nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒10‒03
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Open Markets in the Era of Fintech and Big Tech: Lessons for the Institutional Design of Competition Policy By Jens-Uwe Franck
  2. A Dynamic Theory of Random Price Discounts By Francesc Dilmé; Daniel Garrett
  3. A Theory of Partitioned Pricing By Zhiqi Chen
  4. Artificial Collusion: Examining Supracompetitive Pricing by Q-learning Algorithms By Arnoud V. den Boer; Janusz M. Meylahn; Maarten Pieter Schinkel
  5. Empirical Analysis of the Codeshare Effect on Airline Market Competition and Product Quality By KO Ryuya; OHASHI Hiroshi
  6. (Lack of) Competition, Coordination, and Information Sharing in the Pork Industry: United States, 2009-2020 By Javier D. Donna; Anita N. Walsh
  7. Market Segmentation and Competition in Health Insurance By Michael J. Dickstein; Kate Ho; Nathaniel Mark
  8. Product Lotteries and Loss Aversion By Schäfers, Sebastian
  9. Foreign Competition, Skill Premium, and Product Quality: Impact of Chinese Competition on Mexican Plants By Thi Hang Bahn; Mauro Caselli
  10. Does the Invisible Hand Efficiently Guide Entry and Exit? Evidence from a Vegetable Market Experiment in India By Abhijit Banerjee; Greg Fischer; Dean Karlan; Matt Lowe; Benjamin N. Roth
  11. Japanese Firms' Markups and Firm-to-firm Transactions By NAKAMURA Tsuyoshi; OHASHI Hiroshi
  12. El trabajo intermediado por plataformas en Colombia: aspectos conceptuales y propuesta de regulación desde la teoría de contratos y la organización industrial By Bardey, David
  13. Does the Supply Network Shape the Firm Size Distribution? The Japanese case By Corrado DI GUILMI; FUJIWARA Yoshi
  14. Trenitalia's arrival on the Paris-Lyon high-speed line: from open competition to underground cooperation with SNCF? By Laurent Guihéry
  15. Participation in Global Value Chains and M&A flows By Ciani, Andrea; Gregori, Wildmer Daniel
  16. Trade Secret Protection and R&D Investment of Family Firms By Katrin Hussinger; Wunnam Basit Issah
  17. Targeted Incentives, Broad Impacts: Evidence from an E-commerce Platform By Xiang Hui; Meng Liu; Tat Chan
  18. Sharing cost of network among users with differentiated willingness to pay By Panova, Elena
  19. Do Target-Country Legal Institutions Affect Cross-Border Mergers and Acquisitions? : A Quantitative Literature Survey By Brada, Josef C.; Iwasaki, Ichiro

  1. By: Jens-Uwe Franck
    Abstract: This paper analyses three routes for the formation of market-opening rules: competition enforcement, legislation, and UK-style market investigation. Using case studies on facilitating market access for innovative payment services, we identify essential features and limitations of the different modes of rulemaking. The interrelation between them is explored, revealing the merits of having them available in parallel.
    Keywords: competition policy, institutional design, competition law, regulation, market investigation, open banking, fintech, big tech, payment services
    JEL: K21
    Date: 2022–09
  2. By: Francesc Dilmé (University of Bonn); Daniel Garrett (Toulouse School of Economics)
    Abstract: A seller with commitment power sets prices over time. Risk-averse buyers arrive to the market and decide when to purchase. We obtain that the optimal price path is a “regular” price, with occasional episodes of sequential discounts that occur at random times. The optimal price path has the property that the price a buyer ends up paying is independent of his arrival and purchase times, and only depends on his valuation. Our theory accommodates empirical findings on the timing of discounts.
    Keywords: dynamic pricing, sales, random mechanisms
    JEL: D82
  3. By: Zhiqi Chen (Department of Economics, Carleton University)
    Abstract: Partitioned pricing is a common pricing practice that divides the price of a product into a base price and one or more mandatory surcharges. From the perspective of standard economic theory, this practice is puzzling because rational buyers care about the full price they pay for a product rather than whether and how the price is partitioned into various components. This paper develops a theory of partitioned pricing using a duopoly model where the owner of each firm determines the level of surcharge but delegates the setting of base price to a manager. It shows that in equilibrium both firms choose partitioned pricing over conventional all-inclusive pricing. Moreover, partitioned pricing leads to higher full prices and larger profits than all-inclusive pricing. Most surprisingly, collusion on surcharge without any coordination on base price is as profitable as collusion on all-inclusive price. Classification-L11, L22, L41
    Keywords: partitioned pricing, surcharges, duopoly, strategic delegation, collusion
    Date: 2022–02–03
  4. By: Arnoud V. den Boer (University of Amsterdam); Janusz M. Meylahn (University of Twente); Maarten Pieter Schinkel (University of Amsterdam)
    Abstract: We examine recent claims that a particular Q-learning algorithm used by competitors ‘autonomously’ and systematically learns to collude, resulting in supracompetitive prices and extra profits for the firms sustained by collusive equilibria. A detailed analysis of the inner workings of this algorithm reveals that there is no immediate reason for alarm. We set out what is needed to demonstrate the existence of a colluding price algorithm that does form a threat to competition.
