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on Industrial Competition |
| By: | Dodini, Samuel (Norwegian School of Economics); Salvanes, Kjell G. (Norwegian School of Economics); Willén, Alexander (Norwegian School of Economics) |
| Abstract: | This paper brings together the modern research on employer power and employee power by empirically examining the effects of unionization on worker earnings, employment, and inequality across differently concentrated markets. Exploiting national tax reforms to union membership dues as exogenous shocks to unionization, we show that high levels of unionization mitigate the negative wage and employment effects generated by imperfect competition. We also identify considerable effect heterogeneity with respect to worker types across differentially concentrated markets, and show that this has major implications for the role of unions in shaping labor market wage inequality. |
| Keywords: | monopsony, skills, unions, market concentration |
| JEL: | J23 J24 J42 J51 J52 J63 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15635&r= |
| By: | Khan, Abhimanyu |
| Abstract: | The job market signaling model in Spence (1973) deals with a situation of asymmetric information. Workers vary in their productivity. A worker is privately informed of his productivity but the firms are not informed. Spence (1973) shows that in competitive markets, costly education may signal productivity -- workers of different productivities take up education to varying degrees, thereby resulting in a separating equilibrium where firms can infer a worker's productivity from his education choice. The importance of a separating equilibrium is that it resolves the informational asymmetry. In this paper, I enquire into the relationship between the firm's market power in the labour market (the market that is the source of asymmetric information) and the existence of separating equilibria. I show that a separating equilibrium exists, and therefore the informational asymmetry may be resolved, if and only if the market power of the firm in the labour market is not above a particular threshold. |
| Keywords: | asymmetric information, signaling, separating equilibrium, monopsony, market power |
| JEL: | D43 D82 |
| Date: | 2022–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114957&r= |
| By: | Hector Chade; Victoria R. Marone; Amanda Starc; Jeroen Swinkels |
| Abstract: | We study a general screening model that encompasses a health insurance market in which consumers have multiple dimensions of private information and a price-setting insurer (e.g., a monopolist or a social planner) offers vertically differentiated contracts. We combine theory and empirics to provide three novel results: (i) optimal menus satisfy intuitive conditions that generalize the literature on multidimensional screening and shed light on insurer incentives; (ii) the insurer's problem with an unlimited number of contracts is well-approximated with only a small set of contracts; and (iii) under an additional assumption, the problem becomes dramatically simpler and can be solved using familiar graphical analysis. Calibrated numerical simulations validate assumptions, quantify the differential incentives of a monopolist and a social planner, and evaluate common policy interventions in a monopoly market. |
| JEL: | I11 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30542&r= |
| By: | Giammario Impullitti; Syed Kazmi |
| Abstract: | Economic theory suggests that the markup is a key measure of market power and that its relationship with trade is rich and complex. Trade liberalisation can reduce markups via a decline in the residual domestic demand but also increase it via several channels. Trade-induced increases in competition leads to more concentrated markets via entry and exit, putting upward pressure on markups. Market shares reallocation toward larger, more powerful firms, increase the aggregate markup. We use a large episode of trade liberalisation in Spain to test this rich set of transmission mechanisms linking trade and markups. The overall effect of reductions in Spanish import tariffs on firm-level and aggregate markups is pro-competitive but we find evidence of offsetting effects via the other channels. In particular, we show that firms with high intangible investment experience a weaker reduction in markups. Sup-porting the theoretical insight that the feedback effect via concentration is stronger with higher barriers to entry. Increases in markups are also produced by reallocations effects but the results are weaker, suggesting that the link between trade and markups is mostly driven by changes at the intensive margin. |
| Keywords: | international trade, markups, oligopoly |
| Date: | 2022–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1866&r= |
| By: | Saglam, Ismail |
