nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒06‒27
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. The measure of monopsony By Monica Langella; Alan Manning
  2. Distracted from Comparison: Product Design and Advertisement with Limited Attention By Johnen, Johannes; Leung, Benson Tsz Kin
  3. Deceptive Features on Platforms By Johnen, Johannes; Somogyi, Robert
  4. Opposing firm-level responses to the China shock: horizontal competition versus vertical relationships By Philippe Aghion; Antonin Bergeaud; Matthieu Lequien; Marc J. Melitz; Thomas Zuber
  5. Bargaining and International Reference Pricing in the Pharmaceutical Industry By Pierre Dubois; Ashvin Gandhi; Shoshana Vasserman
  6. How Communication Makes the Difference between a Cartel and Tacit Collusion: A Machine Learning Approach By Maximilian Andres; Lisa Bruttel; Jana Friedrichsen
  7. Personalizing Prices to Redistribute Wealth in Antitrust and Public Utility Rate Regulation By Woodcock, Ramsi
  8. Anticompetitive practices on public procurement: Evidence from Brazilian electronic biddings By Adilson Sampaio; Paulo Figueiredo; Klarizze Puzon
  9. Incentives of a Monopolist for Innovation under Regulatory Threat By Saglam, Ismail
  10. Two Approaches of Measuring Intra-industry Trade By Dutta, Sourish
  11. Strategic Pricing, Lifespan Choices and Environmental Implications of Peer-to-Peer Sharing By Francisco J. André; Carmen Arguedas; Sandra Rousseau
  12. Fighting for Fares: Uber and the Declining Market Price of Licensed Taxicabs By Alina Garnham; Derek G. Stacey
  13. China's Data Governance: Data transactions via the market and national security (Japanese) By WATANABE Mariko
  14. Estudio sobre las condiciones de competencia en el sector de la publicidad online en España By Subdirección de Estudios, Departamento de Promoción de la Competencia

  1. By: Monica Langella; Alan Manning
    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
    Date: 2021–06–30
  2. By: Johnen, Johannes (Université catholique de Louvain, LIDAM/CORE, Belgium); Leung, Benson Tsz Kin
    Abstract: We study how firms choose designs—of their products or product information—to divert consumers’ limited attention away from price comparison or towards it. Firms choose designs to affect the dispersion of product match values and thereby how consumers allocate their limited attention. Consumers with limited attention trade off breadth and depths of search: they either study fewer products in detail to learn their match value, or superficially browse and compare prices of more products. We highlight a novel distraction effect of designs. Firms combine larger prices with designs that disperse match values to distract consumers from price-comparison. We show that more-detailed product information disperse match values and allows firms to distract consumers more effectively from price comparison. This way, interventions that allow firms to disclose more-detailed product information weaken competition and decrease consumer surplus. In turn, interventions that make information coarser and more easily-available information—like energy-efficiency labels and front-package food labels like nutriscores—increases competition and consumer surplus. These findings connect evidence of various informational interventions in the context of pension funds, advertisements, and food labels.
    Keywords: Limited Attention ; Product Design ; Information Design ; Market Competition
    JEL: D83 L13 L15
    Date: 2022–04–12
  3. By: Johnen, Johannes (Université catholique de Louvain, LIDAM/CORE, Belgium); Somogyi, Robert (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: Many products sold on online platforms have additional features. Platforms can deliberately shroud these features from consumers, e.g. by revealing them only late in the purchase process. For example, platforms often reveal fees for shipping, handling, extra luggage or hotel services only late in the purchase process. We study when a two-sided platform discloses (a.k.a unshrouds) additional fees when some buyers naively ignore shrouded fees. We uncover a novel mechanism to explain why platforms shroud: platforms shroud or unshroud to manipulate cross-group externalities between buyers and sellers. Exploring this mechanism, we highlight two results suggesting online marketplaces lead to more shrouded features. First, we ask when a platform shrouds seller fees on its marketplace. Driven by cross-group network externalities to attract buyers and appear cheap, the platform has stronger incentives to shroud seller fees than sellers themselves. Second, we investigate when the platform shrouds its own additional fees and uncover a perverse effect of seller competition: fiercer competition between sellers encourages the platform to shroud its own fees. Both results hold even though the platform earns no commission to shroud seller fees and does not sell its own brands, so banning these practices will not induce a transparent marketplace. We discuss further policy implications and connect to common practices like drip pricing, steering, and rebate design.