    Keywords: keywords
    JEL: C63 L13 L44 K21
    Date: 2022–09–21
  5. By: KO Ryuya; OHASHI Hiroshi
    Abstract: This paper examines the economic consequences of code-sharing agreements (CSA) in the airline market. CSA can be viewed as a vertical contract between airlines, which sometimes co-own the code-shared flights. Our structural model aims to understand how and to what extent CSA distorts market competition among airlines. With an application to Japanese domestic airlines, structural estimates of our demand and supply models indicate that CSA would significantly lessen market competition, by sharing increased revenues from raised fares. We further extend our model to consider endogenous product quality. Although the loss of consumer welfare due to CSA is alleviated by enhanced product quality, the anti-competitive effect of CSA is persistent.
    Date: 2022–08
  6. By: Javier D. Donna (University of Florida/The Rimini Centre for Economic Analysis); Anita N. Walsh (TBA)
    Abstract: In 2020, an antitrust lawsuit was filed against the Pork Integrators alleging a §1 Sherman Act violation. At the center of the Lawsuit, there is an alleged exchange of atomistic information about the Pork integrators’ operations using Agri Stats, Inc. as a clearinghouse. We use the Supreme Court benchmark in American Column & Lumber to discuss two questions that arise from the Lawsuit. The first is whether the association of Pork Integrators and Agri Stats, Inc. resulted in the restraint of interstate commerce, the main specific issue at stake in the pork Lawsuit. The second is whether information-exchange agreements using clearinghouses like Agri Stats, Inc. lessen competition and offend United States antitrust law, a more general issue beyond the pork Lawsuit. We find that there appears to be ample evidence in the Lawsuit to merit prosecution regarding both trade restraints and information-sharing agreements. We conclude by discussing the role of the Agencies in setting the standards in informationexchange agreements.
    Keywords: Antitrust, Price-fixing, Competition, Information Sharing, Cartel, Pork Industry.
    JEL: K21 L12 L13 L41 L42 L66
    Date: 2022–09
  7. By: Michael J. Dickstein (New York University); Kate Ho (Princeton University); Nathaniel Mark (U.S. Department of Justice)
    Abstract: In the United States, households obtain health insurance through distinct market segments. We explore the economics of this segmentation by comparing coverage provided through small employers versus the individual marketplace. Using data from Oregon, we find households with group coverage spend 26% less on covered health care than households with individual coverage yet face higher markups. We develop a model of plan choice and health spending to estimate preferences in both markets and evaluate integration policies. In our setting, pooling can both mitigate adverse selection in the individual market and benefit small group households without raising taxpayer costs.
    Keywords: health insurance, market segmentation
    JEL: I11 I13 I18 L00
    Date: 2021–10
  8. By: Schäfers, Sebastian (University of Basel)
    Abstract: Product lotteries are a sales strategy where companies hide features of differentiated products from consumers until the purchase is complete. I identify loss aversion as an important factor explaining the existence of vertical product lotteries. I consider a profit-maximizing monopolist serving loss-averse consumers with rational expectations about the lottery. I find that the optimal strategy consists of offering a premium product with high and deterministic quality and a lottery with stochastic and lower expected quality. When consumers are reasonably loss averse, I show that the profit increase from adding a quality lottery exceeds 10% compared to the case without a lottery.
    Keywords: Product lotteries, Probabilistic selling, Reference-dependent preferences, Loss aversion
    JEL: D42 D81 D91 L12
    Date: 2022–08–22
  9. By: Thi Hang Bahn; Mauro Caselli
    Abstract: This paper analyses the effect of rising competition from Chinese exports on the skill premium of Mexican plants. Using detailed product-plant-level production data from Mexico and bilateral product-level trade data for 1994-2007, we provide evidence that Mexican plants reduce their skill premium in response to increasing competition from Chinese exports, and the effect is more pronounced among non-exporting plants. Thus, we develop a model linking competition and wage inequality between skilled and unskilled workers by introducing these two types of labour to a model with heterogeneous firms and quality differentiation. Our model predicts that tougher competition leads plants to downgrade quality, which induces a decline in the wage difference between skilled and unskilled workers. We investigate this hypothesis empirically by analysing the effect of Chinese competition on the product quality of Mexican plants. Consistent with the fall in the skill premium, we document a downgrading impact of China’s rise on Mexican plants’ product quality and this quality downgrading is less intense for products sold in the foreign market. These findings provide empirical support for the predictions of our model.
