nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒07‒18
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Supply and demand function competition in general equilibrium: endogenous market power in input-output networks By Matteo Bizzarri
  2. Estimating Discrete Games with Many Firms and Many Decisions: An Application to Merger and Product Variety By Ying Fan; Chenyu Yang
  3. Market effects of sponsored search auctions By Massimo Motta; Antonio Penta
  4. The Sale of Data :Learning Synergies Before M&As By Antoine Dubus; Patrick Legros
  5. Strategic Real Option Exercising and Second-mover Advantage By Min Dai; Zhaoli Jiang; Neng Wang
  6. R&D Spillovers through RJV Cooperation By Albert Banal-Estañol; Tomaso Duso; Jo Seldeslachts; Florian Szücs
  7. Patent screening, innovation, and welfare By Schankerman, Mark; Schuett, Florian
  8. Technology Differentiation and Firm Performance By Samuel Arts; Bruno Cassiman; Jianan Hou
  9. Strategic Innovation Through Outsourcing: A Theoretical Review By Marfri Gambal; Aleksandre Asatiani; Julia Kotlarsky
  10. Market Power, Taxation and Product Variety in the Brazilian Automobile Industry By Daniel Chaves
  11. Study on the competition conditions in the online advertising sector in Spain By Comisión Nacional de los Mercados y la Competencia (CNMC)
  12. How the Digital Economy Challenges the Neoliberal Agenda: Lessons from the Antitrust Policies By David Cayla
  13. Dynamique des conglomérats et politique antitrust By Armel Jacques

  1. By: Matteo Bizzarri (University of Naples Federico II and CSEF.)
    Abstract: This paper studies how input-output connections among firms determine the distribution and the welfare impact of market power in a production network. Firms compete by choosing supply and demand functions relating quantities to prices. In this way, firms' ability to affect prices, the total size, and the distribution of surplus are endogenous objects and are determined in equilibrium by the technology and the network structure. Firms have market power in both input and output markets: restricting market power exclusively in either output or input markets can reverse the ranking of market power among firms. Firms act strategically, taking their position in the supply chain into account: ignoring this effect would yield lower distortions and lower final prices. With a suitable parametric functional form, the equilibrium is in linear schedules. An equilibrium exists for very general networks, and an algorithm to compute it is provided. Finally, horizontal mergers (even with some synergies) always increase the final price, despite countervailing power.
    Keywords: production networks, oligopoly, double auction, supply function equilibrium.
    JEL: L13 D43 D44 D57
    Date: 2022–06–20
  2. By: Ying Fan; Chenyu Yang
    Abstract: This paper presents a new method for estimating discrete games based on bounds of conditional choice probabilities. The method does not require solving the game and is scalable to models with many firms and many discrete decisions. We apply the method to study merger effects on firm entry and product variety in the retail craft beer market in California. We simulate an acquisition of multiple craft breweries by a large brewery and find that the acquisition would induce firm entry and product entry by non-merging firms. However, these changes are insufficient to offset the negative welfare effects resulting from the higher prices and decreased product offerings by the merging firms.
    JEL: D43 L13 L41 L66
    Date: 2022–06
  3. By: Massimo Motta; Antonio Penta
    Abstract: We investigate the market effects of brand search advertising, within a model where two firms simultaneously choose the price of their (differentiated) product and the bids for the advertising auction which is triggered by own and rival's brand keywords search; and where there exist sophisticated/attentive consumers (who look for any available information on their screen) and naive/inattentive consumers (who only look at the top link of their screen), both aware of either brand's characteristics and price. Relative to a benchmark where only organic search exists, in any symmetric equilibrium each firm wins its own brand auction, and advertising has detrimental effects on welfare: (i) the sponsored link crowds out the rival's organic link, thus reducing competition and choice, and leading to price increases; (ii) the payment of the rival's bid (may) raise marginal cost, also contributing to raise market prices. Under extreme asymmetry (there is an incumbent and an unknown new entrant), we do find that the market effect of brand bidding might be beneficial, if the search engine does not list the entrant's link in organic search, and the share of the sophisticated consumers in the economy is large enough for an equilibrium in which the entrant wins the advertising auction on the search for the incumbent's brand to exist.
