nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒09‒12
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Product licensing in a Stackelberg industry By Antelo, Manel; Bru, Lluís
  2. Optimal capacity allocation in a vertical industry By Antelo, Manel; Bru, Lluís
  3. Efficient Entry in Cournot (Global) games By Harrison, Rodrigo; Jara-Moroni, Pedro
  4. Subgame perfect Nash equilibrium for dynamic pricing competition with finite planning horizon By Niloofar Fadavi
  5. Estimating the Gains (and Losses) of Revenue Management By DHaultfoeuille, Xavier; Wang, Ao; Fevrier, Philippe; Wilner, Lionel
  6. Quality Regulation and Competition: Evidence from Pharmaceutical Markets By Juan Pablo Atal; José Ignacio Cuesta; Morten Sæthre
  7. Market Power in the U.S. Dairy Industry By Bolotova, Yuliya
  8. The impact of structural and strategic competition on hospital quality By Wuckel, Christiane
  9. Search and competition in expert markets By Cao, Yiran; Chen, Yongmin; Ding, Yucheng; Zhang, Tianle
  10. Negative Tax Incidence with Multiproduct Firms By Anna D'Annunzio; Antonio Russo
  11. The sociology of cartels By Haucap, Justus; Heldman, Christina
  12. Competition and quality in German ambulatory long-term care: Where labour supply matters more than prices By Herr, A.;; Izhak, O.;; Luckemann, M.;
  13. Competing for Attention on Information Platforms: The Case of News By Tim Meyer; Anna Kerkhof; Carmelo Cennamo; Tobias Kretschmer
  14. European control of business concentrations to the test of Digital Economy By Philippe Corruble
  15. Market Power in Agricultural Land Markets: Concepts and Empirical Challenges By Huttel, Silke; Odening, Martin
  16. Voluntary Quality Disclosure in Credence Good Markets By Adalja, Aaron A.
  17. Impact of Cartel Enforcement on Compliance in the Chemical Industry By Andreas Stephan
  18. The Political Economy of the Decline of Antitrust Enforcement in the United States By Filippo Lancieri; Eric A. Posner; Luigi Zingales

  1. By: Antelo, Manel; Bru, Lluís
    Abstract: We study in a Stackelberg industry the licensing of a product that embodies an innovation (a quality-improving product). The innovation may be owned by the firm that acts as the leader or follower in the marketplace. If the innovation owner is the market leader, licensing takes place and consists of a revenue royalty with no fixed payment, but is not socially desirable, because it yields a more collusive industry. However, if the innovation owner is the market follower, licensing does not hold, even though it would be welfare enhancing and thus socially desirable. Thus, stimulating licensing by subsidizing a follower firm owning a product innovation would benefit both consumers and society as a whole.
    Keywords: Vertical differentiation, licensing, per-unit and ad-valorem royalties, market leader and follower, welfare
    JEL: D43 D45
    Date: 2022–01
  2. By: Antelo, Manel; Bru, Lluís
    Abstract: We examine how a social planner should allocate productive capacity in a downstream industry when, upstream, there is an efficient supplier and a set of less efficient suppliers of an essential input. We show that optimal allocation consists of setting a large quota and small quotas for the remaining capacity. This allows the planner, without necessarily harming consumers, to reap licensing rents above those that would be obtained in a competitive downstream market or under public management of capacity. We also discuss circumstances under which a use-or-lose requirement for the large quota is welfare enhancing or welfare reducing, and under which banning price discrimination in the intermediate market may be socially optimal.
