nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒08‒15
thirty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Competition and Concentration: Charting the Faultlines By Stephen Davies
  2. Comments on Competition Policy and Labour Markets By Boyer, Marcel
  3. Consumer Naivete and Competitive Add-on pricing on platforms By Ghosh, Meenakshi
  4. Investing in Network Strength, Consumer Expectations, and the Mode of Competition By Onur A. Koska
  5. Market Power in the Argentine Liquid Fuels Wholesale Chain By M. T. Verónica Culós; M. Florencia Gabrielli; Marcos Herrera Gómez
  6. On the General Equilibrium Effects of Market Power By Moreno, Diego; Petrakis, Emmanuel
  7. Concentration in Serbian Insurance Sector: 2011–2020 Changes and Their Decomposition By Bukvić, Rajko
  8. Market for Artificial Intelligence in Health Care and Compensation for Medical Errors By Chopard, Bertrand; Musy, Olivier
  9. Buying groups formation: what effects on competition in the retail industry? By Marie-Laure Allain; Rémi Avignon; Claire Chambolle; Hugo Molina
  10. Antitrust Law and Business Dynamism By Vaziri, M.
  11. Detection of Collusive Networks in E-procurement By Bruno Baranek; L. Musolff; Vitezslav Titl
  12. The Value of Pharmacy Benefit Management By Casey B. Mulligan
  13. Behavior-based Price Discrimination in the Domestic and International Mixed duopoly By Suzuka Okuyama
  14. Screening Adaptive Cartels By Juan M. Ortner; Sylvain Chassang; Kei Kawai; Jun Nakabayashi
  15. Tax thy neighbour: Corporate tax pass-through into downstream consumer prices in a monetary union By Dedola, Luca; Osbat, Chiara; Reinelt, Timo
  16. Seller versus Producer concentration: incorporating the impact of foreign trade By Joeseph Carr; Stephen Davies
  17. Price matching and platform pricing By Bottasso, Anna; Marocco, Paolo; Robbiano, Simone
  18. Organisational structure as a driver of mergers and acquisitions in the European banking sector By Lebastard, Laura
  19. Screening with Persuasion By Dirk Bergemann; Tibor Heumann; Stephen Morris
  20. General timing games with multiple players By Vladimir Smirnov; Andrew Wait
  21. Common Ownership in Labor Markets By Jose Azar; Yue Qiu; Aaron Sojourner
  22. A Note on the Regulation of Add-ons By Ghosh, Meenakshi
  23. Farm exits and competition on the land market: Evidence from spatially explicit data By Dieter Pennerstorfer
  24. Endogenous breadth of collusive agreements: an application to flexible technological choices By Armel Jacques
  25. Economics of Electricity System II: Electricity price caps and capacity markets (Japanese) By KANEMOTO Yoshitsugu
  26. Introducing a price cap on Russian gas: A game theoretic analysis By Ehrhart, Karl-Martin; Schlecht, Ingmar
  27. Data and Welfare in Credit Markets By Mark Jansen; Fabian Nagel; Constantine Yannelis; Anthony Lee Zhang
  28. Examining the effectiveness of activation techniques on consumer behavior in temporary loyalty programs By Bies, Suzanne
  29. Seller Opportunism in Credence Good Markets – The Role of Market Conditions By Katharina Momsen; Markus Ohndorf
  30. Markups, Taste and Quality By Haase, Oliver; Curzi, Daniele; Raimondi, Valentina; Olper, Alessandro; Solazzo, Roberto
  31. Asymmetric Information with multiple risks: the case of the Chilean Private Health Insurance Market By De La Mata, Dolores; Machado, Matilde P.; Olivella, Pau; Valdés, Maria Nieves

  1. By: Stephen Davies (Centre for Competition Policy and School of Economics, University of East Anglia)
    Abstract: This work addresses the widespread concern that the forces of competition are weakening worldwide. Much of the evidence for this comes from traditional concentration indices which are notoriously flawed: conceptually they derive from static theory and cannot discriminate between efficiency and market power; empirically, they employ over-aggregate market definitions and ignore international competition. This paper is the first in a programme of research with the objective of resolving some of these problems. The first part of the paper provides a succinct picture of the facts on the HHI index for over 300 UK industries at the 4-digit-level; given data constraints, these refer to producer concentration, ignoring imports and exports. We find that, on average, concentration rose steadily 1998-2011 and remained high thereafter, 2011-2018. About 30% of industries, defined at the 4-digit level, can be classified as “concentrated†or “highly concentrated†using traditional competition authority definitions. In the second part, we provide some indications of how this picture will likely change if we could recompute concentration indices at the more appropriate Anti-Trust Market level and incorporating information on trade competition and exports. High concentration is likely to be even more prevalent at the ATM level, but results might look very different for the sub-set of trade-intensive industries, if we could incorporate trade data into the concentration measures. In the third part, we turn to the major conceptual problem: how to measure competition avoiding the identification problems associated with concentration indices and incorporating a richer dynamic vision of competition as a process. Using an admittedly primitive measure (based on the persistence of leadership rankings within an industry), our early results suggest an increasing tendency for the largest firms to retain their leadership positions over this period. This points to reduced churn in market shares and weakening competition, especially as leadership persistence is found to be more pronounced in more concentrated industries.