    Keywords: digital advertising, auctions, oligopoly, search engines, brands, horizontal agreements
    JEL: D44 L13 L4
    Date: 2022–06
  4. By: Antoine Dubus; Patrick Legros
    Abstract: Firms may share information to discover potential synergies between their data sets and algorithms, which eventually may lead to more efficient mergers and acquisitions (M&A) decisions. However, as pointed out by Arrow, information sharing also modifies the competitive balance when companies do not merge, and a firm may be reluctant to share information with potential rivals. Under general conditions, we show that firms benefit from (partially) sharing information. Because more sharing of information may increase industry expected profits both when there is head-to-head competition and when there is an M&A, the presence of a regulator who can prevent or allow the M&A can decrease or increase the level of information sharing, as well as consumer surplus, with respect to the no-regulator case. A regulator who can also control the level of information sharing will allow firms to share information.
    Keywords: synergies, mergers, sale of data, incomplete information, antitrust, privacy
    Date: 2022–06
  5. By: Min Dai; Zhaoli Jiang; Neng Wang
    Abstract: Many real-world business opportunities feature second-mover advantages as there are often positive spillovers (externality) from early entrants to followers. We develop a tractable stochastic duopoly entry game with a second-mover advantage. We show that firms engage in a war-of-attrition game with the hope of becoming the follower, resulting in excessively delayed entry opposite to the predictions that competition causes firms to equalize rents (Fudenberg and Tirole, 1985) by exercising their entry options too soon (Grenadier, 1996). We obtain closed-form value functions and entry strategies for both mixed-strategy and pure-strategy equilibria. We develop a separation principle that decomposes the duopoly real-option game into a monopolist's real-option problem and a generalized easy-to-solve war-of-attrition game with stochastic payoffs. Quantitatively, our model predicts substantial option value erosion caused by excessively delayed firm entry.
    JEL: E22 G13 G31
    Date: 2022–06
  6. By: Albert Banal-Estañol; Tomaso Duso; Jo Seldeslachts; Florian Szücs
    Abstract: We investigate how R&D spillovers propagate across firms linked through Research Joint Ventures (RJVs). Building on the framework developed by ? which considers the opposing effects of knowledge spillovers and product market rivalry, we extend the model to account for RJV cooperation. Since the firm’s decision to join a RJV is endogenous, we build a model of RJV participation. The outcome equations and RJV participation are then jointly estimated in an endogenous treatment regression model. Our main findings are that the adverse effects of product market rivalry are mitigated if firms cooperate in RJVs; and that RJV participation allows firms to better absorb technological spillovers and, thus, create value.
    Keywords: Spillovers, Research Joint Ventures, R&D, Market Value
    Date: 2022–02–11
  7. By: Schankerman, Mark; Schuett, Florian
    Abstract: Critics claim that patent screening is ineffective, granting low-quality patents that impose unnecessary social costs. We develop an integrated framework, involving patent office exami- nation, fees, and endogenous validity challenges in the courts, to study patent screening both theoretically and quantitatively. In our model, some inventions require the patent incentive while others do not, and asymmetric information creates a need for screening. We show that the endogeneity of challenges implies that courts, even if perfect, cannot solve the screening problem. Simulations of the model, calibrated on U.S. data, indicate that screening is highly imperfect, with almost half of all patents issued on inventions that do not require the patent incentive. While we find that the current patent system generates positive social value, in- tensifying examination would yield large welfare gains. The social value of the patent system would also be larger if complemented by antitrust limits on licensing.
    Keywords: innovation; patent quality; screening; litigation; courts; patent fees; licensing
    JEL: R14 J01
    Date: 2021–10–29
  8. By: Samuel Arts; Bruno Cassiman; Jianan Hou
    Abstract: Prior work has extensively studied how investing in R&D and building a technology portfolio relate to superior firm performance. However, the value of a firm’s technology portfolio should also be driven by the degree to which it is more unique and technologically differentiated from other firms. To study this research question, we develop a new method to characterize firm technology based on the semantic content of patent portfolios that allows us to map a firm’s competitive position in the technology space relative to all other firms and to measure the differentiation of a firm’s technology portfolio. Using a large panel of U.S. public firms from 1980 to 2015, we find that technology differentiation has a strong positive and long-lasting relation with firm performance. Moreover, differentiated firm technology is particularly valuable in industries with higher R&D intensity and with stronger product market competition. We provide open access to all code and data to measure the technology similarity and the technology differentiation of U.S. public firms.
