|
on Industrial Competition |
| 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 man- agers 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 Com- pustat, 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. |
| JEL: | E2 J2 L1 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29918&r= |
| By: | Laurent Linnemer |
| 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: | Cournot, complements, successive monopolies |
| JEL: | B16 B21 K21 L12 L13 L42 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9531&r= |
| By: | Simon Martin; Alexander Rasch |
| Abstract: | We analyze the effects of better algorithmic demand forecasting on collusive profits. We show that the comparative statics crucially depend on the whether actions are observable. Thus, the optimal antitrust policy needs to take into account the institutional settings of the industry in question. Moreover, our analysis reveals a dual role of improving forecasting ability when actions are not observable. Deviations become more tempting, reducing profits, but also uncertainty concerning deviations is increasingly eliminated. This results in a u-shaped relationship between profits and prediction ability. When prediction ability is perfect, the ‘observable actions’ case emerges. |
| Keywords: | algorithm, collusion, demand forecasting, unobservable actions, secret price cutting |
| JEL: | L41 L13 D43 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9629&r= |
| By: | Bassanini, Andrea (OECD); Bovini, Giulia (Bank of Italy); Caroli, Eve (Université Paris-Dauphine); Ferrando, Jorge Casanova (Compass Lexecon); Cingano, Federico (Bank of Italy); Falco, Paolo (University of Copenhagen); Felgueroso, Florentino (FEDEA, Madrid); Jansen, Marcel (Universidad Autónoma de Madrid); Martins, Pedro S. (Nova School of Business and Economics); Melo, António (Université Paris-Dauphine); Oberfichtner, Michael (Institute for Employment Research (IAB), Nuremberg); Popp, Martin (Institute for Employment Research (IAB), Nuremberg) |
| 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. |
| Keywords: | labour market concentration, monopsony, wages, job security |
| JEL: | J31 J42 L41 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15231&r= |
| By: | Kohei Kawaguchi (Department of Economics, The Hong Kong University of Science and Technology); Toshifumi Kuroda (Department of Economics, Tokyo Keizai University); Susumu Sato (Institute of Economic Research, Hitotsubashi University) |
| Abstract: | This paper proposes a new model of imperfect competition of ad-sponsored media, which can sell “free†products, for a merger analysis applicable to the mobile app industry. To analyze developers' monetizing with both price and advertising in an app, we consider a consumer who faces both budget and time constraints. Moreover, to catch up with newly created and quickly redefined markets, we automate the conversion from in-text product descriptions to numerical product attributes by combining word embedding and dimension reduction techniques. The model defines an equilibrium over consumers' downloads, usage, and in-app purchase decisions and app developers' price and non-price competition. We estimate the model using mobile app data from Japan from 2015 to 2017. The estimate revealed that the marginal disutility of watching advertisements is 12.4% of the ad price for games and 3.1% for other apps. The relevant markets defined by a Small, Non-transitory but Significant Increase in Cost (SSNIC) test are larger than the product categories. Merger simulations show that the app market is, at the static level, competitive and even a merger among the top 10 apps has negligible effects on surplus. The proportional transaction fee imposed by the platform, whose welfare implication is ambiguous because it increases the advertisements and decreases the download prices, is more influential. For game apps, the total surplus is maximized at 12%-15% rather than the actual 30%, increasing welfare by 2.4% and app developers' profits by 44%. For other apps, the total surplus curve is almost flat around 30%. |
| Keywords: | Merger simulation, market definition, SSNIP, antitrust policy, ad-sponsored media, platform transaction fee, app economy, distributed word representation |
| JEL: | L11 L13 L41 L86 M13 M21 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:hke:wpaper:wp2021-03&r= |
| By: | Gábor Koltay; Szabolcs Lorncz; Tommaso M. Valletti |
| Abstract: | The paper provides new evidence on proxy indicators of market power for major European countries. The data shows moderately increasing average industry concentration over the last two decades, a considerably increasing proportion of high concentration industries, and an overall tendency towards oligopolistic structure. Estimates of aggregate profitability also show a sustained increase over the recent decades for European economies. While the academic and policy debate is not settled as to whether the causes of these trends are policy driven or reflect technological improvement, our findings suggest that competition policy is likely to face more challenges as large companies are becoming more common in more and more industries. |
