nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒05‒02
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Collusion Between Non-differentiated Two-Sided Platforms By Martin Peitz; Lily Samkharadze
  2. Addictive Platforms By Shota Ichihashi; Byung-Cheol Kim
  3. The measure of monopsony By Langella, Monica; Manning, Alan
  4. Labour Market Concentration, Wages and Job Security in Europe By Andrea Bassanini; Giulia Bovini; Eve Caroli; Jorge Casanova Ferrando; Federico Cingano; Paolo Falco; Florentino Felgueroso; Marcel Jansen; Pedro S. Martins; António Melo; Michael Oberfichtner; Martin Popp
  5. Payroll Tax, Employment and Labor Market Concentration By Erick Baumgartner; Raphael Corbi, Renata Narita
  6. Intangibles and industry concentration: supersize me By Bajgar, Matej; Criscuolo, Chiara; Timmis, Jonathan
  7. An Oligopoly-Fringe Model with HARA Preferences By Gerard Cornelis van der Meijden; Cees A. Withagen; Hassan Benchekroun
  8. Product market competition, creative destruction and innovation By Griffith, Rachel; Van Reenen, John
  9. Opposing firm-level responses to the China shock: horizontal competition versus vertical relationships By Aghion, Philippe; Bergeaud, Antonin; Lequien, Matthieu; Melitz, Marc J.; Zuber, Thomas
  10. Gender and Collusion By Justus Haucap; Christina Heldman; Holger A. Rau
  11. Unraveling the spreading pattern of collusively effective competition clauses By Trost, Michael
  12. Speculation in Procurement Auctions By Shanglyu Deng
  13. Better the devil you know: evidence from the UK mobile market By Kao, Andrew; Genakos, Christos; Kretschmer, Tobias

  1. By: Martin Peitz; Lily Samkharadze
    Abstract: Platform competition can be intense when offering non-differentiated services. However, competition is somewhat relaxed if platforms cannot set negative prices. If platforms collude they may be able to implement the outcome that maximizes industry profits. In an infinitely repeated game with perfect monitoring, this is feasible if the discount factor is sufficiently large. When this is not possible, under some condition, a collusive outcome with one-sided rent extraction along the equilibrium path can be sustained that leads to higher profits than the non-cooperative outcome.
    Keywords: Two-sided markets, tacit collusion, cartelization, price structure, platform competition
    JEL: L41 L13 D43
    Date: 2022–04
  2. By: Shota Ichihashi; Byung-Cheol Kim
    Abstract: We study competition for consumer attention, in which platforms can sacrifice service quality for attention. A platform can choose the “addictiveness” of its service. A more addictive platform yields consumers a lower utility of participation but a higher marginal utility of allocating attention. We provide conditions under which increased competition can harm consumers by encouraging platforms to offer low-quality services. In particular, if attention is scarce, increased competition reduces the quality of services because business stealing incentives induce platforms to increase addictiveness. Restricting consumers’ platform usage may decrease addictiveness and improve consumer welfare. A platform’s ability to charge for its service can also decrease addictiveness.
    Keywords: Economic models
    JEL: D40 L51
    Date: 2022–04
  3. By: Langella, Monica; Manning, Alan
    Abstract: There has been increasing interest in recent years in monopsony in labour market. This paper discusses how we can measure monopsony power combining insights from models based on both frictions and idiosyncrasies. It presents some evidence from the UK and the US about how monopsony power varies across the wage distribution within markets, over the business cycle and over time.