    Keywords: Competition, concentration
    Date: 2022–07–08
  2. By: Boyer, Marcel
    Abstract: Traditionally, labour concerns have not been top-of-mind when considering competition policy, but the current approach to wage-fixing, anti-poaching, and anti-mobility agreements between firms has been one of the main reasons behind recent Parliamentary attention to competition policy and labour markets. Key stakeholders in academic and policy circles have called for more robust enforcement regarding monopsony / oligopsony power in labour markets, when assessing mergers and acquisitions for example, as well as regarding market power in labour representation (unions) and certification as entry barriers in labour markets. The objective here is to identify the numerous challenges and pitfalls in assessing the level of competition on labour markets, both supply and demand, and in addressing remedies if necessary.
    JEL: D43 K21 L12 L44
    Date: 2022–07–12
  3. By: Ghosh, Meenakshi
    Abstract: Two sellers trade vertically and horizontally differentiated goods on a platform which charges them a commission fee. Some consumers are naive and do not observe, or consider, add-on prices until after they commit to buying the base good from a seller. We address the following questions. First, how do consumer naivete and costs asymmetries (arising from differences in fees) influence pricing strategies. Second, we examine the welfare loss arising from sub-optimal decisions made by naive consumers who buy the bundle, but fail to factor in its total price at the outset. Third, how does naivete affect seller and platform payoffs.
    Keywords: add-on pricing, consumer naivete, cost asymmetry, horizontal differentiation, vertical differentiation, platform fee, cost pass-through
    JEL: L1 L11
    Date: 2022–06–01
  4. By: Onur A. Koska (University of Canterbury)
    Abstract: In a duopoly model with network externalities, this paper studies Cournot and Bertrand firms’ optimal investments in network strength under passive and responsive consumer expectations, and looks at the welfare implications. The results suggest minimum sufficient threshold levels of initial network strength for which (i) the optimal investment levels by both Cournot and Bertrand firms are greater under responsive expectations; (ii) Cournot firms invest more than Bertrand firms under responsive expectations, whereas Bertrand firms invest more than Cournot firms under passive expectations. These threshold levels are also sufficient in that welfare is (i) greater under responsive expectations than under passive expectations for a given competition mode, and (ii) greater under Bertrand competition than under Cournot competition for a given type of consumer expectations.
    Keywords: Network strength, investment, consumer expectations, Cournot duopoly, Bertrand duopoly
    JEL: D43 L13 M21
    Date: 2022–01–01
  5. By: M. T. Verónica Culós (Universidad Nacional de Cuyo); M. Florencia Gabrielli (Universidad Nacional de Cuyo/CONICET); Marcos Herrera Gómez (IELDE-UNSa/CONICET)
    Abstract: The liquid fuels market in Argentina is characterized by a high level of concentration, especially in local geographic areas. This paper studies the demand of the liquidfuels wholesale chain in Argentina, using the discrete choice approach, based on the premise that different firms offer differentiated goods, by virtue of the intrinsic characteristics of the good, and that such differentiation gives them the power to set prices above marginal production costs. The difference between prices and marginal costs determines the firm’s market power. Using a novel dataset, we provide new empirical evidence that quantifies market power across firms and regions.
    Keywords: Liquid Fuels; Market Power; Product Differentiation.
