|
on Industrial Competition |
| By: | Takanori ADACHI; Susumu SATO; Mark J. TREMBLAY |
| Abstract: | Consumer multi-homing is considered to be critical for competition policy regarding digital platforms. To assess the role of consumer multi-homing in competition policy, we embed consumer multi-homing into a model of oligopolistic competition between two-sided platforms and apply it to mergers and free entry. We find that a required level of merger-specific cost reduction is larger if consumers benefit more from multi-homing and that the equilibrium level of platform entry can be insufficient in the presence of consumer multi-homing. We also show that reductions to sellers' benefit from multi- homing reduces entry (i.e., is an e ective barrier to entry). These results contrast the popular belief that multi-homing mitigates the need for stricter competition policy. |
| Keywords: | Two-sided markets; Indict network externalities; Multi-homing; Platform entry; Platform mergers. |
| JEL: | D40 L10 L20 L40 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:kue:epaper:e-21-009&r=com |
| By: | Lee, Jen-Yao; Wang, Leonard F. S.; Sun, Ji |
| Abstract: | This paper analyzes upstream firms’ collusive sustainability when downstream firms adopt the relative-performance delegation in an infinitely repeated Cournot or Bertrand game. We find that relative-performance delegation makes managers act more aggressive and upstream collusion more difficult to sustain compared to sales-revenue delegation. The driving force is that downstream relative-performance delegation makes more profits for the deviated firm. This result holds regardless of the competition modes. |
| Keywords: | Relative-performance delegation; Upstream collusion; Vertically related market; Competition modes |
| JEL: | D21 D43 L13 L21 |
| Date: | 2022–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114939&r=com |
| By: | Vanessa Alviarez (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia); Keith Head (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia); Thierry Mayer (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We assess the consequences for consumers in 76 countries of multinational acquisitions in beer and spirits. Outcomes depend on how changes in ownership affect markups versus efficiency. We find that owner fixed effects contribute very little to the performance of brands. On average, foreign ownership tends to raise costs and lower appeal. Using the estimated model, we simulate the consequences of counterfactual national merger regulation. The US beer price index would have been 4–7% higher without divestitures. Up to 30% savings could have been obtained in Latin America by emulating the pro-competition policies of the US and EU. |
| Keywords: | multinationals,oligopoly,markups,concentration,firm effects,brands,frictions,mergers and acquisitions,competition policy |
| Date: | 2021–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpspec:hal-03389199&r=com |
| By: | Argenton, Cédric; Ivanova-Stenzel, Radosveta; Müller, Wieland |
| JEL: | D43 L13 C72 C92 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc22:264079&r=com |
| By: | Araki, Satoshi (OECD); Bassanini, Andrea (OECD); Green, Andrew (OECD); Marcolin, Luca (OECD); Volpin, Cristina (OECD) |
| Abstract: | Drawing upon data from the largest cross-country study of labor market concentration to date, this paper analyzes the level of concentration of labor input markets in Europe and North America and provides a comparative perspective on employers' monopsony power. It explores the characteristics of monopsony in labor markets and documents its impact by looking at the magnitude of employer concentration in selected jurisdictions. Using a harmonized dataset of online vacancies, this paper shows that European labor markets are no more competitive than North American ones. It also supports the view that the effects of concentration on labor markets are broadly similar in both Europe and North America, despite the much stronger labor market institutions in Europe. The article shows that there is no apparent economic or legal justification for a lack of enforcement activity by European competition authorities in labor markets relative to the US. While enforcement action has picked up in the last two years in Europe, there is likely still scope for a significant increase in the role of competition enforcement in labor markets. The article identifies sectors and practices that may be scrutinized with priority by European competition authorities and proposes a mix of enforcement, merger control and well-targeted policy and regulatory solutions to address employers' monopsony power. |
| Keywords: | labour market concentration, monopsony, cross-country comparison, competition enforcement |
| JEL: | J31 J41 J42 L40 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15641&r=com |
| By: | Motta, Massimo; Penta, Antonio |
