providing a comparative advantage to the favored firm.
    Keywords: Auctions, Favoritism, Auction Design, Renegotiation, Corruption.
    JEL: C72 D44 D82
  7. By: Tomomichi Mizuno (Graduate School of Economics, Kobe University); Kazuhiro Takauchi (Faculty of Business and Commerce, Kansai University / Research Fellow, Graduate School of Economics, Kobe University)
    Abstract: We build a successive Bertrand model with homogenous good. We show that increasing the pro- duction efficiency of upstream industry can reduce upstream Firms' profits. We also show that increasing the production efficiency of downstream industry may reduce downstream Firms' prof- its. Hence, an industrial policy that aims at improving production efficiency may be undesirable for Firms.
    Date: 2022–04
  8. By: Argenton, Cedric (Tilburg University, School of Economics and Management); Ivanova-Stenzel, Radosveta; Müller, Wieland (Tilburg University, School of Economics and Management)
    Date: 2022
  9. By: Balisacan, Arsenio
    Abstract: Competition law—also known as antitrust in some jurisdictions—has become part of governments’ policy arsenal to achieve efficient and welfare-improving market outcomes. From only a handful of economies in North America and Europe, the adoption of competition law and policy has spread rapidly to Asian economies since 1990. Like their Western counterparts several decades earlier, most Asian jurisdictions have exempted agriculture, albeit in varying degrees, from the prohibitions of competition law, such as those involving the exercise of market power by farmers’ associations. Public choice considerations suggest that the exemption serves as a countervailing force for the farmers’ comparatively weak position in the balance of political influence for agricultural policy and in bargaining power over the more concentrated wholesale-retail segments of the agri-food value chain. Farm heterogeneity and farm-operation consolidation, induced in part by the economy’s structural transformation, weaken the case for broad exemption.
    Keywords: Competition policy, competition law, antitrust, political economy, agricultural development, Asia
    JEL: K21 L40 O13 O53
    Date: 2022–03–30
  10. By: Keith M. Drake; Thomas McGuire
    Abstract: Settlements of drug patent disputes that involve a potential payment from the brand to the generic signal a possible collusive profit split with a threat to competition, and have undergone intensive scrutiny in the literature on law and economics. A common feature of these brand-generic settlements, so-called “most-favored entry” (MFE) clauses, have not been investigated to the same extent. The expectation that brand drug companies make settlement decisions rationally implies that an otherwise unexplained brand payment above savings from expected future litigation costs derives from a delay in competition achieved by the settlement. This paper applies the condition of brand rationality to settlements with MFE clauses, with the added consideration that an MFE clause may affect two dates: the date of entry for the settling generic and the date of entry of third-party generic challengers. A brand payment from an MFE clause above future expected litigation costs implies delays in at least one and possibly two of these expected dates for competition. We find that MFE clauses can constitute a reverse payment. When a payment takes the form of an MFE clause, the pay-above-saved-litigation-cost criterion is, however, vulnerable to suggesting that a settlement is not anticompetitive, when in fact it is.
    JEL: D22 D43 K21 L41
    Date: 2022–02
  11. By: Miyata, Ryo; Suzuki, Teruyoshi; Yagi, Kyoko
    Abstract: This study examines the characteristics of takeovers in the presence of competition using a threestage model. We first investigate the property of the equilibrium of mergers and takeovers in a frictionless market, and then analyze the effect that the existence of the competitors had on this process. We apply a general surplus function, rather than a specific one, eliminating the modifying effects of this factor from our study. Our model predicts that the existence of heavy competition in the takeover increases the number of unsuccessful or incomplete deals. Furthermore, we find that the shareholders of the target in a competitive market can choose the timing of accepting an offer, without the need to observe the surplus benefit of the deal. Our model shows that the presence of competition does not always provide the target shareholders with an advantage.
    Keywords: Merger and acquisitions, real options, competitions,
    Date: 2022–03
  12. By: Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Dalen, Dag Morten (BI Norwegian Business School); Straume, Odd Rune (University of Minho and University of Bergen)
    Abstract: We study the incentives of drug producers to develop predictive biomarkers, taking into account strategic interaction between drug producers and health plans. For this purpose we develop a two-dimensional spatial framework that allows us to capture the informational role of biomarkers and their effects on price competition and treatment choices. Although biomarkers increase the information available to prescribers, we identify an anticompetitive effect on the prices set by producers of therapeutically substitutable drugs. We also nd that better information about each patient s most therapeutically appropriate drug does not necessarily lead to more efficient treatment outcomes.
