nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒09‒05
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform By Kurt R. Brekke; Chiara Canta; Odd Rune Straume
  2. The tragedy of the common holdings: Coordination strategies and product market competition By Neus, Werner; Stadler, Manfred
  3. Cooperation, competition, and welfare in a matching market By Bester, Helmut; Sákovics, József
  4. A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets By Aguirre, Iñaki; Yenipazarli, Arda
  5. Market Power in the U.S. Dairy Industry By Bolotova, Yuliya V.
  6. Discount opportunities in hub-and-spoke networks: The determinants of hidden-city ticketing By Luttmann, Alexander; Gaggero, Alberto A
  7. Horizontal agreements about the use of a natural resource By Van Moer, Geert
  8. Unit Pricing Regulation and Non-Price Responses of Retailers: Evidence from the U.S. Yogurt Market By Qin, Fei; Ma, Meilin
  9. Gacha Game: When Prospect Theory Meets Optimal Pricing By Tan Gan
  10. Firms price discriminate based on suppliers’ relative distances to competitors By Granlund, David; Meens-Eriksson, Sef
  11. Learning to Sell a Focal-ancillary Combination By Hanzhao Wang; Xiaocheng Li; Kalyan Talluri
  12. A Study of Bid-rigging in Procurement Auctions: Evidence from Indonesia, Georgia, Mongolia, Malta, and State of California By Kei Kawai; Jun Nakabayashi; Daichi Shimamoto
  13. Does Herbicide Drift Exacerbate Input Supplier Concentration in the Market for U.S. Soybean Seed? By McCarty, Tanner; Young, Jeffrey S.
  14. Mis-allocation within firms: internal finance and international trade By Sebastian Doerr; Dalia Marin; Davide Suverato; Thierry Verdier
  15. Private Information Acquisition and Preemption: a Strategic Wald Problem By Guo Bai
  16. The Effect of Cross-Category Learning on Product Innovation and Market Expansion of Plant-Based Food By Zhou, Pei; Liu, Yizao
  17. Multiple large shareholder coalitions, institutional ownership and investment decisions: Evidence from cross-border deals in Latin America By Carlos Pombo; Cristian Pinto-Gutierrez; Mauricio Jara-Betín
  18. Taste Renaissance, Tax Reform, and Industrial Organization of the Beer Industry By Luckstead,, Jeff; Devadoss, Stephen
  19. Economic effects of plant-based milk introduction on consumers and dairy industry By Lee, Sangwon; Sumner, Daniel A.

  1. By: Kurt R. Brekke; Chiara Canta; Odd Rune Straume
    Abstract: Policy makers use reference pricing to curb pharmaceutical expenditures by reducing coverage of expensive branded drugs. In a theoretical analysis we show that the net effect of reference pricing is generally ambiguous when accounting for entry by generic producers. Reference pricing shifts demand towards generics but also induces the branded producer to become more agressive, which triggers price competition and potentially deters entry by generic producers. To investigate the counter- vailing effects, we exploit a policy reform in Norway with a gradual implementation of reference pricing across substances over time. Using a difference-in-differences approach, we find that treated substances have a sharper decline in both branded and generic drug prices and branded market shares. Despite fiercer price competition, the number of generic producers and products increases after exposure to reference pricing, resulting in a reduction of 30 percent in pharmaceutical expenditures. Thus, we find no evidence for a countervailing entry deterring effect of reference pricing.
    Keywords: pharmaceuticals, reference pricing, generic competition
    JEL: I11 I18 L13 L65
    Date: 2022
  2. By: Neus, Werner; Stadler, Manfred
    Abstract: We study quantity and price competition in heterogeneous triopoly markets where two firms are commonly owned by institutional shareholders, whereas the third firm is owned by independent shareholders. With such a mixed ownership structure, the common owners have an incentive to coordinate their firms' behavior. If direct coordination of the operational decisions is prevented by antitrust authorities, delegation to managers enables indirect coordination via the designs of the manager compensation contracts. Compared to direct owner collusion, this more sophisticated type of indirect collusion leads to a lower loss of social welfare in the mode of quantity competition, but to a higher loss of welfare in the mode of price competition. In general, owner coordination via the management compensation contracts is detrimental to welfare: the tragedy of common holdings.
    Keywords: Manager compensation,common holdings,shareholder coordination
    JEL: G32 L22 M52
    Date: 2022
  3. By: Bester, Helmut; Sákovics, József
    Abstract: We investigate the welfare effect of increasing competition in an anonymous two-sided matching market, where matched pairs play an infinitely repeated Prisoner's Dilemma. Higher matching efficiency is usually considered detrimental as it creates stronger incentives for defection. We point out, however, that a reduction in matching frictions also increases welfare because more agents find themselves in a cooperative relationship. We characterize the conditions for which increasing competition increases overall welfare. In particular, this is always the case when the incentives for defection are high.