| Abstract: | We investigate the market effects of brand search advertising, within a model where two firms simultaneously choose the price of their (differentiated) product and the bids for the advertising auction which is triggered by own and rival’s brand keywords search; and where there exist sophisticated/attentive consumers (who look for any available in-formation on their screen) and naive/inattentive consumers (who only look at the top link of their screen), both aware of either brand’s characteristics and price. Relative to a benchmark where only organic search exists, in any symmetric equilibrium each firm wins its own brand auction, and advertising has detrimental effects on welfare: (i) the sponsored link crowds out the rival’s organic link, thus reducing competition and choice, and leading to price increases; (ii) the payment of the rival’s bid (may) raise marginal cost, also contributing to raise market prices. Under extreme asymmetry (there is an incumbent and an unknown new entrant), we do find that the market effect of brand bidding might be beneficial, if the search engine does not list the entrant’s link in organic search, and the share of the sophisticated consumers in the economy is large enough for an equilibrium in which the entrant wins the advertising auction on the search for the incumbent’s brand to exist. |
| Keywords: | Digital advertising; auctions; oligopoly; search engines; brands; horizontal agreements |
| Date: | 2022–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127417&r=com |
| By: | Alessandro Villa |
| Abstract: | Bank market power shapes firm investment and financing dynamics and hence affects the transmission of macroeconomic shocks. Motivated by a secular increase in the concentration of the US banking industry, I study bank market power through the lens of a dynamic general equilibrium model with oligopolistic banks and heterogeneous firms. The lack of competition allows banks to price discriminate and charge firm-specific markups in excess of default premia. In turn, the cross-sectional dispersion of markups amplifies the impact of macroeconomic shocks. During a crisis, banks exploit their market power to extract higher markups, inducing a larger decline in real activity. When a “big” (i.e., non-atomistic) bank fails, the remaining banks use their increased market power to control the supply of credit, worsening and prolonging the recession. The results suggest that bank market power could be an important concern when formulating appropriate bail-out polices. |
| Keywords: | Dynamic Financial Oligopoly; Endogenous Financial Markups; Heterogeneous Firms; Firm Dynamics; Micro-Funded Financial Frictions; Price discrimination |
| JEL: | D43 E44 G12 G21 L11 |
| Date: | 2022–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:94920&r=com |
| By: | Takanori ADACHI |
| Abstract: | This survey provides a selected review of the recent progress in the theory of third-degree price discrimination. First, I focus on two well-known results in the literature: (i) an increase in aggregate output is necessary for price discrimination to increase social welfare, and (ii) price discrimination leads to a Pareto welfare improvement if one of the two markets is not served under uniform pricing. I argue when these results hold and when they fail to hold. Second, I consider oligopolistic competition and stress that there is no great divide between monopoly and oligopoly because both situations can be treated systematically in terms of an index that governs the intensity of competition. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:kue:epaper:e-22-006&r=com |
| By: | Rey, Patrick; Spiegel, Yossi; Stahl, Konrad |
| Abstract: | Growing concern about the market power of big tech giants has led to renewed interest in predatory behavior. We study the feasibility and prof- itability of predation in a dynamic environment, using a parsimonious infinite- horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to ac- commodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies. |
| JEL: | D43 L41 |
| Date: | 2022–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127458&r=com |
| By: | Allain, Marie-Laure; Chambolle, Claire; Turolla, Stéphane |
| Abstract: | We develop a model of vertical relations between national brand and private label producers and competing multi product retailers to derive new predictions on the impact of input price discrimination on retail prices. A reform that lifted a ban on input price discrimination in France provides a natural experiment to test these predictions. Using household scanner data on food prices, we run a difference-in-differences analysis and show that the reform caused a significant decrease of the relative prices of national brand products. These results suggest a pro-competitive effect of authorizing input price discrimination. |
| Keywords: | Demand and Price Analysis, Industrial Organization |
| Date: | 2022–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:ags:inrasl:327329&r=com |