    Keywords: Capacity allocation, dominant firm, use-or-lose requirement, price discrimination, quota licence, soft-budget constraint
    JEL: D43 F13 L13
    Date: 2022–01
  3. By: Harrison, Rodrigo; Jara-Moroni, Pedro (Universidad de Santiago de Chile.Facultad de Administración y Economía.Departamento de Economía; Universidad Adolfo Ibáñez. Facultad de Ingeniería y Ciencias)
    Abstract: IWe present a two stage entry game in which a large number of firms choose simultaneouslywhether to enter a market or not. Firms that decide to enter the market produce a homogeneousgood facing Cournot competition under a parametrized demand. Using a global game approach, weshow that there exist selection of a unique equilibrium in the first stage entry game, in which thereis efficient entry, i.e. firms that enter are the ones with the lowest entry cost, providing theoreticalfoundation for the equilibrium selection assumption utilized in entry models in the empirical entryliterature. We explore as well efficiency properties of the selected equilibrium and provide examplesthat do not fit our general framework, but where similar results may be obtained.
    Keywords: Cournot, Global game, Equilibrium selection, Strategic substitutes
    JEL: L13 D82 C72
    Date: 2021–04
  4. By: Niloofar Fadavi
    Abstract: Having fixed capacities, homogeneous products and price sensitive customer purchase decision are primary distinguishing characteristics of numerous revenue management systems. Even with two or three rivals, competition is still highly fierce. This paper studies sub-game perfect Nash equilibrium of a price competition in an oligopoly market with perishable assets. Sellers each has one unit of a good that cannot be replenished, and they compete in setting prices to sell their good over a finite sales horizon. Each period, buyers desire one unit of the good and the number of buyers coming to the market in each period is random. All sellers' prices are accessible for buyers, and search is costless. Using stochastic dynamic programming methods, the best response of sellers can be obtained from a one-shot price competition game regarding remained periods and the current-time demand structure. Assuming a binary demand model, we demonstrate that the duopoly model has a unique Nash equilibrium and the oligopoly model does not reveal price dispersion with respect to a particular metric. We illustrate that, when considering a generalized demand model, the duopoly model has a unique mixed strategy Nash equilibrium while the oligopoly model has a unique symmetric mixed strategy Nash equilibrium.
    Date: 2022–08
  5. By: DHaultfoeuille, Xavier (CREST-ENSAE); Wang, Ao (University of Warwick and CAGE); Fevrier, 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
  6. By: Juan Pablo Atal; José Ignacio Cuesta; Morten Sæthre
    Abstract: Quality regulation attempts to ensure quality and foster competition by reducing vertical differentiation, but it may also have adverse effects on market structure. We study this trade-off in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the introduction of bioequivalence in Chile, we find that stronger regulation decreased the number of drugs in the market by 21% and increased average paid prices by 13%. We estimate a model of drug entry, certification, and demand to study the role of drug quality, aversion against generics, and certification costs in shaping the equilibrium effects of quality regulation. We find that quality regulation increased demand for generic drugs by resolving asymmetric information and reducing aversion against unbranded generics, which induced entry of high-quality drugs in place of low-quality drugs. Consumer welfare increased despite higher prices and a lower number of firms. We compare minimum quality standards to quality disclosure and other designs of quality regulation.
    JEL: I11 L11 L15
    Date: 2022–08
  7. By: Bolotova, Yuliya
    Keywords: Marketing, Agribusiness, Agricultural and Food Policy
    Date: 2022–08
  8. By: Wuckel, Christiane
    Abstract: Many health care systems aim to enhance hospital quality by encouraging competition. However, evidence on the relationship between quality and competition is inconclusive. My contribution to this literature is two-fold. Analyzing the relationship between competition and quality for the German hospital market can give valuable insights about the nature of the relationship in a market with regulated prices that is characterized by a high number of hospitals and a diverse ownership structure. While most studies look at competition as market structure, I distinguish effects of market structure from effects of strategic behavior. I find evidence for a significant, non-linear relationship between market structure and care quality. Additionally, I find evidence for strategic behavior.