    Date: 2022
  10. By: Abhijit Banerjee; Greg Fischer; Dean Karlan; Matt Lowe; Benjamin N. Roth
    Abstract: What accounts for the ubiquity of small vendors operating side-by-side in the urban centers of developing countries? Why don’t competitive forces drive some vendors out of the market? We ran an experiment in Kolkata vegetable markets in which we induced (via subsidizing) some vendors to sell additional produce. The vendors earned higher profits, even when excluding the value of the subsidy. Nevertheless, after the subsidies ended vendors largely stopped selling the additional produce. Our results are consistent with collusion and inertial business practices suppressing competition and efficient market exit.
    JEL: D22
    Date: 2022–08
  11. By: NAKAMURA Tsuyoshi; OHASHI Hiroshi
    Abstract: Markup, or the ratio of price to cost, depends on the firm's attributes and the market environment where the firm operates. This paper empirically studies the relationship between the markups of firms and their firm-to-firm transactional status. More specifically, we analyze the correlation between markups and the number and variety of the firm’s transactional partners. Based on a comprehensive panel dataset of Japanese firms derived from the Basic Survey of Japanese Business Structure and Activities, provided by METI, and the Firm Relation File of TSR (Tokyo Shoko Research) for 2007-2018, we find that a firm's markup level decreases as the number of suppliers (upstream transactional partners) increases, after controlling for firm attributes such as size and age, and industry-specific time effects. This empirical pattern is observed for both manufacturing and non-manufacturing sectors. As for the firm’s number of customers (downstream transactional partners), the empirical results differ between manufacturing and non-manufacturing sectors. We further examine the correlation between the number of transactional partners a firm has and the characteristics of those transactional partners.
    Date: 2022–08
  12. By: Bardey, David
    Abstract: En este trabajo se analiza la introducción del modelo de negocios basado en plataformas en el mercado laboral colombiano, que se caracteriza por un alto nivel de informalidad. Estos modelos generan valor y flexibilidad, tanto para los consumidores como para los trabajadores. Sin embargo, en este modelo, conocido como “trabajo a demanda”, la empresa de plataforma transfiere el riesgo de las variaciones en la demanda de sus servicios a los trabajadores, que disponen de pocas herramientas para manejarlo, lo que termina por reforzar las precarias condiciones laborales que los caracterizan. El estudio analiza esta transferencia de riesgo inherente a ese esquema de contratación desde la perspectiva de la teoría de contratos y sugiere cambios normativos para moderarla. También se examina el papel de las plataformas en el mercado laboral desde un enfoque de organización industrial y de política de la competencia. Asimismo, se revisan algunas sentencias judiciales dictadas en distintas partes del mundo con el objetivo de reflexionar sobre diversos escenarios de cambios normativos que se podrían aplicar en el mercado laboral colombiano para reducir la informalidad de los trabajadores. Se concluye que se debería trabajar en una regulación que permita extraer renta de las plataformas.
    Date: 2022–05–31
  13. By: Corrado DI GUILMI; FUJIWARA Yoshi
    Abstract: The paper presents an investigation on how the upward transmission of demand shocks in the Japanese supply network influences the growth rates of firms and, consequently, shapes their size distribution. Through an empirical analysis, analytical decomposition of the growth rates' volatility, and numerical simulations, we obtain several original results. We find that the Japanese supply network has a bow-tie structure in which firms located in the upstream layers display a larger volatility in their growth rates. As a result, the Gibrat's law breaks down for upstream firms, whereas downstream firms are more likely to be located in the power law tail of the size distribution. This pattern is determined by the amplification of demand shocks hitting downstream firms, and the magnitude of this amplification depends on the network structure and on the relative market power of downstream firms. Finally, we observe that in an almost perfectly hierarchical network, the power-law tail in firm size distribution disappears. The paper shows that aggregate demand shocks can affect the economy directly through the reduction in output for downstream firms and indirectly by shaping the firm size distribution.
