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on Industrial Competition |
| By: | Ali Hortaçsu; Aniko Oery; Kevin R. Williams |
| Abstract: | We introduce a model of oligopoly dynamic pricing where firms with limited capacity face a sales deadline. We establish conditions under which the equilibrium is unique and converges to a system of differential equations. Using unique and comprehensive pricing and bookings data for competing U.S. airlines, we estimate our model and find that dynamic pricing results in higher output but lower welfare than under uniform pricing. Our theoretical and empirical findings run counter to standard results in single-firm settings due to the strategic role of competitor scarcity. Pricing heuristics commonly used by airlines increase welfare relative to estimated equilibrium predictions. |
| JEL: | C70 C73 D21 D22 D43 D60 L13 L93 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30347&r= |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2205&r= |
| By: | Antelo, Manel; Bru, Lluís |
| Abstract: | In a differentiated Stackelberg duopoly, we explore the licensing behaviour of an inside patent holder owning a cost-reducing innovation and that may play as a leader or follower in setting the output level in the marketplace. We find that, regardless of whether the licensor is the leader or the follower, the licensing contract always involves royalties: per-unit or ad-valorem (depending on the degree of product differentiation and the size of the innovation) when the licensor is the leading firm, and per-unit royalties (alone or combined with a fixed payment) when it is the follower. We also show that, as compared to the pre-licensing context, licensing by a market follower is never welfare reducing, and licensing by a market leader is only welfare reducing when the products are very close substitutes. |
| Keywords: | Stackelberg industry, licensing, differentiated products, per-unit and ad-valorem royalties, welfare |
| JEL: | L13 L24 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114181&r= |
| By: | Jara-Moroni, Pedro (Universidad de Santiago de Chile.Facultad de Administración y Economía.Departamento de Economía) |
| Abstract: | In this article we prove that, when firms are identical, there are no non-degenerate mixed strategy equilibria in the linear quantity setting duopoly game studied by van Damme and Hurkens (1999) , in which firms engage in the “Action Commitment Game” proposed by Hamilton and Slutsky (1990). The consequence of this is that in the symmetric case, there can not be equilibrium selection through risk dominance in such game |
| Keywords: | Stackelberg, Cournot, Endogenous Timing, Mixed Strategies |
| JEL: | C72 D43 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ars:papers:991943756506116&r= |
| By: | Francesco Giovannoni; Toomas Hinnosaar |
| Abstract: | We study a buyer-seller problem of a novel good for which the seller does not yet know the production cost. A contract can be agreed upon at either the ex-ante stage, before learning the cost, or at the ex-post stage, when both parties will incur a costly delay, but the seller knows the production cost. We show that the optimal ex-ante contract for a profit-maximizing seller is a fixed price contract with an "at-will" clause: the seller can choose to cancel the contract upon discovering her production cost. However, sometimes the seller can do better by offering a guaranteed-delivery price at the ex-ante stage and a second price at the ex-post stage if the buyer rejects the first offer. Such a "limited commitment" mechanism can raise profits, allowing the seller to make the allocation partially dependent on the cost while not requiring it to be embedded in the contract terms. Analogous results hold in a model where the buyer does not know her valuation ex-ante and offers a procurement contract to a seller. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.04985&r= |
| By: | Federico Navarra (University of Padova) |
| Abstract: | This paper studies the effects of price parity clauses (PPC) on consumer surplus and platform profit by investigating the strategic interactions among horizontally differentiated multi-channel retailers selling through online platforms as well as in their the direct channel. Consumers first choose which product to buy and then in which channel (online/direct) to finalize the purchase; platforms can decide about whether or not to impose PPCs. We show that the direct sales channel constrains platform pricing strategies such that PPCs have ambiguous effects on consumers. From the social welfare perspective, imposing PPCs is desirable when platforms are perceived as highly substitutable. Both platforms imposing price parity is always a Nash equilibrium but under certain conditions it can also arise another Nash equilibrium in which both platforms select an unrestricted pricing regime. |
| Keywords: | platform competition, price parity clauses, vertical restraints, showrooming, webrooming |
| JEL: | D43 L13 L42 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0281&r= |
| By: | Dai ZUSAI |
| Abstract: | In this note, we consider dynamically optimal pricing of a network good, when consumers' demand adjusts only gradually. We find a Lyapunov function that characterizes where and how the platform size converges under the dynamically optimal pricing. Given the current platform size, we compare the value of the Lyapunov function with the profit under static pricing that keeps this current size at a Nash equilibrium of consumers' entry game. We show that the difference between them can be interpreted as adjustment costs and we justify this interpretation by regarding a myopic pricing scheme as an approximation. This justification suggests that recurrent adjustment of the myopic pricing scheme brings the platform to the same size in the long run as the dynamically optimal pricing. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:toh:tupdaa:23&r= |