    JEL: C52 L13 L71
    Date: 2022–07
  6. By: Moreno, Diego; Petrakis, Emmanuel
    Abstract: In an economy in which firms exercise market power in the markets for consumption goods and inputs (labor), we show that a merger to monopoly is Pareto improving when the number of firms is below a threshold. This threshold is larger the larger is the elasticity of labor supply and the smaller is the consumers'preference for goods variety. Consequently, market concentration may have non-monotonic general equilibrium effects on wage mark downs, employment and welfare.
    Keywords: General Equilibrium; Market Power; Market Efficiency; Mergers
    JEL: D4 D5 D6 L1 L4
    Date: 2022–07–22
  7. By: Bukvić, Rajko
    Abstract: This paper analyses the concentration in the insurance sector and the impact of the market structure (distribution of market shares) and the number of insurance companies on the level of concentration (and competition) in the insurance sector in Serbia (excluding Kosovo and Metohija) in the ten-year period, from 2011 to 2020. The analysis relies upon a stated number of relevant concentration coefficients, based on the total insurance premium, showing a relatively high degree of concentration but without clear fluctuation tendencies. The differentiation of the impact of the mentioned factors was done on the basis of the decomposition of the Hannah-Kay index into two components, figuring the mentioned factors. Decomposition explained most of the degree variations concentration in all observed years (above 87.5%, at a minimum), primarily affected by market structure (changed market share) with a positive, though moderate, correlation; the result was quite different when it came to the number of insurance companies, where divergent and almost completely uncorrelated fluctuations were recorded.
    Keywords: concentration, competition, insurance, Serbia, indicators, decomposition, market shares, number of companies
    JEL: C38 D43 G22 L11 L84
    Date: 2022
  8. By: Chopard, Bertrand; Musy, Olivier
    Abstract: We study the market for AI systems that are used to help to diagnose and treat diseases, reducing the risk of medical error. Based on a two-firm vertical product differentiation model, we examine how, in the event of patient harm, the amount of the compensation payment, and the division of this compensation between physicians and AI system producers affects both price competition between firms, and the quality (accuracy) of AI systems. One producer sells products with the best-available accuracy. The second sells a system with strictly lower accuracy at a lower price. Specifically, we show that both producers enjoy a positive market share, so long as some patients are diagnosed by physicians who do not use an AI system. The quality of the system is independent of how any compensation payment to the patient is divided between physicians and producers. However, the magnitude of the compensation payment impacts price competition. Increased malpractice pressure leads to lower vertical differentiation, thus encouraging price competition. We also explore the effect of compensation on firms’ profits at equilibrium. We conclude by discussing our results with respect to the evolution of the civil liability regime for AI in healthcare.
    Keywords: Artificial Intelligence, Diagnostic, Duopoly, Liability, Physician, Compensation
    JEL: I11 K13 K41 L13
    Date: 2022–06–09
  9. By: Marie-Laure Allain (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, X - École polytechnique, IPP - Institut des politiques publiques); Rémi Avignon (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Claire Chambolle (UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Hugo Molina (UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: Each year, commercial negotiations highlight the tensions between retailers and their suppliers, and public authorities are regularly called upon to balance the relationship. In this context, buying groups – which allow several large competing retailers to negotiate jointly with their suppliers – are likely to strengthen retailers' buyer power. France experienced two waves of buying groups formation in 2014 and in 2018 and the law was changed to allow the French Competition Authority (CA) – the Autorité de la concurrence – to control the formation of such alliances. This policy brief proposes a framework to analyse the effects of the buying groups on the sector as a whole. After a brief assessment of the economic forces at play based on a review of the literature, we discuss the results of two studies conducted by the authors of this note. The first one adopts an empirical approach to study the effects of buying groups formation in 2014 in France in the bottled water industry. It shows that the introduction of buying groups modified profit sharing at the expense of suppliers but also led to a decline in prices which benefited consumers. The second study discusses the efficiency of excluding private labels from the scope of buying groups – as advocated by the Competition Authority – to protect small suppliers and maintain product variety.
