nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒08‒08
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Endogenous timing of technological choices of flexibility in a mixed duopoly By Armel Jacques
  2. A Dynamic Model of Predation By Patrick Rey; Yossi Spiegel; Konrad O. Stahl
  3. The Pro-competitive Effects of Trade Agreements By Crowley, M. A.; Han, L.; Prayer, T.
  4. Research joint ventures: The role of financial constraints By Philipp Brunner; Igor Letina; Armin Schmutzler
  5. A multi-operator differentiated transport network model By Jolian McHardy
  6. Innovation Begets Innovation and Concentration: The Case of Upstream Oil & Gas in the North Sea By Janssen, Aljoscha
  7. Interlocking Directorates and Competition in Banking By Guglielmo Barone; Fabiano Schivardi; Enrico Sette
  8. Winners take all (the most): The effects of market concentration on labor share and wage inequality By Sossdorf, Fernando
  9. Estimating the Gains (and Losses) of Revenue Management By D’Haultfoeuille, Xavier; Wang, Ao; Février, Philippe; Wilner, Lionel
  10. An Economic Defense of Multiple Antitrust Goals: Reversing Income Inequality and Promoting Political Democracy By Mark Glick
  11. Intermittent collusive agreements: antitrust policy and business cycles By Emilie Dargaud; Armel Jacques
  12. Equilibria in Network Constrained Energy Markets By Leonardo Massai; Giacomo Como; Fabio Fagnani
  13. Влияние интернета и цифровой экономики на развитие конкуренции: что мы можем сказать о Сербии By Bukvić, Rajko

  1. By: Armel Jacques
    Date: 2022
  2. By: Patrick Rey; Yossi Spiegel; Konrad O. Stahl
    Abstract: We study the feasibility and profitability of predation in a parsimonious infinite-horizon, complete information setting where an incumbent may face an entrant, in which case it needs to decide whether to accommodate or predate it. If the entrant exits, a new entrant is born with positive probability. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, predation with no future entry, and predation with hit-and-run entry. We use the model to study alternative antitrust policies, derive the best rules for these policies, and compare their welfare effects.
    Keywords: predation, accommodation, entry, legal rules, Markov perfect equilibrium
    JEL: D43 L41
    Date: 2022
  3. By: Crowley, M. A.; Han, L.; Prayer, T.
    Abstract: How does trade policy affect competition? Using the universe of product exports by firms from eleven low and middle-income countries, we document that tariff reductions under trade agreements have strong procompetitive effects - they encourage entry and reduce the (tariff exclusive) price-cost markups of exporters. This finding, that markups fall with tariff cuts, contradicts a core prediction of standard oligopolistic competition models of trade. We extend a classic international pricing model of oligopolistic competition to include multiple countries and a rich preference structure. Our preference structure allows for fierce competition among firms from the same country and less intense competition among firms from different countries. We show a firm's optimal markup after a tariff cut can rise or fall depending on the parameters of the preference structure and tariff-induced reallocation of market share among firms and across countries.
    Keywords: competition policy, firm level data, markup elasticity, trade agreements, trade elasticity, variable markups
    JEL: F13 F14 F15
    Date: 2022–06–23
  4. By: Philipp Brunner; Igor Letina; Armin Schmutzler
    Abstract: This paper provides a novel theory of research joint ventures for financially constrained firms. When firms choose R&D portfolios, an RJV can help to coordinate research efforts, reducing investments in duplicate projects. This can free up resources, increase the variety of pursued projects and thereby increase the probability of discovering the innovation. RJVs improve innovation outcomes when market competition is weak and external financing conditions are bad. An RJV may increase the innovation probability and nevertheless lower total R&D costs. RJVs that increase innovation tend to be profitable, but innovation-reducing RJVs also exist. Finally, we compare RJVs to innovation-enhancing mergers.
    Keywords: Innovation, research joint ventures, financial constraints, mergers, intensity of competition, licensing
    JEL: L13 L24 O31
    Date: 2022–07
  5. By: Jolian McHardy (Department of Economics, University of Sheffield, UK)
    Abstract: We develop a network model of differentiated transport services explicitly incorporating interchangeable and rival aspects, characteristic of many transport systems, allowing exploration of the implications of strategic interaction on pricing amongst multiple rival operators within and across modes. The model offers a framework for studying the impacts of alternative policy scenarios with a wide variety of applications across the transport sector in a way that is tractable and allows meaningful analysis. We illustrate some of the uses of the framework through a series of applications which demonstrate the importance of explicitly recognising the dual rival and interchangeable aspects across multiple operators. Amongst other things, we show that the base model, which we characterise as n = 2, and which has been widely employed in the transport literature, in some respects represents a special case and that the relative size of equilibrium profit, consumer surplus and welfare across regimes as well as the rankings of different regimes across these performance indicators are non-monotonic in n, hence justifying a framework which explicitly allows n to vary. One application examines the performance of the multi-operator ticketing card scheme under guidelines operating in the UK local bus sector. This features as a key part in the UK government’s local bus transport strategy but is also due to expire in 2026 and is currently under statutory review. A calibration exercise shows this regime may offer higher profit, consumer surplus and welfare as well as a more extensive service provision than the ‘free-market’ case. However, under non-trivial fixed costs, it may not sustain as large a network as under the ‘free-market’, reversing the consumer surplus and welfare rankings.