| By: | Filippo Passerini (Catholic University of Milan) |
| Abstract: | I leverage on a matched employer-employee database drawn by an INPS archive representative of the universe of Italian private sector workers to investigate how labor market concentration affects wages and employment. I compute concentration measures relying on new hires, finding that LMs aren’t on average concentrated, despite showing relevant heterogeneity. I then investigate the relationship between concentration and wages and employment, finding negative correlations. I then develop an IV strategy based on M&As to explore whether mergers increase concentration at a market-level and to find a reliable source of variation to identify their effect. First-stage estimates indicate that only mergers raise concentration significantly, while other events don’t. Estimated elasticities with different IVs range between -0.09 and -0.14 p.p for wages and between -0.68 and -0.77 p.p for hires. |
| Date: | 2022–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:boc:fsug22:24&r= |
| By: | Amodio, Francesco (McGill University); Medina, Pamela (University of Toronto); Morlacco, Monica (University of Southern California) |
| Abstract: | This paper shows that self-employment opportunities shape the market power of employers in low-income countries, with implications for industrial development. Using data from Peru, we document substantial employer concentration and high self-employment rates across manufacturing local labor markets. Where employer concentration is higher, wages are lower, and self-employment is more prevalent but less remunerative. To interpret these facts, we build a general equilibrium model where labor market power in each market arises from (i) strategic interactions among employers and (ii) sorting of heterogeneous workers across wage work and self-employment. We structurally estimate the model and quantify the relevance of these mechanisms for rent-sharing between workers and firms and for the effect of policies promoting manufacturing wage employment. We show that changes in concentration magnify the pass-through of productivity and profitability shocks to wages, but worker sorting across wage and self-employment mitigates these effects. We find that policies that increase firm productivity are more effective in expanding wage employment and increasing workers' earnings than other interventions that improve workers' skills or decrease firm entry cost. |
| Keywords: | labor market power, monopsony, self-employment, sorting, development |
| JEL: | J2 J3 J42 L10 O14 O54 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15477&r= |
| By: | Chau, Nancy H.; Kanbur, Ravi; Soundararajan, Vidhya |
| Abstract: | The issue of employer power is underemphasized in the development literature. Thedefault model is usually one of competitive labor markets. This assumption matters for analysis and policy prescription. There is growing evidence that the competitive labor markets assumption is not valid for developing countries. Our objective in this paper is to review this evidence, to present theoretical and policy perspectives which follow from it, and to highlight areas for further research. |
| Keywords: | Teaching/Communication/Extension/Profession |
| Date: | 2022–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cuaepw:324053&r= |
| By: | Dai ZUSAI |
| Abstract: | To investigate why a firm may hold excess liquidity, we examine a duopoly competition in which a shallow-pocket entrant needs the financial support of an outside investor to pay for input costs and launch a business. We allow the investor to terminate the entry if they find the incumbent react too aggressively to the entry plan. However, such an exit option creates a threat of predation by a deep-pocket competitor. To avoid predation, the entrant must raise precautionary liquidity by taking out a loan both larger and further in advance than is actually needed. An entrant with little start-up capital will be less aggressive if the incumbent fs capacity size is unverifiable, because the need to raise precautionary liquidity restricts the entrant's feasible capacity size. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:toh:tupdaa:25&r= |
| By: | Po-Yi Liu; Chi-Hua Wang; Heng-Hsui Tsai |
| Abstract: | This paper presents a novel non-stationary dynamic pricing algorithm design, where pricing agents face incomplete demand information and market environment shifts. The agents run price experiments to learn about each product's demand curve and the profit-maximizing price, while being aware of market environment shifts to avoid high opportunity costs from offering sub-optimal prices. The proposed ACIDP extends information-directed sampling (IDS) algorithms from statistical machine learning to include microeconomic choice theory, with a novel pricing strategy auditing procedure to escape sub-optimal pricing after market environment shift. The proposed ACIDP outperforms competing bandit algorithms including Upper Confidence Bound (UCB) and Thompson sampling (TS) in a series of market environment shifts. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.09372&r= |