    Keywords: monopsony; labour market competition
    JEL: J42 J31
    Date: 2021–06–30
  4. By: Andrea Bassanini; Giulia Bovini; Eve Caroli; Jorge Casanova Ferrando; Federico Cingano; Paolo Falco; Florentino Felgueroso; Marcel Jansen; Pedro S. Martins; António Melo; Michael Oberfichtner; Martin Popp
    Abstract: We investigate the impact of labour market concentration on two dimensions of job quality, namely wages and job security. We leverage rich administrative linked employer-employee data from Denmark, France, Germany, Italy, Portugal and Spain in the 2010s to provide the first comparable cross-country evidence in the literature. Controlling for productivity and local product market concentration, we show that the elasticities of wages with respect to labour market concentration are strikingly similar across countries: increasing labour market concentration by 10% reduces wages by 0.19% in Germany, 0.22% in France, 0.25% in Portugal and 0.29% in Denmark. Regarding job security, we find that an increase in labour market concentration by 10% reduces the probability of being hired on a permanent contract by 0.46% in France, 0.51% in Germany and 2.34% in Portugal. While not affecting this probability in Italy and Spain, labour market concentration significantly reduces the probability of being converted to a permanent contract once hired on a temporary one. Our results suggest that considering only the effect of labour market concentration on wages underestimates its overall impact on job quality and hence the resulting welfare loss for workers.
    Date: 2022–04
  5. By: Erick Baumgartner; Raphael Corbi, Renata Narita
    Abstract: How much employment can be generated by decreasing payroll taxes? We examine this question by exploring the staggered rollout of a large payroll tax reform in Brazil. Using administrative matched employer-employee data, we find an increase of 5 percent on employment due to both firm growth and firm entry, no impact on wages and an increase of 59 percent in profits. Moreover, employment effects are driven by less concentrated labor markets, consistent with predictions from an oligopsony model.
    Keywords: Payroll Tax; Employment; Wages; Profits; Oligopsony
    JEL: H25 H32 J31 J6 J42
    Date: 2022–03–24
  6. By: Bajgar, Matej; Criscuolo, Chiara; Timmis, Jonathan
    Abstract: This paper presents new evidence on the growing scale of big businesses in the United States, Japan and 11 European countries. It documents a broad increase in industry concentration across the majority of countries and sectors over the period 2002 to 2014. The rising concentration is strongly associated with intensive investment in intangibles, particularly innovative assets, software and data, and this relationship is magnified in more globalized and digital-intensive industries. The results are consistent with intangibles disproportionately benefiting large firms and enabling them to scale up and raise their market shares, increasingly over time.
    Keywords: competition; industry and entrepreneurship; innovation
    JEL: E22 L10 L25
    Date: 2021–10–28
  7. By: Gerard Cornelis van der Meijden; Cees A. Withagen; Hassan Benchekroun
    Abstract: Inspired by empirical evidence from the oil market, we build a model of an oligopoly facing a fringe as well as competition from renewable resources. We explore different subclasses of HARA utility functions (Cobb-Douglas, power and quadratic utility) to check the robustness of results found in the previous literature. For isoelastic demand, we characterize the equilibrium extraction rates of the fringe and the oligopolists. There always exists a phase of simultaneous supply of the oligopolists and the fringe, implying an inefficient order of use of resources since the oligopolists have smaller unit extraction costs and carbon emissions than the fringe. We calibrate our model to the oil market to quantify this sequence effect. In our benchmark calibration, we find for the three HARA subclasses that the sequence effect is responsible for almost all of the welfare loss compared to the first-best. It becomes smaller as market power decreases. Furthermore, we show that climate damage and Green Paradox effects depend non-monotonically on the degree of market power.
    Keywords: oligopoly-fringe, climate policy, non-renewable resource, Herfindahl rule, limit pricing, oligopoly, HARA preferences
    JEL: Q31 Q42 Q54 Q58
    Date: 2022
  8. By: Griffith, Rachel; Van Reenen, John
    Abstract: We examine the economic analysis of the relationship between innovation and product market competition. First, we give a brief tour of the intellectual history of the area. Second, we examine how the Aghion-Howitt framework has influenced the development of the literature theoretically and (especially) empirically, with an emphasis on the "inverted U": the idea that innovation rises and then eventually falls as the intensity of competition increases. Thirdly, we look at recent applications and development of the framework in the areas of competition policy, international trade and structural Industrial Organization.
    Keywords: words; competition; innovation; creative destruction; ES/M010147/1; Programme On Innovation and Diffusion
    JEL: O31 L13 O32 B20 L40
    Date: 2021–11–30
  9. By: Aghion, Philippe; Bergeaud, Antonin; Lequien, Matthieu; Melitz, Marc J.; Zuber, Thomas
    Abstract: We decompose the "China shock" into two components that induce different adjustments for firms exposed to Chinese exports: a horizontal shock affecting firms selling goods that compete with similar imported Chinese goods, and a vertical shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the horizontal shock is detrimental to firms' sales, employment and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the vertical shock on firms' sales, employment and innovation.