| Keywords: | mergers, antitrust, European Union, concentrations, industries |
| JEL: | L10 L40 G34 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9640&r= |
| By: | HAYAKAWA Kazunobu; URATA Shujiro; YAMANOUCHI Kenta |
| Abstract: | In this study, we explore the impacts of import competition from China on Japan's manufacturing industry. Specifically, we focus on the effects on markup dispersion from the perspective of resource allocation. We first show that the markups and prices of the plants in Japan are negatively affected by the import competition from China. The negative effect is specific to the imports from China and not observed for the import competition from other countries. Second, we found that while non-Chinese import competition reduces the markup dispersion, Chinese import competition has no effects on the dispersion of the markups. The import competition from China is relatively stronger for relatively low-markup plants and forces them to lower their markups further. While consumers can enjoy the lower markups or prices, allocation efficiency may not be improved by the import competition from China. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:22031&r= |
| By: | ITO Tadashi; MATSUURA Toshiyuki |
| Abstract: | This study investigates the impact of import competition from China, using the firm/establishment level data from the Census of Manufacturer with a particular focus on firms’ choice of multiple reactions. We find that product switching is an important reaction for firms facing increasingly harsh competition with imports from China. Firms tend to choose, first, employment adjustment only, and then with stronger import competition, product switching only, and finally, both of employment adjustment and product switching as import competition from China increases. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:22036&r= |
| By: | Pak Hung Au (Department of Economics, The Hong Kong University of Science and Technology); Mark Whitmeyer (Hausdorff Center for Mathematics & Institute for Microeconomics, University of Bonn) |
| Abstract: | We consider a model of oligopolistic competition in a market with search frictions, in which competing firms with products of unknown quality advertise how much information a consumer’s visit will glean. We characterize the unique symmetric equilibrium of this game, which, due to the countervailing incentives of attraction and persuasion, generates a payoff function for each firm that is linear in the firm’s realized effective value. If the expected quality of the products is sufficiently high (or competition is sufficiently fierce), this corresponds to full information–search frictions beget the first-best level of information provision. If not, this corresponds to information dispersion–firms randomize over signals. If the attraction incentive is absent (due to hidden information or costless search), firms reveal less information and information dispersion does not arise. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:hke:wpaper:wp2021-02&r= |
| By: | Sangeun Ha (The Hong Kong University of Science and Technology); Fangyuan Ma (Peking University HSBC Business School); Alminas Žaldokas (The Hong Kong University of Science and Technology) |
| Abstract: | We examine how executive compensation can be designed to motivate product market collusion. We look at the 2013 decision to close several regional offices of the Department of Justice, which lowered antitrust enforcement for firms located near these closed offices. We argue that this made collusion more appealing to the shareholders, and find that these firms increased the sensitivity of executive pay to local rivals' performance, consistent with rewarding the managers for colluding with them. The affected CEOs were also granted more equity compensation, which provides long-term incentives that could foster collusive arrangements. |
| Keywords: | Product Market Collusion; Corporate Governance; Managerial Compensation |
| JEL: | G34 G38 L22 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:hke:wpaper:wp2021-08&r= |
| By: | Salmi, Mabrouka |
| Abstract: | This paper attempts to understand the theory of “the market for lemons” proposed by the American economist Akerlof in 1970, review some related works, and apply this theory in an Algerian context. The theory of Akerlof is key to the information economy. One of the first pieces of research that defined adverse selection is when the two parties in a transaction have different levels of information. We present our example, not well established in the literature, of asymmetrical information in the local e-commerce market, which explains the e-sellers problem with e-customers behaviors. We describe the impact of such issues, such as the loss of e-sellers caused by behaviors of e-customers, and propose solutions based on the literature. Finally, we are beyond reviewing such landmark research or adding anything to it, related works are not fully discovered, and we present a humble piece of research that may exhibit any flaws. |
| Keywords: | Information Asymmetry, Adverse Selection, Lemons Market, Local E-commerce. |
| JEL: | D8 D82 |
| Date: | 2022–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112390&r= |