| Abstract: | This paper studies the incentives for, and the welfare effects of, pre-donation in a vertically related industry where two downstream firms that produce a homogenous good jointly bargain, using the generalized Nash rule, with an upstream firm over a linear input price before they engage in Cournot competition. We theoretically show that the downstream industry has no incentive to make any pre-donation and this is irrespective of its bargaining power. We also show computationally that (i) the upstream firm finds to make unilateral pre-donation optimal if and only if its bargaining power is sufficiently small and (ii) its optimal pre-donation (whenever positive) always yields Pareto welfare gains. |
| Keywords: | Vertically related industry; Nash bargaining; pre-donation. |
| JEL: | C78 L12 L13 L22 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114835&r= |
| By: | Fabrizio Leone; Rocco Macchiavello; Tristan Reed |
| Abstract: | Prices for several intermediate inputs, including cement, are higher in developing economies - particularly in Africa. Combining data from the International Comparison Program with a global directory of cement plants we estimate an industry equilibrium model to distinguish between drivers of international price dispersion: demand, costs, conduct, and entry. Developing economies feature both higher marginal costs and higher markups. African markets are not characterized by higher barriers to entry and, if anything, feature relatively more competitive conduct. The small size of many national markets, however, limits entry and competition and explains most of the higher markups. Policy implications are discussed. |
| Keywords: | International price dispersion, market power, market size, markup, cement, Africa |
| Date: | 2022–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1862&r= |
| By: | Leone, Fabrizio; Macchiavello,Rocco; Reed,Tristan |
| Abstract: | Prices for several intermediate inputs, including cement, are higher in developingeconomies—particularly in Africa. Combining data from the International Comparison Program with a global directory ofcement plants we estimate an industry equilibrium model to distinguish between drivers of international pricedispersion: demand, costs, conduct, and entry. Developing economies feature both higher marginal costs and highermarkups. African markets are not characterized by higher barriers to entry and, if anything, feature relatively morecompetitive conduct. The small size of many national markets, however, limits entry and competition and explainsmost of the higher markups. Policy implications are discussed. |
| Keywords: | Transport Services,Competitiveness and Competition Policy,Energy Policies & Economics,Green Issues,Hydrology |
| Date: | 2021–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9706&r= |
| By: | José Azar; Martin Schmalz; Isabel Tecu; Martin C. Schmalz |
| Abstract: | We show that the main claim in Dennis, Gerardi, and Schenone (JF forthcoming) (DGS), namely “that the documented positive correlation between common ownership and ticket prices stems from the market share component of the common ownership measure, and not the ownership and control components,” is factually incorrect. In particular, we show empirically that the placebo that according to DGS “keeps market shares fixed” is in fact highly negatively correlated with market shares. This correlation is mechanical and arises because the data set is an unbalanced panel, as we show analytically. We make a methodological contribution to the literature by showing how one can actually separate variation from market shares from variation in ownership. Contrary to DGS’ claims, ownership changes do predict price changes once one constructs a valid placebo that actually separates the variation from market shares from the variation in ownership. AST’s panel regressions in fact underestimated the price effect of common ownership, due to the endogeneity of market shares. |
| Keywords: | common ownership, airlines, invalid placebos |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9937&r= |
| By: | Yue Li; Kuo,Ryan Chia; Pinzon Latorre,Mauricio Alejandro; Albertson,Mark Peter |
| Abstract: | To date, the impact of foreign direct investment on market power and consumer welfare indeveloping countries has been relatively understudied. Utilizing a firm survey dataset from Vietnam, this paperfirst calculates firm-level markups for manufacturing firms and then analyzes the impact of foreign direct investmentand foreign ownership on firm markups. Overall, the findings show that increases in the presence of foreign firms in agiven industry are associated with decreases in markups in that industry, despite foreign firms individually charginghigher markups on average than their domestic competitors. The findings further show that while the markups of bothforeign- and domestic-owned private firms tend to decrease with greater foreign direct investment, state-ownedenterprises may be relatively insulated from foreign direct investment driven competitive pressures. These results arerobust to the inclusion or exclusion of potential outliers and the potential non-random selection of firms acquired byforeign investors. |
| Date: | 2022–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9998&r= |