    Keywords: Hospitals,quality,competition,spatial econometrics
    JEL: C21 I11 L11
    Date: 2022
  9. By: Cao, Yiran; Chen, Yongmin; Ding, Yucheng; Zhang, Tianle
    Abstract: We develop a model in which consumers sequentially search experts for recommendations and prices to treat a problem, and experts simultaneously compete in these two dimensions. Consumers have either zero or a positive search cost. In equilibrium, experts may "cheat" by recommending an unnecessary treatment with positive probabilities, prices follow distributions that depend on a consumer's problem type and the treatment, and consumers search with Bayesian belief updating about their problem types. Remarkably, as search cost decreases, both expert cheating and prices can increase stochastically. However, if search cost is sufficiently small, competition forces all experts to behave honestly.
    Keywords: search, experts, competition, credence good
    JEL: D8 L1
    Date: 2022–08–12
  10. By: Anna D'Annunzio; Antonio Russo
    Abstract: A fundamental result in the theory of commodity taxation is that taxes increase consumer prices and reduce supply, aggravating the distortions caused by market power. This result hinges on the assumption that each firm provides a single product. We study the effects of commodity taxes in presence of multiproduct firms that have market power. We consider a monopolist providing two goods and obtain simple conditions such that an ad valorem tax reduces the prices and increases the supply of both goods, thereby increasing total surplus. We show that these conditions can hold in a variety of settings, including add-on pricing, multiproduct retailing with price advertising, intertemporal models with switching costs and two-sided markets.
    Keywords: commodity taxation, tax incidence, multi-product firms, monopoly
    JEL: D42 H21 H22
    Date: 2022
  11. By: Haucap, Justus; Heldman, Christina
    Abstract: Traditional economic theory of collusion assumed that cartels are inherently unstable, and yet some manage to operate for years or even decades. While the literature has presented several determinants of cartel stability, the vast majority focuses on firms as entities, even though cartels are typically formed between individuals who need to develop structures that allow them to establish trust and ensure cooperation. We analyze 15 German cartels, focusing on the individual participants, the communication and internal structures within the cartels as well as their breakup. Our results indicate that cartel members are highly homogeneous and often rely on existing networks within the industry. Most impressively, only two of the 156 individuals involved in these 15 cartels were female, suggesting that gender also plays a role for cartel formation. We further identify various forms of communication and divisions of responsibilities and show that leniency programs are a powerful tool in breaking up cartels. Based on these results we discuss implications for competition policy and further research.
    Keywords: Cartels,Collusion,Social Networks,Trust,Antitrust
    Date: 2022
  12. By: Herr, A.;; Izhak, O.;; Luckemann, M.;
    Abstract: This paper analyses the effect of competition on the quality of ambulatory long-term care (LTC) services in Germany, which supported 24 percent of the 4.1 million care dependent people in 2019 (21 percent received stationary care, 55 percent informal care). Ambulatory care is politically and individually preferred over stationary care and there are low barriers to entry, while there is little evidence on the effects of competition in this market. In this study, We challenge the theoretical prediction that competition increases quality when prices are regulated. This adds to previous research on UK nursing homes that identified price competition as the relevant mechanism. We use four waves of publicly available quality data of 14,000 ambulatory care units in Germany, reported between 2011 and 2019. To examine causal effects, we apply an instrumental variable approach and look at different quality and competition measures. We show that quality decreases in competition despite the fact that ambulatory care prices are regulated. That is why we examine a new mechanism in a second step and show that nursing staff shortage is correlated with competition and lower quality in German ambulatory LTC. Introducing competition should therefore be accompanied by respective support for more qualified nursing personnel to circumvent adverse quality effects.