    Date: 2022–01–21
  9. By: Marfri Gambal; Aleksandre Asatiani; Julia Kotlarsky
    Abstract: Competition in the Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO) industry is increasingly moving from being motivated by cost savings towards strategic benefits that service providers can offer to their clients. Innovation is one such benefit that is expected nowadays in outsourcing engagements. The rising importance of innovation has been noticed and acknowledged not only in the Information Systems (IS) literature, but also in other management streams such as innovation and strategy. However, to date, these individual strands of research remain largely isolated from each other. Our theoretical review addresses this gap by consolidating and analyzing research on strategic innovation in the ITO and BPO context. The article set includes 95 papers published between 1998 to 2020 in outlets from the IS and related management fields. We craft a four-phase framework that integrates prior insights about (1) the antecedents of the decision to pursue strategic innovation in outsourcing settings; (2) arrangement options that facilitate strategic innovation in outsourcing relationships; (3) the generation of strategic innovations; and (4) realized strategic innovation outcomes, as assessed in the literature. We find that the research landscape to date is skewed, with many studies focusing on the first two phases. The last two phases remain relatively uncharted. We also discuss how innovation-oriented outsourcing insights compare with established research on cost-oriented outsourcing engagements. Finally, we offer directions for future research.
    Date: 2022–06
  10. By: Daniel Chaves (University of Western Ontario)
    Abstract: This paper empirically assesses the impact of a discontinuous tax schedule on prices, markups and product assortment in the Brazilian automobile industry. To this end, I estimate a structural, equilibrium model of demand and supply for over a hundred different models and engine sizes of automobiles. With the model estimates of price elasticities and marginal costs I quantify how market power impacts the progressivity of the discontinuous tax schedule. I also examine how firms would reposition their products to avoid the tax and quantify the impact of this repositioning on equilibrium outcomes.
    Keywords: Market Power, Taxation, Endogenous Product Assortment, Environmental Regulation
    JEL: D22 D43 H23 L13 L51 L62
    Date: 2022
  11. By: Comisión Nacional de los Mercados y la Competencia (CNMC) (Comisión Nacional de los Mercados y la Competencia (CNMC))
    Abstract: The study analyzes the competitive conditions in the online advertising sector in Spain and offers a series of recommendations to improve the functioning of this market from the perspective of competition and efficient regulation. Online advertising is key to competition as it allows advertisers to reach their consumers. It is also the main source of funding for content on the Internet and is one of the most important revenue streams for large digital platforms. A more competitive functioning of the advertising industry will help start-ups and innovators to better communicate their messages. This would increase the efficiency of the whole economy.
    Keywords: Competition, Online advertising, Digital advertising, Digitization, Data, Regulation
    JEL: L40 K21 L82 L86
    Date: 2021–07–07
  12. By: David Cayla (GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut National de l'Horticulture et du Paysage)
    Abstract: Conceived in the 1930s as a way to renew free market liberalism, neoliberal doctrines aim to institute a competitive order that would regulate the market as well as society. Yet, interpretations of how competition should be enforced have varied throughout history. The European Union, with its ordoliberal origins, tends to follow an interventionist approach while the United States, where the Chicago School has gained influence, fears that inadequate public interventions may diminish global efficiency. The digital revolution and the appearance of the Tech Giants introduces a new challenge. Faced with massive increasing returns to scale, the competition authorities initially reduced their interventionism to enjoy more market efficiency. But the emergence of digital platforms and the will to protect personal data from abusive uses pushes them now to adopt a new strategy for more interventions that goes beyond the economic and efficiency issues. This paper argues that the neoliberal vision is no longer accurate to regulate the digital economy. It shows that the platform economy is not an alternative way to manage the market, but an alternative to the market itself. To face these issues, a completely new conception of public regulation is therefore needed.
    Keywords: Digital economy,Personal data,Competition policy,Neoliberalism,Ordoliberalism JEL Classification Codes: B05
    Date: 2022–06
  13. By: Armel Jacques
    Date: 2022

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