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on Industrial Competition |
| By: | Qiuyu Lu; Noriaki Matsushima |
| Abstract: | We discuss the effect of personalized pricing on profits and welfare in a Hotelling model in which consumers can simultaneously purchase from both firms. As the additional gain from the second purchase increases, personalized pricing is more likely to harm (resp., benefit) consumers (resp., firms). If the additional gain is intermediate, personalized pricing improves consumer welfare and firms' profits, contrasting with the standard result: personalized pricing benefits consumers but harms firms. When firms can choose one of the pricing policies: uniform or personalized, both choose uniform (resp., personalized) pricing under some parameters (resp., in any case); multiple equilibria can co-exist. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1192&r= |
| By: | Djolaud, Guy |
| Abstract: | How are local firms affected by the entry of products that are of low quality and relatively cheaper? China’s exports rose vigorously in the last three decades making it one of the most important trading partners in the world. Most studies argue that China exports low quality varieties of goods produced locally in advanced economies, so that these exports are for most accessible at lower prices. This paper provides theoretical and empirical investigation on the differential impact of the import penetration of low quality products on the market power of local firms with different level of quality. In our theoretical framework, the market hit by international competition is segmented in two groups of firms, those of Low quality and those of High quality. The model also features differential demand elasticity for firms of different size through CREMR preferences. Our theoretical implications suggest that the impact on markup resulting from the import penetration of low quality goods is stronger and negative on local firms producing low quality. This prediction is substantiated by the empirical test we conduct on US Compustat data through a diff-in diff estimation with China accession to WTO as break point. Additional empirical investigation suggests that as they face the competition led by products of low quality, local firms of low quality invest more in innovation to upgrade their level of quality, with convergence to a target. As of local firms of high quality, our results indicate that they invest more in advertising to further signal their relative superiority, with no specific pattern in the way they update their quality input. Overall, our findings suggest that the entry of China in WTO has intensified the competition vertically with firms investing either on advertising or in R&D for signalling or differentiation purposes. |
| Keywords: | Import Penetration, Firm Quality Status, Markups, Vertical Competition. |
| JEL: | F14 F61 L25 |
| Date: | 2022–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114611&r= |
| By: | Noriaki Matsushima; Shohei Yoshida |
| Abstract: | We consider a downstream oligopoly model with one dominant and several fringe retailers who purchase a manufacturing product from a monopoly supplier. We examine how contract type influences the relationship between the dominant retailer's bargaining power and the equilibrium retail price. If the contracts between the supplier and fringe retailers are contingent on the bargaining outcome between the supplier and the dominant retailer, the bargaining power does not affect the retail price. In contrast, if contracts with fringe retailers are not contingent, the relationship between bargaining power and retail price can be either positive or negative. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1191&r= |
| By: | Marc Bourreau (Telecom Paris, Department of Economics and Social Sciences, 19 place Marguerite Perey, 91120 Palaiseau, France); Yutec Sun (CREST-ENSAI, 51 Rue Blaise Pascal, 35170 Bruz, France) |
| Abstract: | We measure the impact of a new entry on quality supply and welfare in the French mobile service market, where the service providers compete on investing in network resources to meet fast-growing demand for mobile consumption. As network's quality is endogenous to strategic investments, it is unclear whether the entry led the market closer to the socially optimal level of quality supply and welfare. We develop a tractable approach to empirically analyze the dynamic oligopoly game of investment in the network resources in the market where consumers face substantial costs of switching among differentiated services. The counterfactual analysis finds that the quality may be oversupplied in oligopoly competition from the social welfare perspective, while the merger is predicted to yield undersupplied quality. |
| Keywords: | entry, quality, competition, investment, innovation |
| JEL: | L13 L43 L96 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:2204&r= |
| By: | Silva, Thiago; Souza, Sérgio; Guerra, Solange; Tabak, Benjamin |
| Abstract: | The literature measures a bank's market power using aggregated data at the bank level. However, market power may be exercised in a decentralized way by each bank branch and for specific banking products. This article proposes a novel methodology for estimating a bank's market power at the branch level in each locality and for each banking product. We find significant heterogeneity in banks' market power by locality and product, even within the same bank. Our results suggest that aggregate measures of bank market power may be misleading and distorted. Accurate quantification of market power requires fine-grained measures, which are essential for enhancing financial regulation and competition. |
| Keywords: | market power, Lerner index, competition, credit market, COVID-19 |
| JEL: | C51 G20 G21 L11 |
| Date: | 2022–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114766&r= |
| By: | Juan Ortner (Boston University); Sylvain Chassang (New York University); Jun Nakabayashi (Kindai University); Kei Kawai (U.C. Berkeley) |