    Keywords: long-term care; competition; quality; prices; nursing staff;
    JEL: C90 I10 I11
    Date: 2022–07
  13. By: Tim Meyer; Anna Kerkhof; Carmelo Cennamo; Tobias Kretschmer
    Abstract: Mainstream logic supports the idea that platforms bring large benefits to firms, especially smaller ones, by opening up access to a broader set of consumers and making firms’ products easier to find. However, this argument mostly applies to transaction platforms that match consumer preferences to products. On information platforms such as social media or news aggregators, firms compete for consumer attention, not matches. We argue that consumer attention and choice in contexts such as news content are driven by the size and focus of content providers. Providers sufficiently large to be recognized by consumers and sufficiently broad in their focus to cover multiple content categories of interest to consumers are better positioned to capture a significant share of consumer attention, and thus demand, compared to smaller and more narrow competitors. We develop a simple formalization of our reasoning and find empirical support for it by exploiting a legal dispute leading to the removal of a group of German news outlets from news aggregators.
    Keywords: information platforms, competition for attention, consumer attention, news aggregators, news content
    Date: 2022
  14. By: Philippe Corruble (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie)
    Abstract: The European regulation on the control of business concentrations has created a framework structuring the Single European Market and has ensured the legal security of merger and acquisition operations. As companies are obliged to notify transactions that exceed the European turnover thresholds, they have adapted their acquisition strategies by anticipating the application of the regulation in an ongoing dialogue with the Commission, both before and after notification. The increasing number of acquisitions - outside the scope of the regulation - of technology start-ups by powerful companies has led the Commission to review the rules of the game, upsetting the subtle balance of relations between companies and the regulatory authorities.
    Abstract: Le règlement européen sur le contrôle des concentrations d'entreprises a créé un cadre structurant le Marché Unique Européen et assuré la sécurité juridique des opérations de fusionacquisition. Contraintes de notifier les opérations franchissant les seuils européens de chiffre d'affaires, les entreprises ont adapté leurs stratégies d'acquisition en anticipant l'application du règlement dans un dialogue permanent avec la Commission, en amont et en aval de la notification. La multiplication des acquisitionshors-champ d'application du règlement-de jeunes pousses technologiques par des entreprises puissantes, a amené la Commission à revoir les règles du jeu, bouleversant l'équilibre subtil des rapports entre les entreprises et les Autorités de contrôle.
    Keywords: Control of mergers and Acquisitions,European Commission,Thresholds,Notification,Killer Acquisitions,Contrôle des concentrations,Commission européenne,Seuils
    Date: 2022–07–20
  15. By: Huttel, Silke; Odening, Martin
    Keywords: Agricultural and Food Policy, Community/Rural/Urban Development, Land Economics/Use
    Date: 2022–08
  16. By: Adalja, Aaron A.
    Keywords: Marketing, Agribusiness, Food Consumption/Nutrition/Food Safety
    Date: 2022–08
  17. By: Andreas Stephan (Centre for Competition Policy and School of Law, University of East Anglia)
    Abstract: This paper undertakes a qualitative analysis of the relationship between EU cartel enforcement in the chemical industry in the period 1997-2010 and compliance measures announced in the Annual Reports of the undertakings involved. It goes on to focus on Akzo Nobel NV’s unique use of an internal amnesty programme, and the level of compliance in the industry following this period of enforcement. Its findings are consistent with cartel enforcement prompting significant investment in compliance measures, with some evidence of those measures resulting in the earlier reporting of cartels in return for leniency and in enforcement action against only one hard core cartel in the decade that followed.
    Keywords: Cartels, compliance
    Date: 2022–07–08
  18. By: Filippo Lancieri; Eric A. Posner; Luigi Zingales
    Abstract: Antitrust enforcement in the United States has declined since the 1960s. Building on several new datasets, we argue that this decline did not reflect a popular demand for weaker enforcement or any other kind of democratic sanction. The decline was engineered by unelected regulators and judges who, with a few exceptions, did not express skepticism about antitrust law in confirmation hearings. We find little evidence that academic ideas played an important role in the decline of antitrust enforcement except where they coincided with the interests of big business, which appears to have exercised influence behind the scenes.
    JEL: K21 L40 P16
    Date: 2022–08

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