| By: | Fabrice Etilé (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Sébastien Lecocq (Université Paris-Saclay); Christine Boizot-Szantai (Université Paris-Saclay) |
| Abstract: | Market heterogeneity may affect the distributional incidence of nutritional taxes if households sort by income across markets with different characteristics. We use scanner data to analyse the distributional incidence of the 2012 French soda tax on Exact Price Indices that measure consumer welfare from the price and availability of softdrinks at a local level. While the average pass-through was small-about 45 per cent-, tax incidence was significantly higher in low-income and less-competitive markets. Market heterogeneity ultimately has substantial distributional effects: it accounts for at least 33 per cent of the difference in welfare variation between low-and high-income consumers. |
| Keywords: | Consumer price index,Market structure,Inequality,Tax incidence,Soft-drink tax,France |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:hal-03553704&r= |
| By: | Bryson, Alex (University College London); Willman, Paul (London School of Economics) |
| Abstract: | We maintain that employer associations are a specific form of employer collusion that is overt, formal and labour market focused which encompasses but is by no means confined to collective bargaining. We consider the conditions under which this form of collusion might emerge, and how it might develop. Since the context is the decline of employers’ associations in collective bargaining, we look at how collective bargaining involvement (and its disappearance) might relate to the growth or decline of other forms of collusion in areas such as product and financial markets, and political influence. Our central contention is that employers’ associations continue to perform an important role in helping employers set the terms of trade, albeit one that has adapted to the demise of sectoral bargaining. |
| Keywords: | employers’ associations, collusion, collective bargaining |
| JEL: | J50 J52 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15467&r= |
| By: | El Hadi Caoui; Chiara Farronato; John J. Horton; Robert Schultz |
| Abstract: | For some kinds of goods, rarity itself is valued. "Fashionable'" goods are demanded in part because they are unique. In this paper, we explore the economics of rare goods using auctions of limited-edition shoes held by an e-commerce platform. We model endogenous entry and bidding in multi-unit auctions and construct demand curves from realized bids. We find that doubling inventory reduces willingness to pay by 7-15%. From the producer perspective, ignoring the value of rarity leads to substantial overproduction: auctioned quantities are 82% above the profit-maximizing level. From the consumer perspective however, the negative spillovers of restricting quantity more than offset the benefits of rarer goods. |
| JEL: | D12 D44 L81 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30351&r= |
| By: | Eliana Barrenho (OECD); Ruth Lopert (OECD) |
| Abstract: | For some time, governments, stakeholders and civil society have been voicing the need for greater transparency in pharmaceutical pricing. The 2018 OECD report Pharmaceutical Innovation and Access to Medicines suggested that increased price transparency could promote public accountability, while potentially delivering efficiencies to health systems by including economic considerations in coverage, treatment decisions and budget allocation. Despite this, precisely what should be made more transparent, and how greater transparency would affect the functioning of markets, have been poorly characterised. To help frame the policy debate, the OECD undertook an exploration of the potential consequences of greater price transparency on market dynamics. The work included a roundtable and a series of semi-structured interviews, with participation by 19 experts in pharmaceutical pricing, economics of pharmaceutical markets, competition, and law. With an extensive review of the current practice and relevant literature as a preface, this report presents the key findings from those consultations. |
| JEL: | F6 L1 L2 I10 |
| Date: | 2022–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaad:146-en&r= |
| By: | Carlos A. Arango-Arango (Banco de la Republica de Colombia); Yanneth Rocio Betancourt-Garcia (Banco de la Republica de Colombia) |
| Abstract: | In this paper, we analyze theoretically the coexistence of two means of payment, such as cash and digital or electronic payments, introducing some distortions in the payments markets to understand the widespread use of cash, specially in emerging countries. Lagos and Wright (2005) theoretical approach allows us to model explicitly the frictions in the exchange process considering money as essential. We introduce in this framework theft and informality (measured by tax evasion) as factors aecting cash usage and competition with a private digital payment platform. Considering heterogeneity in the seller's side by assuming dierent levels of productivity we nd the factors that explain the use of cash or digital payments. If a public provider enters the market with a less expensive platform the fees charged by the private provider have to be adjusted to the cost level of the public platform, decreasing the use of cash in the economy. |
| Keywords: | Cash; means of payments; payments services; digital payments; instant payments |
| JEL: | E40 E41 E42 E44 |
| Date: | 2022–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp19-2022&r= |