    Date: 2022–04–13
  4. By: Philippe Aghion; Antonin Bergeaud; Matthieu Lequien; Marc J. Melitz; Thomas Zuber
    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
    Date: 2021–08–09
  5. By: Pierre Dubois; Ashvin Gandhi; Shoshana Vasserman
    Abstract: The United States spends twice as much per person on pharmaceuticals as European countries, in large part because prices are much higher in the US. This fact has led policymakers to consider legislation for price controls. This paper assesses the effects of a US international reference pricing policy that would cap prices in US markets by those offered in reference countries. We estimate a structural model of demand and supply for pharmaceuticals in the US and reference countries like Canada where prices are set through a negotiation process between pharmaceutical companies and the government. We then simulate the counterfactual equilibrium under such international reference pricing rules, allowing firms to internalize the cross-country externalities introduced by these policies. We find that in general, these policies would result in much smaller price decreases in the US than price increases in reference countries. The magnitude of these effects depends on the number, size and market structure of references countries. We compare these policies with a direct bargaining on prices in the US.
    JEL: C51 C57 I11 I18 L11 L13 L22
    Date: 2022–05
  6. By: Maximilian Andres; Lisa Bruttel; Jana Friedrichsen
    Abstract: This paper sheds new light on the role of communication for cartel formation. Using machine learning to evaluate free-form chat communication among firms in a laboratory experiment, we identify typical communication patterns for both explicit cartel formation and indirect attempts to collude tacitly. We document that firms are less likely to communicate explicitly about price fixing and more likely to use indirect messages when sanctioning institutions are present. This effect of sanctions on communication reinforces the direct cartel-deterring effect of sanctions as collusion is more difficult to reach and sustain without an explicit agreement. Indirect messages have no, or even a negative, effect on prices.
    Keywords: cartel, collusion, communication, machine learning, experiment
    JEL: C92 D43 L41
    Date: 2022
  7. By: Woodcock, Ramsi
    Abstract: The information age is enabling firms with even small amounts of market power to personalize the prices they charge to each consumer in the market. Left to their own devices, firms will use this new power to increase profits by charging prices personalized to the maximum that each consumer is willing to pay. But government can also use the new power to personalize prices to equalize wealth—by insisting that firms personalize high prices to the rich and low prices to the poor—and most of the legal rules needed to do so are already in place. Both the antitrust laws and state and federal rate regulatory regimes already require enforcers to take the distribution of wealth into account in condemning anticompetitive practices or approving prices. Before the information age made personalized pricing possible, enforcers hesitated aggressively to use their powers to achieve wealth-equalizing prices because they worried that doing so would harm efficiency. But personalized prices are always efficient, whether set high by firms or adjusted by regulators to equalize wealth, creating an unprecedented opportunity for government to do distributive justice.
    Date: 2022–05–18
  8. By: Adilson Sampaio; Paulo Figueiredo; Klarizze Puzon
    Abstract: Using big data from the Brazilian public procurement system, this research aims to investigate what factors are associated with the occurrence of anticompetitive practices in electronic bidding. Our analysis considers all services contracted between 2014 and 2017.
    Keywords: Competition, Procurement, Fraud, Brazil
    Date: 2022
  9. By: Saglam, Ismail
    Abstract: In this paper, we investigate whether a natural monopoly with private cost information can reduce the likelihood of regulatory threat by investing, in the ex-ante stage, in cost-reducing R&D to generate process innovations and whether such an investment can yield Pareto gains in welfare. We model the regulatory process using a sequential game where a benevolent regulator makes the first move by announcing the probability that the monopolist will be optimally regulated. The monopolist, hearing this announcement, chooses the optimal level of its R&D investment. We numerically compute the subgame-perfect Nash equilibrium of this game for a wide range of model parameters. Our results show that the monopolist invests more in R&D if the regulatory threat is less certain. Anticipating this response, the regulator makes her threat less certain if she puts more weight on the monopolist's welfare. Moreover, we find that regulation with uncertainty can be Pareto superior to regulation with certainty if the welfare weight of the monopolist is sufficiently, but not extremely, high or if the cost of R&D is sufficiently small.
    Keywords: Monopoly; regulatory threat, R&D investment.
    JEL: D42 D82 L51 O30
    Date: 2022–05–21
  10. By: Dutta, Sourish
    Abstract: This paper deals with the problem of measuring intra-industry trade. In section 2, it presents two existing approaches (Balboni, 2007) to measuring intra-industry trade: the so called “recovery of trade”, developed by Balassa (1966); Grubel and Lloyd (1975) & the “type of trade” one initiated by Abd-el Rahman (1986b); Vona (1991). Then this paper presents indicators and empirical methods inspired by these two approaches. Notions of trade recovery & trade type come from two different definitions of the empirical phenomena they aim to measure. This paper also discusses these definitions and the theoretical foundations in the section 3.
