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

  1. Estimating Labor Market Power By José A. Azar; Steven T. Berry; Ioana Marinescu
  2. All-Pay Competition with Captive Consumers By Foucart, Renaud; Friedrichsen, Jana
  3. Collective Brand Reputation By Nocke, Volker; Strausz, Roland
  4. U.S. Market Concentration and Import Competition By Mary Amiti; Sebastian Heise
  5. Competition and Innovation: The Breakup of IG Farben By Pöge, Felix
  6. Incentives to differentiate under environmental liability laws : Product customization and precautionary effort By Eric Langlais; Andreea Cosnita-Langlais
  7. Platform Liability and Innovation By Jeon, Doh-Shin; Lefouili, Yassine; Madio, Leonardo
  8. Price Spillovers and Specialization in health Care: The Case of Children's Hospitals By Ian McCarthy; Mehul V. Raval
  9. Agency Problems in a Competitive Conglomerate with Production Constraints By Jose de Jesus Herrera-Velasquez
  10. Experimenting with Purchase History Based Price Discrimination: a Comment By Tolksdorf, Michel
  11. Oligopoly with common resource: A Lindahl-Cournot approach By Jacques Thépot
  12. Labor Share, Industry Concentration and Energy Prices : Evidence from Europe By Çürük, Malik; Rozendaal, Rik
  13. Essays on consumer search By Greminger, Rafael
  14. Employer Power and Employment in Developing Countries By Chau, Nancy H.; Kanbur, Ravi; Soundararajan, Vidhya
  15. Learning by Consuming: Optimal Pricing with Endogenous Information Provision By Huiyi Guo; Wei He; Bin Liu
  16. Organised labour, labour market imperfections, and employer wage premia By Dobbelaere, Sabien; Hirsch, Boris; Müller, Steffen; Neuschäffer, Georg

  1. By: José A. Azar; Steven T. Berry; Ioana Marinescu
    Abstract: Job differentiation gives employers market power, allowing them to pay workers less than their marginal productivity. We estimate a differentiated jobs model using application data from We find direct evidence of substantial job differentiation. Without the use of instruments for wages, job applications appear very inelastic with respect to wages. Plausible instruments produce elastic firm-level application supply curves. Under some assumptions, the implied market level labor supply elasticity is 0.5, while the firm level labor elasticity is 4.8. This suggests that workers may produce 21% more than their wage level, consistent with significant monopsony power.
    JEL: J42 L13
    Date: 2022–08
  2. By: Foucart, Renaud (Lancaster University); Friedrichsen, Jana (HU Berlin)
    Abstract: We study a game in which two firms compete in quality to serve a market consisting of consumers with different initial consideration sets. If both firms invest below a certain threshold, they only compete for those consumers already aware of their existence. Above this threshold, a firm is visible to all and the highest investment attracts all consumers. On the one hand, the existence of initially captive consumers introduces an anti-competitive element: holding fixed the behavior of its rival, a firm with a larger captive segment enjoys a higher payoff from not investing at all. On the other hand, the fact that a firm’s initially captive consumers can still be attracted by very high quality introduces a pro-competitive element: a high investment becomes more profitable for the underdog when the captive segment of the dominant firm increases. The share of initially captive consumers therefore has a non-monotonic effect on the investment levels of both firms and on consumer surplus. We relate our findings to competition cases in digital markets.
    Keywords: consideration set; regulation; all-pay auction; endogenous prize; digital markets;
    JEL: D04
    Date: 2021–01–12
  3. By: Nocke, Volker (Mannheim University); Strausz, Roland (HU Berlin)
    Abstract: We develop a theory of collective brand reputation for markets in which product quality is jointly determined by local and global players. In a repeated game of imperfect public monitoring, we model collective branding as an aggregation of quality signals generated in different markets. Such aggregation yields a beneficial informativeness effect for incentivizing the global player. It however also induces harmful free-riding by local, market-specific players. The resulting tradeoff yields a theory of optimal brand size and revenue sharing that applies to platform markets, franchising, licensing, umbrella branding, and firms with team production.
    Keywords: collective branding; reputation; free-riding; repeated games; imperfect monitoring;
    Date: 2022–04–19
  4. By: Mary Amiti; Sebastian Heise
    Abstract: Many studies have documented that market concentration has risen among U.S. firms in recent decades. In this paper, we show that this rise in concentration was accompanied by tougher product market competition due to the entry of foreign competitors. Using confidential census data covering the universe of all firm sales in the U.S. manufacturing sector, we find that rising import competition increased concentration among U.S. firms by reallocating sales from smaller to larger U.S. firms and by causing firm exit. However, this increase in concentration was counteracted by the expansion of foreign firms, which reduced domestic firms’ share of the U.S. market inclusive of foreign firms’ sales. We find that once the sales of foreign exporters are taken into account, U.S. marketconcentration in manufacturing was stable between 1992 and 2012.