    Keywords: Pharmaceutical markets; Precision medicine; Therapeutic competition; Predictive biomarkers
    JEL: I11 I18 L13 L65
    Date: 2022–03–31
  13. By: Bukvić, Rajko
    Abstract: Serbian: У раду се анализирају нови приступи оцењивању степена концентрације и конкуренције. Као пример одабран је сектор осигурања у Србији, а за променљиву на основу које су извршени обрачуни одговарајућих коефицијената и оцена стања концентрације и конкуренције узета је укупна премија по свим облицима осигурања, како је то дефинисано прописима о заштити конкуренције. Поред уобичајених и до сада најчешће коришћених показатеља (рацио концентрације CRn и Хиршман-Херфиндалов коефицијент HH) и нешто ређе коришћених (Ђинијев коефицијент и коефицијент ентропије, односно Лоренцова крива), обрачунати су и анализирани практично у нашим условима до сада некоришћени Тајдман-Холов и Розенблатов коефицијент, као и нови приступи засновани на обрачуну индекса Линда, метод тржишних језгара и метод коефицијената на бази Гаусове криве распореда тржишних удела. Да би се избегао утицај могућих екстерних услова у једној години и ради оцене остварених тенденција коришћена је дужа временска серија, односно вредности показатеља остварене у току последње деценије. English: The paper analyses new approaches to the estimation of the degree of concentration and competition. As example the insurance sector in Serbia is chosen, and as a variable for the calculation of necessary indicators the total premium is taken, as well as it were determined by the anti-monopoly law. There were used the usual and frequently used indicators (concentration ratio CRn and Hirschmann-Herfindahl coefficient HH), as well the rarely used (Gini coefficient and enthropy coefficient, i.e. Lorenz curve). Than we analyzed practically in analyses in Serbia not used Tidemann-Hall and Rosenbluth coefficients, as well the new approaches that are based on the calculation of Linda indices, method of market nucleus and method of coefficients on the basis of Gauss’ curve’s distribution of market shares. To avoid the possible influence of extreme conditions in one year, there are used the many year time series, i.e. the coefficients in the last decade.
    Keywords: концентрација, конкуренција, осигурање, Србија, показатељи, нови приступи, concentration, competition, insurance, Serbia, indicators, new approaches
    JEL: C18 C81 D40 G21 L10 L13 L40
    Date: 2021
  14. By: UESUGI, Iichiro; HIRAGA, Kazuki; MANABE, Masashi; YOSHINO, Naoyuki
    Abstract: This study is the first to exhaustively calculate the degree of concentration in regional banking markets using the outstanding amount of loans and deposits at branches and headquarters of financial institutions located in Japan. Calculating the Herfindahl-Hirschman Index (HHI) for loans and deposits for each prefecture and for each urban employment area for the period 2005–2019, we show differences in the HHI across regions and its development over time. Furthermore, we decompose HHI into two factors, namely one related to the number of financial institutions and the other to deviation from the mean market share.We also examine the extent of the increase in the HHI caused by mergers of financial institutions and its persistence. The main results obtained are as follows. First, loan and deposit HHI show an upward trend; however, the HHI of loans in large metropolitan areas, which were already low, show a trend of further decline. Competition among financial institutions becomes tougher in large metropolitan regions. Second, increases in HHI are not only due to reductions in the number of financial institutions but also to increasing variations in financial institutions’ market share. And third, while the increase in loan HHI due to financial institution mergers is sustained for a certain period, its duration tends to be shorter in regions with a low market concentration.
    Keywords: Herfindahl-Hirschman Index, Market concentration, Competition, Financial institution mergers
    Date: 2022–03
  15. By: Bouckaert, Jan (University of Antwerp); Stennek, Johan (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We study how the legal profession manages representational conflicts of interest. Such conflicts arise when the same law firm represents clients with adverse interests. They may compromise the legal process, ultimately jeopardizing social welfare. We argue that current ethical standards, emphasizing disqualification over Chinese walls, may actually worsen the clients’ situation. Instead, the clients’ interests are today mainly protected by law firms being small. Despite low market concentration, law firms enjoy high earnings as representational conflicts create negative network externalities at the firm level. These profits are not eroded even in the long run as entry occurs through firm splitups.
    Keywords: law firms; professional services; dual representation; representational conflicts of interest; ethical standards; Chinese walls; recusals; negative network externalities; competition; self-regulation
    JEL: K40 L13 L22 L44 L84
    Date: 2022–04
  16. By: Gayle, Philip; Lin, Ying
    Abstract: The introduction of new products has always been an important source of economic development and improvement in consumer welfare. With retail coffee data spanning five years after the single-cup brew coffee pods were introduced to grocery chains, this paper empirically studies the market effects of new product introduction in the brew-at-home coffee market. We use a structural model of demand and supply to capture the changes in consumers’ preference for this new product over time. The demand estimates suggest that consumers’ relative preference and willingness-to-pay for the new product grew substantially over the sample periods. The analysis reveals the extent to which the introduction and growing presence of the new product simultaneously expanded the relevant market and cannibalized the sales of pre-existing substitute products (traditional auto-drip brew coffee products). Furthermore, we quantify the annually expanding welfare gains of the average consumer attributable to the new product.