    Date: 2022–02
  10. By: Vaziri, M.
    Abstract: In this paper, I study firms' strategic and anticompetitive behaviour, and the consequent role of antitrust law as a macroeconomic policy in promoting business dynamism. Over the past few decades, business dynamism has been declining in the US: firm entry has fallen, accompanied by a slowdown in the rate of productivity growth. Additionally, enforcement of antitrust law has been at historically low levels. Using firm-level and sector-level data from the US, I find that stronger antitrust enforcement is associated with higher entry and higher productivity growth but lower R&D investments. Next, I develop and structurally estimate a dynamic general equilibrium model with innovation and oligopolistic product market competition. The dynamic structure of the model allows rms to eliminate competition through strategic decision making. The model is calibrated to the recent US experience and quantitative exercises show that strengthening antitrust policies results in: (1) a higher firm entry rate, (2) a higher rate of productivity growth, (3) a larger labour share of GDP, and (4) a decline in the innovation rate. Overall, the model indicates that stronger antitrust policies are effective at restoring business dynamism and can deliver up to 16% higher welfare in consumption-equivalent terms. The improvement in welfare is mainly driven by an increase in the welfare of workers, without affecting the capitalists, suggesting that antitrust law has distributional implications, and therefore, has a potential role in reducing inequality.
    Date: 2022–07–18
  11. By: Bruno Baranek; L. Musolff; Vitezslav Titl
    Abstract: Collusion likely has adverse effects on social welfare. In this paper, we study collusion in the e-procurement market in Ukraine. We document that the bidding patterns in the data are incompatible with a competitive equilibrium. We develop a novel structural test to detect pairs and, thereby, networks of collusive firms. We validate the soundness of our collusion detection algorithm on a sample of 863 prosecuted collusive firms that participated in 23,515 tenders.
    Keywords: Public procurement, Collusion, Online markets
    Date: 2021
  12. By: Casey B. Mulligan
    Abstract: In theory, equilibrium profits for drug patent holders would not involve significant restraints on production and patient utilization if the market had a mechanism for two-part pricing (Oi 1971) or quantity commitments (Murphy, Snyder, and Topel 2014). In fact, patent expiration has little effect on drug utilization especially when those drugs are delivered through insurance plans. This paper provides a quantitative model consistent with the theory and evidence in which pharmacy benefit management on behalf of insurance plans serves these and other purposes in both monopoly and oligopoly provider settings. Calibrating the model to the U.S. market, I conclude that pharmacy benefit management is worth at least $145 billion annually beyond its resource costs. PBM services add at least $192 billion annually in value to society compared to a manufacturer price-control regime. Requiring all PBM services to be self-provided by plan sponsors would forgo about 40 percent of the net value of PBM services largely by increasing management costs. Due to changes in the incidence of PBM services over the drug life cycle, the services encourage innovation even though they reduce the profits of incumbent manufacturers.
    JEL: D43 D71 I11 I13 L14
    Date: 2022–07
  13. By: Suzuka Okuyama
    Abstract: This study investigates mixed markets in which a social welfare-maximizing public firm and a private firm engage in behavior-based price discrimination (BBPD). Total of two cases are considered: one where domestic shareholders completely own the private firm and one where foreign shareholders completely own it. In the domestic mixed duopoly, BBPD is irrelevant from the viewpoint of social welfare. This is because poaching does not occur. In the international mixed duopoly, BBPD improves domestic social welfare, as it allows the public firm to lower its poaching price. In both cases, privatization is more undesirable under BBPD than uniform pricing.
    Date: 2022–07
  14. By: Juan M. Ortner; Sylvain Chassang; Kei Kawai; Jun Nakabayashi
    Abstract: We propose an equilibrium theory of data-driven antitrust oversight in which regulators launch investigations on the basis of suspicious bidding patterns and cartels can adapt to the statistical screens used by regulators. We emphasize the use of asymptotically safe tests, i.e. tests that are passed with probability approaching one by competitive firms, regardless of the underlying economic environment. Our main result establishes that screening for collusion with safe tests is a robust improvement over laissez-faire. Safe tests do not create new collusive equilibria, and do not hurt competitive industries. In addition, safe tests can have strict bite, including unraveling all collusive equilibria in some settings. We provide evidence that cartel adaptation to regulatory oversight is a real concern.