| Abstract: | We propose an equilibrium theory of data-driven antitrust oversight in which regulators launch investigations on the basis of suspicious bidding patterns and cartels can adapt to the statistical screens used by regulators. We emphasize the use of asymptotically safe tests, i.e. tests that are passed with probability approaching one by competitive firms, regardless of the underlying economic environment. Our main result establishes that screening for collusion with safe tests is a robust improvement over laissez-faire. Safe tests do not create new collusive equilibria, and do not hurt competitive industries. In addition, safe tests can have strict bite, including unraveling all collusive equilibria in some settings. We provide evidence that cartel adaptation to regulatory oversight is a real concern. |
| Keywords: | collusion, auctions, procurement, antitrust |
| JEL: | D44 D43 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2022-23&r= |
| By: | Maximilian Andres (University of Potsdam); Lisa Bruttel (University of Potsdam); Jana Friedrichsen (Humboldt-Universität zu Berlin, WZB Berlin Social Science Center, DIW Berlin) |
| Abstract: | This paper sheds new light on the role of communication for cartel formation. Using machine learning to evaluate free-form chat communication among firms in a laboratory experiment, we identify typical communication patterns for both explicit cartel formation and indirect attempts to collude tacitly. We document that firms are less likely to communicate explicitly about price fixing and more likely to use indirect messages when sanctioning institutions are present. This effect of sanctions on communication reinforces the direct cartel-deterring effect of sanctions as collusion is more difficult to reach and sustain without an explicit agreement. Indirect messages have no, or even a negative, effect on prices. |
| Keywords: | cartel, collusion, communication, machine learning, experiment |
| JEL: | C92 D43 L41 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:pot:cepadp:53&r= |
| By: | Arayavechkit,Tanida; Jooste,Charl; Urrutia Arrieta,Ana Francisca |
| Abstract: | How the enforcement of competition regulation of information and communications technologyaffects growth depends on how well firms adapt to competitive pressure. This paper tests this empiricallyusing Peruvian firm-level data matched to a compilation of information and communications technology regulations andcompetition enforcement cases over 10 years. Based on the theoretical dispersion in markups, the paper shows that byincreasing productivity, leaders in a market can avoid the effects of competition while maintaining market share.However, much depends on the regulatory structure, which affects productive firms differently depending on how longthey have been in business. Highly productive older firms translate regulations that make processes more complex (suchas raising quality standards) into more productivity; productive younger firms benefit more from simplifying rulesthat facilitate competition through lower entry barriers and improved operating conditions. This feature is consistentacross different segments of the information and communications technology sector. |
| Date: | 2022–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:10151&r= |
| By: | Jean-François Houde; Terence R. Johnson; Molly Lipscomb; Laura A. Schechter |
| Abstract: | We study the extent to which collusion can explain the under-provision of clean sanitation technologies in developing countries. Using desludging services in Dakar as a case-study, we document that prices are 66% higher in areas where prices are likely coordinated by a large trade association, compared to nearby neighborhoods supplied by unaffiliated companies. We then develop an experimental just-in-time auction platform with random variation in several design features aimed at learning about the extent of competition. Consistent with the collusion hypothesis, we find that most bidders systematically avoid competition by placing round bids and refusing to undercut rivals. |
| JEL: | L12 L41 O55 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30514&r= |
| By: | Sümeyra Atmaca (University of Ghent); Riccardo Camboni (University of Padova); Elena Podkolzina (HSE-NRU); Koen Schoors (University of Ghent); Paola Valbonesi (University of Padova) |
| Abstract: | We use a large dataset of Russian public procurement auctions for standard gasoline over the period 2011-2013, to investigate how buyers set the reserve price - i.e. the buyer’s announced maximum willingness to pay for the good awarded. We provide empirical evidence that repeated past contracts between a buyer and a supplier affect the reserve price set by this buyer in future auctions where the same supplier takes part and wins. Specifically, we find that in these auctions the reserve price, the level of competition, and the winning unit price are lower than in the average auction in the dataset. We conjecture that, in setting the reserve price for a new auction, public buyers exploit information gained about the winners of previous auctions. This intuition is supported by empirically studying the reserve price in a dynamic framework, which allows buyers to take into account information from previous procurement transactions with given suppliers. Finally, we show that our empirical results are in line with a simple theoretical setting in which the buyer collects information about one supplier’s costs and exploits this in setting the reserve price in future auctions. |
| Keywords: | Publicprocurement, First-priceauction, Buyer-supplier repeated interactions, Reserve price |
| JEL: | D44 H57 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0289&r= |
| By: | Avichai Snir (Allan); Haipeng (Allan); Chen; Daniel Levy |
| Abstract: | We assess the role of cognitive convenience in the popularity and rigidity of 0 ending prices in convenience settings. Studies show that 0 ending prices are common at convenience stores because of the transaction convenience that 0 ending prices offer. Using a large store level retail CPI data, we find that 0 ending prices are popular and rigid at convenience stores even when they offer little transaction convenience. We corroborate these findings with two large retail scanner price datasets from Dominicks and Nielsen. In the Dominicks data, we find that there are more 0 endings in the prices of the items in the front end candies category than in any other category, even though these prices have no effect on the convenience of the consumers check out transaction. In addition, in both Dominicks and Nielsens datasets, we find that 0 ending prices have a positive effect on demand. Ruling out consumer antagonism and retailers use of heuristics in pricing, we conclude that 0 ending prices are popular and rigid, and that they increase demand at convenience settings, not only for their transaction convenience, but also for the cognitive convenience they offer. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.00488&r= |