    Date: 2022–08
  14. By: Laurent Guihéry (CY CPU UFR LSH - CY Cergy Paris Université - UFR Lettres et sciences humaines - CY - CY Cergy Paris Université)
    Abstract: In its 2011 white paper, European transport policy recommends strengthening the dynamics of competition in passenger rail transport in the E.U. Since December 18, 2021, Trenitalia has been serving Lyon and Paris in open access as an extension of the Milan - Turin - Lyon - Paris line. For the moment, the offer concerns three round trips per day between Milan and Paris (five beginning of June). Offices and ticket vending machines have been installed in the Lyon and Paris stations. This is a revolution in France, a country that is one of the last in Europe to implement, slowly and cautiously, the recommendations of the European Union. Our paper will focus on the start-up of this service by attempting to evaluate the first six months of operation.
    Keywords: Railway,Competition,France,SNCF,Trenitalia
    Date: 2022–06–09
  15. By: Ciani, Andrea (European Commission); Gregori, Wildmer Daniel (European Commission)
    Abstract: This study investigates to which extent firms operating in sectors more integrated into Global Value Chains (GVC) are more likely to be involved in cross-border Mergers and Acquisitions (M&A) flows. We focus on firms acquired in the EU27 during the period 2008-2020 employing a gravity model. Results show that cross-border investments are indeed associated with sectoral GVC participation, in particular the dependence on intermediate products supplied by other countries (i.e. backward GVC participation) of the target country-sector is positively correlated with M&A flows. This evidence is confirmed when the acquired firm operates in manufacturing or high-tech sectors, and when the investor originates from OECD countries. In addition, results show that companies from countries suppling inputs to other countries are more likely to pursue a cross-border acquisition.
    Keywords: Global Value Chains, Mergers and Acquisitions, Global Economy, Gravity model, EU firms
    JEL: F21 F23 G34
    Date: 2022–08
  16. By: Katrin Hussinger (Université du Luxembourg); Wunnam Basit Issah (University of Leicester)
    Abstract: Family firms are known for their reluctance to invest in research and development. We show that strengthened trade secret protection is associated with higher R&D investment by family firms. More specifically, we show that the association between the strength of trade secret protection through the U.S. Uniform Trade Secrets Act and R&D investment is positively moderated by family control. Our results further show that the positive moderation of family control on the association between the strength of trade secret protection and R&D investment varies with the industry context, being stronger in high tech industries and weaker in discrete product industries.
    Keywords: Family firms; intellectual property protection; trade secret protection; UTSA; R&D investments; socioemotional wealth.
    Date: 2022
  17. By: Xiang Hui; Meng Liu; Tat Chan
    Abstract: Digital platforms sometimes offer incentives to a subset of sellers to nudge behavior, possibly affecting the behavior of all sellers in the equilibrium. In this paper, we study a policy change on a large e-commerce platform that offers financial incentives only to platform-certified sellers when they provide fast handling and generous return policies on their listings. We find that both targeted and non-targeted sellers become more likely to adopt the promoted behavior after the policy change. Exploiting a large number of markets on the platform, we find that in markets with a larger proportion of the targeted population—hence more affected by the policy change—non-targeted sellers are more likely to adopt the promoted behavior and experience a larger increase in sales and equilibrium prices. This finding is consistent with our key insight that a targeted incentive may increase demand for non-targeted sellers when both platform certificates and the promoted behaviors are quality signals. Our results have managerial implications for digital platforms that use targeted incentives.
    Keywords: targeted incentives, quality provision, signalling, demand expansion
    Date: 2022
  18. By: Panova, Elena
    Abstract: We consider the problem of sharing the cost of efficient uncongested tree-network among users with differentiated willingness to pay for the good supplied through the network. We nd that the associated value sharing problem is convex, hence, the core is large and we axiomatize a new, computationally simple core selection based on the idea of proportionality.
    Keywords: sharing network cost; core; proportional allocation
    JEL: C71
    Date: 2022–09–06
  19. By: Brada, Josef C.; Iwasaki, Ichiro
    Abstract: We undertake a meta-analysis of 1296 estimates of the effect of target country legal environments on cross-border mergers and acquisitions (CBMAs) compiled from 60 published studies. Although these studies provide effect estimates that are statistically significant, none of the legal variables considered, save civil law, has an effect on either CBMA intensity or the CBMA premium that is large enough to be meaningful. Thus, the studies fail to provide support for legal origins theory or for theories based on cultural distance as explanations for CBMA activity. Studies of the CBMA premium are plagued by inadequate statistical power, by unexplained interstudy differences in effect and by publication-selection bias. Based on our meta-analysis, we suggest reasons why the empirical evidence fails to support theories that have wide acceptance.
    Keywords: foreign direct investment, mergers and acquisitions, legal environment, meta-analysis, capital flows
    JEL: F21 F23 G32 G34 K22
    Date: 2022–09

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