    Keywords: competition shock; patent; firms; import
    JEL: F14 O19 O31 O33 O34
    Date: 2021–08–09
  10. By: Justus Haucap; Christina Heldman; Holger A. Rau
    Abstract: Many cartels are formed by individual managers of different firms, but not by firms as collectives. However, most of the literature in industrial economics neglects individuals’ incentives to form cartels. Although oligopoly experiments reveal important insights on individuals acting as firms, they largely ignore individual heterogeneity, such as gender differences. We experimentally analyze gender differences in prisoner’s dilemmas, where collusive behavior harms a passive third party. In a control treatment, no externality exists. To study the influence of social distance, we compare subjects’ collusive behaviour in a within-subjects setting. In the first game, subjects have no information on other players, whereas they are informed about personal characteristics in the second game. Results show that guilt-averse women are significantly less inclined to collude than men when collusion harms a third party. No gender difference can be found in the absence of a negative externality. Interestingly, we find that women are not sensitive to the decision context, i.e., even when social distance is small they hardly behave collusively when collusion harms a third party.
    Keywords: collusion, cartels, competition policy, antitrust, gender differences
    JEL: C92 D01 D43 J16 K21 L13 L41
    Date: 2022
  11. By: Trost, Michael
    Abstract: Meanwhile, the Industrial Organization literature gives several reasons why retailers adopt competition clauses (CCs) such as price matching or price beating guarantees. The motivations underlying the CCs might affect their forms and spread. In this paper, we unravel the spreading pattern of CCs in markets where they are used as a device to facilitate tacit collusion. It turns out that in homogeneous markets with capacity-constrained retailers, the retailers with the largest capacities are most inclined to adopt CCs. Our finding is in line with results of earlier studies on the formation of price leadership, which suggest that the retailers with the largest capacities take on the leadership position. On the other side, we find that in some market instances, retailers have to resort to CCs of non-conventional forms (i.e., of forms uncommon in real commercial life) to induce the most robust collusion. However, it turns out that this peculiar finding can be resolved for markets with additional characteristics. For example, if there exist market dominant retailers or the residual market demand is specified by efficient rationing, the most resilient collusion can also be enforced by CCs of conventional forms.
    Keywords: Wettbewerbsverhalten
    Date: 2022
  12. By: Shanglyu Deng
    Abstract: A speculator can take advantage of a procurement auction by acquiring items for sale before the auction. The accumulated market power can then be exercised in the auction and may lead to a large enough gain to cover the acquisition costs. I show that speculation always generates a positive expected profit in second-price auctions but could be unprofitable in first-price auctions. In the case where speculation is profitable in first-price auctions, it is more profitable in second-price auctions. This comparison in profitability is driven by different competition patterns in the two auction mechanisms. In terms of welfare, speculation causes private value destruction and harms efficiency. Sellers benefit from the acquisition offer made by the speculator. Therefore, speculation comes at the expense of the auctioneer.
    Date: 2022–03
  13. By: Kao, Andrew; Genakos, Christos; Kretschmer, Tobias
    Abstract: Do firms strategically confuse their customers? Using a detailed dataset covering virtually all mobile phone tariffs and their handsets in the UK between January 2010 and September 2012, we examine the co-evolution of prices with the differentiation and overlap of operators' product portfolios. Incorporating the fact that mobile tariffs are multidimensional and hard to compare but easy to imitate and cheap to launch, we argue that firms introduced a large number of dominated tariffs as an obfuscation strategy. We show that the increase in dominated tariffs correlates with the increase in average prices despite converging product portfolios. This exploratory study is one of the first to offer suggestive evidence of the existence and role of obfuscation as a firm strategy.
    Keywords: words; competitive strategy; obfuscation; mobile telecommunications industry
    JEL: L10 L20 L96
    Date: 2021–11–01

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