    JEL: C57 C72 D44 H57 L4
    Date: 2022–07
  15. By: Dedola, Luca; Osbat, Chiara; Reinelt, Timo
    Abstract: We estimate the response of product-level retail prices to changes in the corporate tax rates paid by wholesale producers (pass-through). Under perfect competition in goods and factor markets, pass-through of corporate taxes should be zero, and their incidence mainly falls on factor prices. We use variation in tax rates across time and space in Germany, where municipalities set the local business tax once a year, to provide estimates of tax pass-through into the retail prices of more than 125,000 food and personal care products sold across Germany. By leveraging 1,058 changes in the local business tax rate between 2013 and 2017, we find that a one percentage point tax increase results in a 0.4% increase in the retail prices of goods produced by taxed _rms and purchased by consumers in the rest of Germany, who thus end up bearing a substantial share of the tax burden. This finding suggests that manufacturers may exploit their market power to shield profits from corporate taxes, complicating the analysis of the redistributive effects of tax reforms. We also explore various dimensions of heterogeneity in pass-through related to market power, including producer size, market shares, and retail store types. While producer heterogeneity does not seem to matter, the significant passthrough of corporate taxes to consumer prices in the low inflation period covered by our sample is mostly due to price changes in supermarkets and hypermarkets. JEL Classification: F12, F45, E13, H71, L11
    Keywords: corporate taxes, imperfect competition, producer pass-through to retail prices, vertical interactions
    Date: 2022–07
  16. By: Joeseph Carr (Centre for Competition Policy and School of Economics, University of East Anglia); Stephen Davies (Centre for Competition Policy and School of Economicsl, University of East Anglia)
    Abstract: The last decade has witnessed many studies pointing to increasing concentration of industries in the USA and beyond. Some have interpreted this as evidence of a pervasive decline in the intensity of competition. We are more cautious - in not necessarily equating high concentration with soft competition - but we do not deny that concentration remains a potentially valuable metric when tracking the evolution of markets over time. Our concern in this paper is with a particularly important measurement issue which has been overlooked in most previous studies: typically, concentration is measured, with data from business registers or censuses, on the size distribution of producers in a given industry rather than the concentration of sellers in its associated market. No account is taken of importers while exports are not subtracted from domestic turnover/production, even though, for domestic consumer choice, the former may count for a lot but the latter for nothing. The major reason for this seeming neglect is the absence of harmonised production and trade data observed at the firm level for most countries. This is certainly true for the UK, and the purpose of this paper is to present a second-best bounds approach for adjusting estimates of producer concentration into seller concentration which requires only industry-level data on imports and exports and their geographical dispersion over partner trading countries. As an illustration this is applied with striking results for a sample of 119 UK manufacturing 4-digit level, 1998-2018. We show that the main result found in most previous UK studies – a distinct upward trend in typical producer concentration – does not apply for trade-adjusted seller concentration, and the incidence of industries which would be defined as “concentrated†or “highly concentrated†using conventional anti-trust policy definitions is much reduced.
    Keywords: Concentration
    Date: 2022–07–08
  17. By: Bottasso, Anna; Marocco, Paolo; Robbiano, Simone
    Abstract: We investigate the effects of Price Matching Guarantees (PMGs) commercial policies adopted by the US NewEgg online platform on prices of a representative sample of consumer electronics products. By applying a Difference-in-Differences (DiD) identification strategy, we find price reductions of about 3% occurring after the policy implementation. Moreover, we control for products characteristics recovered from User Generated Contents (UGCs) and perform heterogeneity analysis based on products appreciation and visibility. Estimates suggest that for high appreciated (and visible) products prices are higher during the policy validity period, while some specifications provide evidence in favour of price reductions occurring after the policy implementation for low appreciated and low visible goods. Results are consistent with the hypothesis that NewEgg’s PMGs policies can act as tools for price discrimination.
    Keywords: Price Matching Guarantees; Online Sales Platforms; User Generated Contents; Difference-in-Differences
    JEL: L11 L15 L20 L81
    Date: 2021–03
  18. By: Lebastard, Laura
    Abstract: This paper studies the bilateral drivers of mergers and acquisitions (M&As) between European banks. Two findings document that banks use M&A as a device to leverage their expertise rather than to diversify. (i) Following the literature on matrimonial matching by using a binary logit model, the paper examines how the structure of acquiring banks in terms of geographical location (headquarters and subsidiaries) influences the choice of targeted banks for an M&A transaction. It finds that banks favour domestic expansion over international diversification. (ii) The paper investigates how the business model of acquiring banks determines their selection of targeted banks. Very often, banks tend to target counterparts with the same business model or, to a lesser extent, those with the same business model as one of their subsidiaries. JEL Classification: G21, G34, L22
    Keywords: Banks, domestic footprint, economies of scale, internal organisation, mergers and acquisitions
    Date: 2022–06
  19. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Pontificia Universidad Católica de Chile); Stephen Morris (Dept. of Economics, MIT)
    Abstract: We consider a general nonlinear pricing environment with private information. We characterize the information structure that maximizes the seller’s profits. The seller who cannot observe the buyer’s willingness to pay can control both the signal that a buyer receives about his value and the selling mechanism. The optimal screening mechanism has finitely many items even with a continuum of types. We identify sufficient conditions under which the optimal mechanism has a single item. Thus, the socially efficient variety of items is decreased drastically at the expense of higher revenue and lower information rents.