    Keywords: market concentration, markups, import competition, international trade
    JEL: F14 F60 L11
    Date: 2022–08
  5. By: Pöge, Felix (Boston University)
    Abstract: The relationship between competition and innovation is difficult to disentangle, as exogenous variation in market structure is rare. The 1952 breakup of Germany's leading chemical company, IG Farben, represents such a disruption. After the Second World War, the Allies occupying Germany imposed the breakup because of IG Farben's importance for the German war economy instead of standard antitrust concerns. In technology areas where the breakup reduced concentration, patenting increased strongly, driven by domestic firms unrelated to IG Farben. An analysis of patent texts shows that an increased propensity to patent does not drive the effect. Descriptively, IG Farben's successors increased their patenting activities as well, and their patenting specialized relative to the pre-breakup period. The results are consistent with a breakup-induced innovation increase by the IG Farben successors, which then spilled over to the wider chemical industry.
    Keywords: innovation, competition, merger, antitrust, IG Farben
    JEL: O31 L44 N44
    Date: 2022–08
  6. By: Eric Langlais; Andreea Cosnita-Langlais
    Abstract: We endogenize location/product specification choices in a spatial Cournot duopoly on the linear market, when firms' output entails an accidental harm to the environment. Under a strict liability regime, the equilibrium involves no differentiation when the expected harm is low enough. This outcome is suboptimal, and identical to the spatial pattern obtained under a no-liability regime. With larger harm, the equilibrium displays some dispersion/product differentiation, the degree of which is increasing with the level of harm towards the first best locations/product choices. Our results are robusts when allowing for firms' investment in environmental measures. Moreover, we show that vertical/care differentiation occurs whenever horizontal product differentiation arises. Finally, we show that under a negligence rule, firms always comply with the due care level, but the equilibrium involves no differentiation, either horizontal/product or vertical/care.
    Keywords: Cournot competition, spatial model, strategic location, product choice, horizontal differentiation, vertical differentitation, environmental liability, strict liability, negligence.
    JEL: L41 K21 D82
    Date: 2022
  7. By: Jeon, Doh-Shin; Lefouili, Yassine; Madio, Leonardo
    Abstract: We study a platform’s incentives to delist IP-infringing products and the effects of holding the platform liable for the presence of such products on innovation and consumer welfare. For a given number of buyers on the platform, platform liability increases innovation by reducing the competitive pressure that innovative products face from IP-infringing products. However, platform liability can have unintended consequences, which can overturn this intended effect on innovation. Moreover, there can be a misalignment of interests between innovators and buyers as platform liability reduces consumer surplus for a given number of innovators. We also analyze how different types of cross-group network effects affect the impact of platform liability on innovation and consumer welfare.
    Keywords: Platform, Liability, Intellectual Property, Innovation.
    JEL: K40 K42 K13 L13 L86
    Date: 2022–09–19
  8. By: Ian McCarthy; Mehul V. Raval
    Abstract: Specialty hospitals tend to negotiate higher commercial insurance payments, even for relatively routine procedures with comparable clinical quality across hospital types. How specialty hospitals can maintain such a price premium remains an open question. In this paper, we examine a potential (horizontal) differentiation effect in which patients perceive specialty hospitals as sufficiently distinct from other hospitals, so that specialty hospitals effectively compete in a separate market from general acute care hospitals. We estimate this effect in the context of routine pediatric procedures offered by both specialty children’s hospitals as well as general acute care hospitals, and we find strong empirical evidence of a differentiation effect in which specialty children’s hospitals appear largely immune to competitive forces from non-children’s hospitals.
    JEL: I11 L11 L15
    Date: 2022–09
  9. By: Jose de Jesus Herrera-Velasquez (Graduate School of Economics, Kyoto University)
    Abstract: This study explores the reciprocal effects between agency problems and market competition. We develop an adverse selection model of a competing conglomerate with production constraints. The conglomerate participates as the leader in two different duopolistic markets with a Stackelberg-Cournot framework and heteroge- neous goods. The conglomerate is run by its headquarters and two division man- agers. The agency problem arises because the market demand size is a manager's private information, which the headquarters try to elicit by a contract mechanism. We fully characterize a first and a second-best contract. When the production constraints make the first best outcome unattainable, the second-best contract is either separating or pooling, depending on the severity of the constraints. The sep- arating second-best contract sometimes improves the ex-ante welfare in comparison to a symmetric information benchmark. The pooling second-best contract never improves the ex-ante welfare. We also find that at an intermediate level of substi- tutability, the second-best contract is most likely to coincide with the first-best one, and any departure from that level toward either substitutability or complementarity makes the attainment of the first-best outcome less likely.