    Keywords: Multi-operator; Transport Networks; Pricing; Welfare
    JEL: D43 L13 L92 R48
    Date: 2022–07
  6. By: Janssen, Aljoscha (Singapore Management University)
    Abstract: We investigate the effect of technology adoption on competition by leveraging a unique dataset on production, costs, and asset characteristics for North Sea upstream oil & gas companies. Relying on heterogeneity in the geological suitability of fields and a landmark decision of the Norwegian Supreme Court that increased the returns of capital investment in Norway relative to the UK, we show that technology adoption increases market concentration. Firms with prior technology-specific know-how specialize more in fields suitable for the same technology but also invest more in high-risk-high-return fields (e.g., ultra-deep recovery), diversifying their technology portfolio and ultimately gaining larger shares of the North Sea market. Our analyses illustrate how technology adoption can lead to market concentration both directly through specialization and indirectly via experimentation.
    Keywords: Innovation; Adoption; Market structure; Competition; Specialization; Experimentation; Upstream oil and gas markets; North Sea
    JEL: D40 O33 Q40
    Date: 2022–06–08
  7. By: Guglielmo Barone; Fabiano Schivardi; Enrico Sette
    Abstract: We study the effects on corporate loan rates of an unexpected change in the Italian legislation which forbade interlocking directorates between banks. Exploiting multiple firm-bank relationships to fully account for all unobserved heterogeneity, we find that prohibiting interlocks decreased the interest rates of previously interlocked banks by 16 basis points relative to other banks. The effect is stronger for high quality firms and for loans extended by interlocked banks with a large joint market share. Interest rates on loans from previously interlocked banks become more dispersed. Finally, firms borrowing more from previously interlocked banks expand investment, employment and sales.
    JEL: G21 G34
    Date: 2022–07
  8. By: Sossdorf, Fernando
    Abstract: The increase in market concentration in the major advanced economies in recent decades has led to an exhaustive analysis of its implications. One of them is that it may explain the fall in labor share. This is explained, according to one theoretical strand, by the emergence of highly efficient superstars firms with low levels of labor share that, due to reallocation effects as they gain very large market share, depress aggregate labor share. In turn, wage inequality between workers with different skills may also increase because superstars firm may demand highly skilled workers. Thus, this paper investigate the effects of market concentration on the labor share and on the highly skilled worker share in the wage bill in the Chilean manufacturing. The results indicate that an increase in concentration is associated with a fall in labor share and a increase in the share of the wage bill that is paid to highly skilled workers. Moreover, those industries with the largest increase in concentration are those with the largest drop in labor share and the largest increase in the highly skilled worker share in the wage bill. However, the small group of large companies that dominate the industries are far from being superstars: they have not become more productive and more innovative and their contribution to aggregate productivity and employment has not increased over time. On the contrary, they charge a higher markup than the rest of firms. The findings shows that increases in market concentration may be detrimental to the economy as dominant firms polarize the labor market, do not contribute to increases in productivity and innovation and exert market power.
    Keywords: Market Concentration, labor share, highly skilled worker, superstar firms.
    JEL: D22 D33 J24 L13 L40
    Date: 2022–07–01
  9. By: D’Haultfoeuille, Xavier (CREST-ENSAE); Wang, Ao (University of Warwick and CAGE); Février, Philippe (CREST); Wilner, Lionel (CREST)
    Abstract: Despite the wide adoption of revenue management in many industries such as airline, railway, and hospitality, there is still scarce empirical evidence on the gains or losses of such strategies compared to uniform pricing or fully flexible strategies. We quantify such gains and losses and identify their underlying sources in the context of French railway transportation. The identification of demand is complicated by censoring and the absence of exogenous price variations. We develop an original identification strategy combining temporal variations in relative prices, consumers’ rationality and weak optimality conditions on the firm’s pricing strategy. Our results suggest similar or better performance of the actual revenue management compared to optimal uniform pricing, but also substantial losses of up to 16.2% compared to the optimal pricing strategy. We also highlight the key role of revenue management in acquiring information when demand is uncertain.