    Keywords: Nonlinear Pricing, Finite Menu, Second-degree Price Discrimination, Recommender System
    JEL: D44 D47 D83 D84
    Date: 2022–07
  20. By: Vladimir Smirnov; Andrew Wait
    Abstract: We examine innovation in an n-player market-entry timing game with complete information and observable actions. In our novel multi-player setup, we allow for heterogeneous payoffs between players and for a leader's payoff functions to be multi-peaked an non-monotonic, only requiring that followers' payoffs are non-increasing with the time of the leader's entry. We provide conditions for when equilibrium actions do not depend on historic payoffs, showing in this case that the n-player asymmetric game generates standard leader-maximized or preemption equilibria. In the two-player game we provide a complete characterization of the pure-strategy equilibria for when historic payoffs affects equilibrium actions (including the possibility of no equilibria in pure strategies). Finally, we relate our results to three applications from the literature.
    Keywords: timing games; preempting entry, innovation;
    Date: 2022–04
  21. By: Jose Azar (University of Navarra, IESE & CEPR); Yue Qiu (Temple University); Aaron Sojourner (W.E. Upjohn Institute for Employment Research)
    Abstract: In this paper, we study the effects of common ownership, the extent to which firms are linked via common owners, on employee earnings in U.S. local labor markets. Between 1999 and 2017, common ownership in local labor markets has more than doubled. Panel regressions show that employee earnings in a local labor market are negatively associated with common ownership. To identify causal effects, we use a firm’s addition to the S&P 500 index as a shock to common ownership of its competitors in a local labor market. Using a matched difference-in-differences analysis, we find that, after a firm enters the S&P 500 index, the average annual earnings per employee of its local competitors decreases relative to the counterfactual. The effect of index inclusion shocks on employee earnings is stronger in local labor markets where the shares of S&P 500 incumbents are higher before a shock.
    Keywords: Monopsony, oligopsony, labor markets, competition policy, common ownership
    JEL: J42 J31 L40 D40 G34
    Date: 2022–07
  22. By: Ghosh, Meenakshi
    Abstract: We model a situation where a seller trades a base good, and a bundle of higher quality comprising of the base good with an add-on, through an intermediary which charges a flat commission fee each time it makes a sale. In addition, the add-on can also be bought elsewhere, i.e. from a different provider, on a stand-alone basis. Apart from differences in valuations of quality and their distance from the seller, consumers differ in their levels of sophistication. Specifically, we assume that there is a fraction of consumers who are naive and either unaware that add-ons can be purchased separately from a different provider, or unwilling to deviate (de-select) from the options that have been set for them by default by a seller. This paper examines the impact of regulation (proposed, for instance, by the Financial Conduct Authority in the UK), that requires intermediaries to prompt consumers regarding the availability of stand-alone alternatives. We find that, ironically, regulation that seeks to protect the interests of the naive consumers may sometimes be detrimental to their welfare.
    Keywords: add-on pricing, consumer naivete, regulation, platform fee, cost pass-through
    JEL: L11 L15
    Date: 2022–06–24
  23. By: Dieter Pennerstorfer
    Abstract: In this article, we analyze competition for agricultural land as an important, scarce and immobile input. The cost of cultivating a parcel of land depends strongly on the distance from the farmer to the plot, leading to spatially small land markets. To investigate this issue, we are able to use extremely rich datasets, and combine information on both farms and their cultivated plots (including their exact locations) for virtually all farms in Austria for a five-year period. When analyzing the takeover of parcels from farms leaving the market, we find that the distance between an exiting farm’s plot and the closest parcel of a prospective buyer farm is an important determinant of which buyer will prevail on the land market. In addition, the proximity between the farmsteads of the exiting farm and a prospective buyer farm is also important. The results suggest (i) that agricultural land markets are indeed very small and (ii) that information frictions are important in this market.