    Keywords: Adverse Selection; Contract Mechanism; Multimarket Competition; Stackelberg Oligopoly; Production Constraint
    JEL: C70 D21 D43 D82 D86 L13
    Date: 2022–09
  10. By: Tolksdorf, Michel (TU Berlin)
    Abstract: Brokesova, Deck and Peliova [Int. J. Ind. Organ. 37 (2014) 229-237] have shown that comparative static results from two-period behavior-based pricing models hold in laboratory experiments, but they observed significant differences from point predictions. We report findings in conformity with these point predictions throughout a uniform pricing benchmark, a replication of Brokesova, Deck and Peliova’s behavior-based pricing treatment and a follow-up experiment. Reference dependence seems to shift participants’ second-period pricing behavior upwards. A post hoc analysis shows that considering myopic consumers instead of strategic consumers explains a downward shift of first-period prices and rationalizes the findings of Brokesova, Deck and Peliova. Volatile price levels affect price-based welfare measures such as sellers’ profits and customers’ total costs. We show that transport costs serve as a robust welfare measure, alleviating the impact of distorted prices. These findings are relevant for the design of experiments and when assessing the efficiency of experimental markets.
    Keywords: behaviour-based price discrimination; pricing experiment;
    JEL: D43 L13
    Date: 2022–01–14
  11. By: Jacques Thépot (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper is motivated by two correlated trends observed in the digital economy: (i) the increasing need for common infrastructures providing data and facilities (ii) the monopolization of key industries. We develop a Cournot oligopoly model where a public good is used as common resource of firms with heterogeneous productivities. The public good is provided by a public agency charging Lindahl prices as wholesale prices. When the agency is a zero-profit entity, the market equilibrium price is an increasing function of the Herfindahl index of the productivities. This result is extended to alternative situation in terms of objective and cost structure of the agency. In mixed resource-based industries, private provision of the resource is also available. Strong firms (with high productivity) may have an incentive to share the common resource with the weak ones and then to reduce the use of the private resource. The misrevelation of productivities is an essential issue in this public good context. It is proved here that productivities are underevaluated in the common resource case and overevaluated in the private case.
    Keywords: oligopoly, commons, Lindahl prices, misreporting.
    JEL: C72 D43 H41
    Date: 2022
  12. By: Çürük, Malik (Tilburg University, School of Economics and Management); Rozendaal, Rik (Tilburg University, School of Economics and Management)
    Date: 2022
  13. By: Greminger, Rafael (Tilburg University, School of Economics and Management)
    Date: 2022
  14. By: Chau, Nancy H. (Cornell University); Kanbur, Ravi (Cornell University); Soundararajan, Vidhya (Indian Institute of Technology, Bombay)
    Abstract: The issue of employer power is underemphasized in the development literature. The default 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 assump- tion 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: employer power, employment, developing countries
    JEL: J42 O15
    Date: 2022–08
  15. By: Huiyi Guo; Wei He; Bin Liu
    Abstract: We study the revenue-maximizing mechanism when a buyer's value evolves endogenously because of learning-by-consuming. A seller sells one unit of a divisible good, while the buyer relies on his private, rough valuation to choose his first-stage consumption level. Consuming more leads to a more precise valuation estimate, after which the buyer determines the second-stage consumption level. The optimum is a menu of try-and-decide contracts, consisting of a first-stage price-quantity pair and a second-stage per-unit price for the remaining quantity. In equilibrium, a higher first-stage valuation buyer pays more for higher first-stage consumption and enjoys a lower second-stage per-unit price. Methodologically, we deal with the difficulty that due to the failure of single-crossing condition, monotonicity in allocation plus the envelope condition is insufficient for incentive compatibility. Our results help to understand contracts about sequential consumption with the learning feature; e.g., leasing contracts for experience goods and trial sessions for certain courses.
    Date: 2022–09
  16. By: Dobbelaere, Sabien; Hirsch, Boris; Müller, Steffen; Neuschäffer, Georg
    Abstract: This paper examines how collective bargaining through unions and workplace codetermination through works councils shape labour market imperfections and how labour market imperfections matter for employer wage premia. Based on representative German plant data for the years 1999-2016, we document that employer monopsony involving below competitive wages is far more prevalent than the contrary worker monopoly. We further find a smaller prevalence and intensity of employer monopsony when unions or works councils are present and the opposite for worker monopoly. Finally, we document a close link between labour market imperfections and employer wage premia. The presence and intensity of employer monopsony are associated with a lower level and larger dispersion of premia, whereas more intense worker monopoly is accompanied by a higher level only.
    Keywords: collective wage agreements,employer monopsony,employer wage premia,worker monopoly,works councils
    JEL: D22 J31 J42 J50
    Date: 2022

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