    Keywords: New product introduction; Willingness-to-pay; Market-expansion; Demand-cannibalization; Brew-at-home coffee market
    JEL: D12 L13 L66
    Date: 2022–02–28
  17. By: Luca Verginer; Federica Parisi; Jeroen van Lidth de Jeude; Massimo Riccaboni
    Abstract: In high-tech industries, where intellectual property plays a crucial role, the acquisition of intangible assets and employees' tacit knowledge is an integral part of the motivation for Mergers and Acquisitions (M&As). Following the molecular biology revolution, the wave of takeovers in the biotechnology industry in the Nineties is a well-known example of M&As to absorb new knowledge. The retention of critical R&D employees embodying valuable knowledge and potential future innovation is uncertain after an acquisition. While not all employees might be relevant for the success of the takeover, inventors are among the most valuable. This is especially true for the acquisition of an innovative start-up. This paper estimates how likely an inventor working for an acquired biotechnology company will leave. We find that inventors affected by acquisitions are 20\% more likely to leave the company by a difference-in-differences approach matching both firms and inventors.
    Date: 2022–03
  18. By: Mark Armstrong; John Vickers
    Abstract: Edgeworth’s paradox of taxation occurs when an increase in the unit cost of a product causes a multiproduct monopolist to reduce prices. We give simple illustrations of the paradox, we show how it can arise with uniform pricing, and we give an analysis of the case of linear marginal cost and demand conditions. We show how the matrix of cost-passthrough terms must be similar to a positive definite matrix. When the firm supplies two substitute products we show how the paradox always occurs with a suitable choice of cost function. We then show a connection between Ramsey pricing and the paradox in a form relating to consumer surplus, and use it to find further examples where consumer surplus increases with cost.
    Date: 2022–03–25
  19. By: Aizawa, Hiroki; Kono, Tatsuhito
    Abstract: We investigate where retail stores agglomerate in a road network with radial roads and a ring road in a two-dimensional space. Per-distance travel cost on the radial roads can be different from that on the ring road. The transition of the two-dimensional agglomeration patterns of retail stores is investigated with decreases in the travel costs. Results show 1) a difference in improvement sequences in the radial and ring roads generates a difference in the agglomeration patterns with different welfare levels and 2) how the two-dimensional geographical position of shopping agglomerations ensuring the highest welfare level differs from that in equilibrium.
    Keywords: Agglomeration, Bifurcation, Monopolistic competition, Two-dimensional road network
    JEL: L1 R1 R4
    Date: 2022–03–07
  20. By: Sanktjohanser, Anna; Hörner, Johannes
    Abstract: We consider a repeated game, in which due to private information and a lack of flexible transfers, cooperation cannot be sustained efficiently. In each round, the buyer either buys from the seller or takes an outside option. The fluctuating outside option may be public or private information. When the buyer visits, the seller chooses what quality to provide. We find that the buyer initially forgoes mutually beneficial trades before then visiting more often than he would like to, myopically. Under private information, the relationship recurrently undergoes gradual self-reinforcing downturns when trust is broken and instantaneous recoveries when loyalty is shown.
    Keywords: Trust; Loyalty; Imperfect Monitoring
    JEL: C72 C73 C78
    Date: 2022–04–04
  21. By: Takeshi Fukasawa (Graduate School of Economics, The University of Tokyo and Junior Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN)
    Abstract: This article investigates why applying static demand models yields biased results under dynamic demand. Recent empirical studies analyzing markets with dynamic demand have found that applying static demand models yields biased estimates of utility parameter estimates and price elasticities of demand. By developing an analytical framework, this study shows how the biases arise and when they are large. There are three sources of biases: inconsistent utility parameter estimates, disregard of state variables (affecting short-run price elasticity), and changing expectations of consumers (affecting long-run price elasticity). The study shows that we can obtain consistent utility parameter estimates by introducing time-group fixed effect terms under some conditions. Short-run own elasticity is overestimated under static models given consistent utility parameter estimates and nonexistence of unobserved consumer heterogeneity. Especially when the focus is on the large market share products, the second and the third sources of biases induce large biases in price elasticities.
    Keywords: Dynamic demand; Static demand model; Estimation bias; Price elasticity of demand; Dynamic discrete choice
    Date: 2022–04

This nep-com issue is ©2022 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.