    Date: 2022
  11. By: Francisco J. André (Dpt. Economic Analysis and ICE, Universidad Complutense de Madrid); Carmen Arguedas (Dpt. Economic Analysis, Autonomous University of Madrid); Sandra Rousseau (Faculty of Economics and Business, KU Leuven)
    Abstract: Peer-to-peer sharing has become increasingly popular in recent years. Many digital platforms exist that allow individuals to use others’ belongings part-time. These platforms explicitly mention their green credentials, as the environmental benefits of such sharing initiatives are often taken for granted. However, several recent empirical studies show evidence of the contrary. For the first time in the literature, we provide a theoretical framework to analyze the economic and environmental implications of peer-to-peer sharing. We present a stylized model where a monopolist supplies a product that is suitable for rent on a sharing platform. Counterintuitively, we find that the existence of such a platform is typically beneficial for the monopolist, especially if it can strategically choose the price and lifespan of the product to affect the use price in the sharing market. Such a scenario is not at all beneficial for consumers, especially for those who rent the good rather than buy it. Moreover, the existence of the sharing platform induces higher use and (under some likely conditions) larger production levels and shorter lifespans of the products. The combination of these three aspects contributes to a worse environmental impact with sharing, which provides a theoretical rationale for the aforementioned empirical studies.
    Keywords: peer-to-peer sharing; environmental externalities; strategic pricing; strategic lifespan.
    JEL: D16 D21 D62 L12 Q56
    Date: 2022–05–31
  12. By: Alina Garnham; Derek G. Stacey (Queen's University)
    Abstract: In this paper, we study how the emergence of Uber in a large North American city affects the financial value of taxicab licenses. A taxicab license provides a claim to a stream of dividends in the form of rents generated by operating the taxicab or leasing the license. The introduction of Uber undoubtedly affects the anticipated stream of dividends because Uber drivers capture part of the farebox revenue that might otherwise go to the owners/drivers of licensed taxicabs. At the same time, the launch of Uber's innovative technology-driven approach to the provision of ride-hailing services can be viewed as a partial obsolescence of the traditional taxicab approach. The economic incentives facing market participants may therefore change as Uber gains momentum in the ride-hailing market, which could further affect the market value of licensed taxicabs. Using transaction-level data, we apply a theory of asset pricing to the secondary market for Toronto taxicab licenses to explore these potential price effects. We learn that both the farebox and innovation effects contribute to the overall decline in market value, with the farebox effect accounting for just over half of the $170K price decline from 2011 to 2017. We explore the welfare implications for taxicab license owners with counterfactual simulations. We find that, consistent with the anti-Uber protests organized by Toronto taxi drivers, there was a high willingness to pay among license holders to prevent or postpone the launch of Uber's ridesharing services.
    Keywords: Uber , Taxicabs , Asset Pricing , Search and Bargaining
    JEL: G12
    Date: 2022–06
  13. By: WATANABE Mariko
    Abstract: Digital technology has drastically changed the nature of the economy. The abuse of power that results from monopolization of consumer data, is damaging social welfare. This is mostly observed in acts of digital platform companies. This phenomenon has become a serious concern and has resulted in calls for government intervention. One possible remedy against this concern is to utilize competition law to limit the abuse of monopolizing power of data. This idea is shared between the United States and China. The competition authorities of both countries launched interventions against platform firms in 2021. The other potential remedy is building a data transaction market in order to enhance accessibility of data for a wide range of entities, including small enterprise and individuals. China announced its intention to embark on this policy both through central and local-level governments. In China, data governance and state involvement in data transactions are developing with the combination of two different factors: enhancing the data transaction market and securing national security. This paper documents how the newly enacted data-related law and regulations define privacy, protection of personal information, government access and the data transaction market, the industrial policy for enhancing data transaction and data-related industries, and protection of national security. Its essence can be summarized as follows: (1) National security is emphasized much more strongly than protection of privacy and protection of personal information in comparison to other economies, (2) Cross border transactions are widely and heavily controlled by the government. (3) There is a very active to build institution of utilization and transaction of data. In terms of rulemaking governing cross-border data transaction, it is necessary to consider how to neutralize this heavy state involvement in data transactions and how to internalize rapid development of the big data market.
    Date: 2021–05
  14. By: Subdirección de Estudios, Departamento de Promoción de la Competencia (Comisión Nacional de los Mercados y la Competencia (CNMC))
    Abstract: El estudio analiza la condiciones de competencia en el sector de la publicidad online en España y ofrece una serie de recomendaciones para mejorar el funcionamiento de este mercado desde la óptica de la competencia y la regulación eficiente. La publicidad online es clave para la competencia pues permite a los anunciantes llegar a sus consumidores. Además, es la principal fuente de financiación del contenido en internet y constituye una de las vías de ingresos más importantes para las grandes plataformas digitales. Un funcionamiento más competitivo del sector de la publicidad favorecerá que empresas nacientes o innovadoras comuniquen mejor sus mensajes. Eso incrementará la eficiencia de toda la economía, pues se empodera a empresas y consumidores con mayor capacidad de elección para tomar decisiones óptimas.
    Keywords: Competencia, Publicidad online, Publicidad digital, Digitalización, Datos, Regulación
    JEL: L40 K21 L82 L86
    Date: 2021–07–07

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