    Keywords: Revenue management ; dynamic pricing ; demand estimation ; demand learning ; moment inequalities JEL Codes: C25 ; C61 ; D12 ; R40
    Date: 2022
  10. By: Mark Glick (University of Utah)
    Abstract: Two recent papers by prominent antitrust scholars argue that a revived antitrust movement can help reverse the dramatic rise in economic inequality and the erosion of political democracy in the United States. Both papers rely on the legislative history of the key antitrust statutes to support their case. Not surprisingly, their recommendations have been met with alarm in some quarters and with skepticism in others. Such proposals by antitrust reformers are often contrasted with the Consumer Welfare Standard that pervades antitrust policy today. The Consumer Welfare Standard suffers from several defects: (1) It employs a narrow, unworkable measure of welfare; (2) It excludes important sources of welfare based on the assumption that antitrust seeks only to maximize wealth; (3) It assumes a constant and equal individual marginal utility of money; and (4) It is often combined with extraneous ideological goals. Even with these defects, however, if applied consistent with its theoretical underpinnings, the consideration of the transfer of labor rents resulting from a merger or dominant firm conduct is supported by the Consumer Welfare Standard. Moreover, even when only consumers (and not producers) are deemed relevant, the welfare of labor still should consistently be considered part of consumer welfare. In contrast, fostering political democracy—a prominent traditional antitrust goal that was jettisoned by the Chicago School—falls outside the Consumer Welfare Standard in any of its constructs. To undergird such important broader goals requires that the Consumer Welfare Standard be replaced with the General Welfare Standard. The General Welfare Standard consists of modern welfare economics modified to accommodate objective analyses of human welfare and purged of inconsistencies.
    Keywords: New Brandeis School, Antitrust economics, Antitrust law, Neoliberal Economic Theory, Chicago School Economics, History of Antitrust law; market concentration; corporation size.
    JEL: K21 L40 N12
    Date: 2022–03–21
  11. By: Emilie Dargaud; Armel Jacques
    Date: 2021
  12. By: Leonardo Massai; Giacomo Como; Fabio Fagnani
    Abstract: We study the equilibrium state of an energy market composed of producers who compete to supply energy to different markets and want to maximize their profits. The energy market is modeled by means of a graph that represents a constrained power network where nodes represent the markets and links are the physical lines with a finite capacity connecting them. Producers play a networked Cournot game on such a network together with a centralized authority, called market maker, that facilitates the trade between geographically separate markets via the constrained power network and aims to maximize a certain welfare function. We study existence of uniqueness of the Nash equilibria and prove a connection between capacity bottlenecks in the power network and the emergence of price differences between different markets that are separated by bottlenecked lines.
    Date: 2022–06
  13. By: Bukvić, Rajko
    Abstract: Russian Abstract: С ростом применения ИКТ технологий и развитием цифровой экономики в конце прошлого и начале нового столетия вопросы конкуренции, её природы и роли в экономике появились в новом свете и с новой силой. Исходя из положений известной теории пяти сил Майкла Портера многие ожидали, что применение интернета приведёт к росту конкуренции, оказав огромное воздействие как на стороне предложения, так особенно на стороне спроса. Некоторые исследования казалось бы подтверждали такие надежды. Но, другие эмпирические данные и соответствующие исследования показали, что это не совсем так, и что подтверждается альтернативная теория «Победитель забирает всё», согласно которой конкуренция развивается в направлении монополистической конкуренции. Ситуация в Сербии, оказавшейся в некоторых исследованиях в группе стран зарождающихся лидеров в области ИКТ, пока не ясна. Основы использования ИКТ уже положены, но электронный бизнес пока не столь развит. Эмпирических исследований влияния интернета и ИКТ на конкуренцию нет, но быстрое развитие этих отраслей внушает, что конкуренция пока достаточно сильна. Это особенно можно сказать про самый сектор ИКТ, который является самой быстро развивающейся отрасли в сербской экономике. English Abstract: On the ground of the use of ICT technology and the digital economy development at the end of past and beginning of new century the competition issues, its nature and role in the economy appeared in new light and with new power. Many people expected, based on the famous Porter’s theory of five forces, the competition has to grow through the internet use, with huge impact on the supply as well the demand. Some researches seemed to claim these expectations. But, other empirical evidence and appropriated researches shown that there it is no such. They have shown that the alternative theory was claimed. According this theory “Winner-takes-all” the competition development leads to monopolistic competition. Situation in Serbia, which in some researches was named emerged leader in the ICT area, is unclear still. Bases of the ICT use are placed, but electronic business is not yet so developed. There is the lack of empirical researches of the impact of internet and ICT on the competition, but fast development of such branches suggests that competition is strong. This can be say especially for ICT sector, which is the branch with fastest development in Serbian economy.
    Keywords: цифровая экономика, интернет, конкуренция, концепция пяти сил, теория «Победитель забирает всё», ИКТ, Сербия, digital economy, internet, competition, five forces conception, theory “winner-takes-all”, ICT, Serbia
    JEL: D40 D80 L10 L12 L81 L86 O52
    Date: 2022

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