    Keywords: spatial competition, land market, farm exit, spatial data
    JEL: L13 L25 Q12 R14
    Date: 2022–06
  24. By: Armel Jacques
    Date: 2021
  25. By: KANEMOTO Yoshitsugu
    Abstract: The electricity market reform in Japan aims to simultaneously achieve both energy security and economic efficiency by creating balancing and capacity markets in addition to the wholesale power market that already exists. Of the two markets, this paper focuses on the capacity market and analyzes its fundamental issues using a deterministic electricity network model. Ensuring security of electricity supply may require government intervention because of price caps that are used to alleviate market power and a variety of market failures that result in excessively high costs of electric power investment. The central task of this paper is to study how to design the capacity market to ensure there will be sufficient capacity to meet demand. Another major topic is the cost-benefit analysis of transmission investment in the presence of the capacity market. When there is no price cap and electricity prices are optimally determined, the revenue from price differences caused by transmission constraints equals the benefit of transmission expansion. We study how this must be changed when a capacity market is introduced.
    Date: 2021–07
  26. By: Ehrhart, Karl-Martin; Schlecht, Ingmar
    Keywords: gas market,Russia,European Union,game theory,external price cap
    JEL: F13 Q40
    Date: 2022
  27. By: Mark Jansen; Fabian Nagel; Constantine Yannelis; Anthony Lee Zhang
    Abstract: We show how to measure the welfare effects arising from increased data availability. When lenders have more data on prospective borrower costs, they can charge prices that are more aligned with these costs. This increases total social welfare, and transfers surplus from borrowers to lenders. We show that the magnitudes of the welfare changes can be estimated using only quantity data and variation in prices. We apply the methodology on bankruptcy flag removals, and find that removing prior bankruptcy information increases the surplus of previously bankrupt consumers substantially, at the cost of decreasing total social welfare modestly, suggesting that flag removals have low efficiency costs for redistributing surplus to previously bankrupt borrowers.
    JEL: D6 G20 G21 G28 G5 H81
    Date: 2022–07
  28. By: Bies, Suzanne (Tilburg University, School of Economics and Management)
    Date: 2022
  29. By: Katharina Momsen; Markus Ohndorf
    Abstract: We report the results of an experiment to systematically investigate the influence of different settings in credence good markets on opportunism in the sellers’ decisions. We find that, as predicted by a cognitive dissonance model, the specific choice of the design features might be less innocuous than generally presumed: sellers’ decisions made under a direct sales regime are significantly more opportunistic than purchase recommendations. Furthermore, average choices are more opportunistic when a costless diagnosis is required to assess the buyer’s needs — sellers exploit moral wiggle room by avoiding information. Yet, this effect is only present for purchase recommendations, not direct sales. Both of these effects significantly affect market efficiency. Generally, the parametrization of the decision problem has a strong influence on opportunism, as predicted. Here, we find that sellers tend to overtreat and buyers self-select into overtreatment.
    Keywords: information avoidance, credence goods, moral wiggle room, norm activation model, online experiment
    JEL: C90 D47 D82 D91 L15
    Date: 2022–10
  30. By: Haase, Oliver; Curzi, Daniele; Raimondi, Valentina; Olper, Alessandro; Solazzo, Roberto
    Keywords: Demand and Price Analysis, International Relations/Trade
    Date: 2022–04
  31. By: De La Mata, Dolores; Machado, Matilde P.; Olivella, Pau; Valdés, Maria Nieves
    Abstract: We extend Rothshild and Stiglitz (1976) model to two sources of risk to better proxy real-world health insurance markets. This extension produces an interesting theoretical possibility: Take individuals A and B, who are low risks in one dimension but A is riskier in the other dimension. Then, A may enjoy less coverage than B in the former dimension (coverage reversal). The existence of this reversal determines which individuals are more likely to suffer adverse selection. We adapt Chiappori and Salanié (2000) positive correlation test to account for this multi-dimensionality and apply it to individual-level claims data for the privately insured in Chile.
    Keywords: Insurance Markets; Health Insurance; Adverse Selection; Advantageous Selection; Positive Correlation Test; Competitive Multidimensional Screening
    JEL: I13 L13 D82
    Date: 2022–07–12

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