| By: | Lucia Foster; John Haltiwanger; Cody Tuttle |
| Abstract: | Recent evidence suggests the U.S. business environment is changing, with rising market concentration and markups. The most prominent and extensive evidence backs out firm-level markups from the first-order conditions for variable factors. The markup is identified as the ratio of the variable factor’s output elasticity to its cost share of revenue. Our analysis starts from this indirect approach, but we exploit a long panel of manufacturing establishments to permit output elasticities to vary to a much greater extent - relative to the existing literature - across establishments within the same industry over time. With our more detailed estimates of output elasticities, the measured increase in markups is substantially dampened, if not eliminated, for U.S. manufacturing. As supporting evidence, we relate differences in the markups’ patterns to observable changes in technology (e.g., computer investment per worker, capital intensity, diversification to non-manufacturing), and we find patterns in support of changing technology as the driver of those differences. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:22-38&r= |
| By: | Frédéric Kluser, Tobias Seidel, Maximilian v. Ehrlich |
| Abstract: | In this paper, we empirically quantify spatial consumption frictions and the degree of local retail competition. We exploit a unique data set including 1.5 billion daily transactions in combination with detailed characteristics of more than 3 million households. Our estimates are based on a quasi-experimental approach to estimate the causal effect of store openings. We find that a same-chain store opening in the proximity of households' residences reduces their expenditures at incumbent stores by 30% in the first month. Smaller effects for competitors suggest imperfect substitutability between retail chains. Exploiting more than 350 openings, we identify causal consumption gravity functions, which allow us to quantify spatial consumption areas. We document significant heterogeneities across regions and socio-demographic groups, indicating substantial inequalities in consumption access. |
| Keywords: | economic geography, consumption, consumption access, consumption inequality, spatial competition |
| JEL: | R1 R2 L14 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:rdv:wpaper:credresearchpaper40&r= |
| By: | Comisión Nacional de los Mercados y la Competencia (CNMC) (Comisión Nacional de los Mercados y la Competencia (CNMC)) |
| Abstract: | The study analyses the market for the sale and distribution of prescription medicines for human use that are dispensed through pharmacies in Spain, from the perspective of competition and the principles of efficient economic regulation. The study identifies areas where public health objectives can be achieved more effectively by incentivising competition and economic efficiency and makes some recommendations for regulatory improvement in this regard. |
| Keywords: | Medicines for human use, Spanish National Health System, Wholesale distribution of medicines, Competition promotion |
| JEL: | H4 I11 I18 K2 K32 |
| Date: | 2022–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:awo:epaper:e/cnmc/002/2017_eng&r= |
| By: | Luca Sandrini (Research Center of Quantitative Social and Management Sciences, Faculty of Economics and Social Sciences, Budapest University of Technology and Economics, Műegyetem rkp. 3., H-1111 Budapest, Hungary.); Robert Somogyi (Budapest University of Technology and Economics, and Centre for Economic and Regional Studies, Műegyetem rkp. 3., H-1111 Budapest, Hungary.) |
| Abstract: | In this paper, we build a model of the news market where advertisers choose to allocate their ads between a social media platform and a news website that is the content creator. Our main objective is to evaluate a policy intervention that aims to foster news creation by transferring revenues from social media to news websites. Such interventions, commonly referred to as news media bargaining codes were first introduced in Australia in 2021 and are being implemented worldwide. We build on a novel trade-off between the higher advertising efficiency of social media and the value of content creation by news websites. When news quality is unaffected by the policy, we find that the equilibrium level of news creation may be socially sub-optimal. Moreover, we show that the policy intervention mandated by the bargaining code is always welfare-increasing. When news quality is endogenous, we nuance our results by showing that a poorly designed transfer can be inefficient. However, it still holds that the policy never harms consumers. Finally, we also provide some guidance on how to design the policy. |
| Keywords: | social media; news website; bargaining code; platform regulation |
| JEL: | D43 L13 L51 L82 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:2206&r= |
| By: | Georg Zachmann |
| Abstract: | The transition to climate neutrality requires the reallocation of production factors from polluting activities to non-polluting activities. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:node_7994&r= |
| By: | H. Dharma Kwon; Jan Palczewski |
| Abstract: | The timing of strategic exit is one of the most important but difficult business decisions, especially under competition and uncertainty. Motivated by this problem, we examine a stochastic game of exit in which players are uncertain about their competitor's exit value. We construct an equilibrium for a large class of payoff flows driven by a general one-dimensional diffusion. In the equilibrium, the players employ sophisticated exit strategies involving both the state variable and the posterior belief process. These strategies are specified explicitly in terms of the problem data and a solution to an auxiliary optimal stopping problem. The equilibrium we obtain is further shown to be unique within a wide subclass of symmetric perfect Bayesian equilibria. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.01610&r= |