    Keywords: Cooperation,Prisoner's Dilemma,Competition,Welfare,Matching,Trust Building
    JEL: C72 C73 C78 D6
    Date: 2022
  4. By: Aguirre, Iñaki; Yenipazarli, Arda
    Abstract: This paper analyzes the economic implications of oligopoly price discrimination when competition pressure varies across markets. We find that a necessary condition for price discrimination to enhance social welfare is satisfied when the number of firms is higher in the strong market compared to the weak market. We also investigate certain economic implications of the Robinson-Patman Act (RPA) associated with “meeting competition defense” (MCD). Using equilibrium models, we find a basic rationale for the MCD: in cases of primary-line injury, when competitive pressure is more pronounced in the strong market relative to the weak market, the use of MCD might allow price discrimination to enhance welfare by boosting consumer surplus in the weak market. This result holds true regardless of whether price discrimination occurs in the final good market or intermediate good market, and it is robust to the nature of competition. We also unravel that these results change drastically under secondary-line injury.
    Keywords: third-degree price discrimination, Robinson-Patman Act, meeting competition defense, oligopoly, welfare.
    JEL: D43 D61 L13 L41
    Date: 2022–07–12
  5. By: Bolotova, Yuliya V.
    Keywords: Agricultural and Food Policy, Demand and Price Analysis, Livestock Production/Industries
    Date: 2022–08
  6. By: Luttmann, Alexander; Gaggero, Alberto A
    Abstract: We offer a comprehensive empirical study on hidden-city ticketing (HCT), a pricing phenomenon in the airline industry that occurs when the fare for a nonstop trip from A to B is more expensive than a connecting trip from A to B and B to C. Exploiting a unique panel of over 772 thousand fares for flights departing between October 1st, 2019 and February 29th, 2020, we find that HCT depends on route competition (both on A-B and A-C routes), largely occurs in the last week to departure, and primarily occurs on carriers that operate large hub-and-spoke networks (e.g., American, Delta, and United).
    Keywords: advance-purchase, airline pricing, competition, hidden-city ticketing, price discrimination.
    JEL: D40 L11 L13 L93
    Date: 2022–07–26
  7. By: Van Moer, Geert
    Abstract: I analyze horizontal agreements about the use of a natural resource. I consider a Cournot duopoly where production depends on two inputs, a natural resource and a basket of other resources, according to a production technology with constant returns to scale. I compare three regimes. (1) The competitive benchmark is defined such that firms operate with the cost-minimizing input combination. (2) A joint absolute usage target lowers the absolute usage of the natural resource. It also lowers the usage in relative terms, per unit of production, except with a fixed-proportions production technology. (3) A joint relative usage target mimics the competitive benchmark.
    Keywords: Horizontal Agreements; Natural Resources
    JEL: L13 L41 Q01 Q38
    Date: 2022–07–25
  8. By: Qin, Fei; Ma, Meilin
    Keywords: Agribusiness, Marketing, Agricultural and Food Policy
    Date: 2022–08
  9. By: Tan Gan
    Abstract: This paper studies the pricing problem of selling a unit good to a prospect theory buyer. With non-negative constraints on the price, the optimal profit is always bounded. This suggests a distinction between random pricing and gambling, where the principal can extract infinite profit. If the buyer is naive about her dynamic inconsistency, the uniquely optimal dynamic mechanism is to sell a "loot box" that delivers the good with some constant probability in each period. Until she finally gets the good, the consumer always naively believes she will "try her luck" just one last time. In contrast, if the buyer is sophisticated, the uniquely optimal dynamic mechanism includes a "pity system", in which after successive failures in getting the good from all previous loot boxes, the buyer can purchase the good at full price.
    Date: 2022–08
  10. By: Granlund, David (Department of Economics, Umeå University); Meens-Eriksson, Sef (Department of Economics, Umeå University)
    Abstract: We derive a theoretical model predicting that firms should mark down input prices more the longer distance a supplier has to a competitor’s plant relative to their own plant. We test this prediction using contract-level data on prices of waste burned at energy plants. To the best of our knowledge, we are the first to study whether firms price discriminate based on relative distance to the closest competitor. The empirical results confirm that longer relative distances to competitors’ plants lead to lower prices and show no evidence of additional effects of the distance to the chosen plant.
    Keywords: auction; market power; oligopsony; price discrimination; procurement; spatial competition; transport cost; waste incineration
    JEL: D43 D44 L11 L13 Q53
    Date: 2022–08–17
  11. By: Hanzhao Wang; Xiaocheng Li; Kalyan Talluri
    Abstract: A number of products are sold in the following sequence: First a focal product is shown, and if the customer purchases, one or more ancillary products are displayed for purchase. A prominent example is the sale of an airline ticket, where first the flight is shown, and when chosen, a number of ancillaries such as cabin or hold bag options, seat selection, insurance etc. are presented. The firm has to decide on a sale format -- whether to sell them in sequence unbundled, or together as a bundle -- and how to price the focal and ancillary products, separately or as a bundle. Since the ancillary is considered by the customer only after the purchase of the focal product, the sale strategy chosen by the firm creates an information and learning dependency between the products: for instance, offering only a bundle would preclude learning customers' valuation for the focal and ancillary products individually. In this paper we study learning strategies for such focal and ancillary item combinations under the following scenarios: (a) pure unbundling to all customers, (b) personalized mechanism, where, depending on some observed features of the customers, the two products are presented and priced as a bundle or in sequence, (c) initially unbundling (for all customers), and switch to bundling (if more profitable) permanently once during the horizon. We design pricing and decisions algorithms for all three scenarios, with regret upper bounded by $O(d \sqrt{T} \log T)$, and an optimal switching time for the third scenario.
    Date: 2022–07
  12. By: Kei Kawai; Jun Nakabayashi; Daichi Shimamoto
    Abstract: We apply a Regression Discontinuity based approach to screen for collusion developed in Kawai et al. (2022) to public procurement data from five countries. We find that bidders who win by a very small margin have significantly lower backlog than those who lose by a very small margin in the sample of procurement auctions from Indonesia, suggesting that bidders collude by bid rotation. Our results suggest that the proportion of noncompetitive auctions is at least about 5% for all E-procurement auctions and about 3% for all auctions in Indonesia. We cannot reject the null of competition in other countries.
    JEL: L41 O52 O53
    Date: 2022–07
  13. By: McCarty, Tanner; Young, Jeffrey S.
    Keywords: Agricultural and Food Policy, Production Economics, Agribusiness
    Date: 2022–08
  14. By: Sebastian Doerr; Dalia Marin; Davide Suverato; Thierry Verdier
    Abstract: This paper develops a novel theory of capital mis-allocation within firms that stems from managers' empire building and informational frictions within the organization. Introducing an internal capital market into a two-factor model of multi-segment firms, we show that competition imposes discipline on managers and reduces capital mis-allocation across divisions, thereby lowering the conglomerate discount. The theory can explain why exporters exhibit a lower conglomerate discount than non-exporters (a new fact we establish). We then exploit the China shock as an exogenous shock to competition to test the model's predictions with data on US companies. Results show that tougher competition significantly reduces managers' over-reporting of costs and improves the allocation of capital within firms.
    Keywords: multi-product firms, trade and organisation, internal capital markets, conglomerate discount, China shock
    JEL: F12 G30 L22 D23
    Date: 2022–07
  15. By: Guo Bai
    Abstract: This paper studies a dynamic information acquisition model with payoff externalities. Two players can acquire costly information about an unknown state before taking a safe or risky action. Both information and the action taken are private. The first player to take the risky action has an advantage but whether the risky action is profitable depends on the state. The players face the tradeoff between being first and being right. In equilibrium, for different priors, there exist three kinds of randomisation: when the players are pessimistic, they enter the competition randomly; when the players are less pessimistic, they acquire information and then randomly stop; when the players are relatively optimistic, they randomly take an action without acquiring information.
    Date: 2022–07
  16. By: Zhou, Pei; Liu, Yizao
    Keywords: Marketing, Agribusiness, Institutional and Behavioral Economics
    Date: 2022–08
  17. By: Carlos Pombo; Cristian Pinto-Gutierrez; Mauricio Jara-Betín
    Abstract: This paper examines the relationship between multiple large shareholder coalitions and the probability of completing a cross-border merger and acquisitions (M&As). Using different power distribution indicators based on Shapley-Shubik values for cooperative games for a sample of acquirers' firms from Latin America, our results suggest that a higher likelihood of coalitions among large shareholders increases the probability of completing a cross-border deal. This relationship is more pronounced in acquirer firms with more institutional investors and ownership stakes. We also find that multiple large shareholder coalitions are positively associated with the long-term operating performance of an acquirer firm involved in a cross-border deal. As a result, colluding blockholders in acquirer firms are more prone to attempt risky cross-border acquisitions. However, when they do, the acquisitions tend to be value-enhancing in the long term.
    Keywords: Blockholders, coalitions, Power Indices, Cross-border deals, institutional ownership, Latin America
    JEL: G32 G34
    Date: 2022–08–04
  18. By: Luckstead,, Jeff; Devadoss, Stephen
    Keywords: Marketing, Agribusiness, Agricultural and Food Policy
    Date: 2022–08
  19. By: Lee, Sangwon; Sumner, Daniel A.
    Keywords: Marketing, Agricultural Finance, Food Consumption/Nutrition/Food Safety
    Date: 2022–08

This nep-com issue is ©2022 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.