| By: | Zheng, Han |
| Abstract: | Shipping companies often charges nonlinear and discriminatory pricing for transportation. This paper shows that this nonlinear and discriminatory pricing in the shipping industry could hamper the welfare gains from trade due to withinindustry allocation across heterogeneous firms. I extend a standard heterogeneous firm trade model with variable markups by incorporating monopolistically competitive shipping companies that charge nonlinear and discriminatory pricing against manufacturers. In a standard setting, shipping companies optimally charge a higher transport price to the more productive firms, weakening within-industry reallocation toward productive firms. Elimination of this discriminatory practice could potentially increase the gains from trade. |
| Keywords: | Price discrimination, Shipping industry, Heterogeneous firms, The gains from trade |
| JEL: | F12 L91 R13 R41 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-123&r=com |
| By: | Michele Fioretti (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Alessandro Iaria (University of Bristol [Bristol]); Aljoscha Janssen (SIS - Singapore Management University); Clément Mazet- Sonilhac (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Robert K Perrons (QUT - Queensland University of Technology [Brisbane]) |
| Abstract: | We investigate the effect of technology adoption on competition by leveraging a unique dataset on production, costs, and asset characteristics for North Sea upstream oil & gas companies. Relying on heterogeneity in the geological suitability of fields and a landmark decision of the Norwegian Supreme Court that increased the returns of capital investment in Norway relative to the UK, we show that technology adoption increases market concentration. Firms with prior technology-specific know-how specialize more in fields suitable for the same technology but also invest more in high-risk-high-return fields (e.g., ultra-deep recovery), diversifying their technology portfolio and ultimately gaining larger shares of the North Sea market. Our analyses illustrate how technology adoption can lead to market concentration both directly through specialization and indirectly via experimentation. |
| Keywords: | Market structure,Competition,Specialization,Experimentation,Upstream oil and gas markets,North Sea,Innovation,Adoption |
| Date: | 2022–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpspec:hal-03791971&r=com |
| By: | Doh-Shin Jeon; Yassine Lefouili; Leonardo Madio |
| Abstract: | We study a platformâs 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, platform liability increases innovation by reducing the competitive pressure faced by innovative products. However, there can be a misalignment of interests between innovators and buyers. Furthermore, platform liability can have unintended consequences, which overturn the intended effect on innovation. Platform liability tends to increase (decrease) innovation and consumer welfare when the elasticity of participation of innovators is high (low) and that of buyers is low (high). |
| Keywords: | platform, liability, intellectual property, innovation |
| JEL: | K40 K42 K13 L13 L22 L86 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9984&r=com |
| By: | Rodriguez Castelan,Carlos; Malasquez Carbonel,Eduardo Alonso; Granguillhome Ochoa,Rogelio; Araar,Abdelkrim |
| Abstract: | This paper presents a novel method for estimating the likely welfare effects of competition reforms for both current and new consumers. Using household budget survey data from 2015/16 for Ethiopia and assuming a reform scenario that dilutes the market share of the telecommunications state-owned monopoly to 45 percent, the model predicts a 25.3 percent reduction in the price of mobile services and an increase of 4.6 million new users of mobile phone services. This reform is expected to generate a welfare gain of 1.37 percent among all consumers. Poverty rates are expected to decline by 0.31 percentage point, driven by a reduction of 0.22 percentage point for current consumers and 0.09 percentage point among new users. Inequality would increase by 0.23 Gini point since better-off consumers are more likely to reap the benefits of greater competition. This method represents a powerful tool for supporting the analysis of competition reforms in developing countries, particularly in sectors known for excluding significant segments of the population due to high consumer prices. |
| Keywords: | Inequality,ICT Economics,Telecommunications Infrastructure,Information Technology |
| Date: | 2021–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9516&r=com |
| By: | Xingzhen Zhu (School of Economics and Management, Nanjing University of Science and Technology); Markus Lang (Institute of Sport Sciences, University of Lausanne); Helmut Dietl (Department of Business Administration, University of Zurich) |
| Abstract: | This paper develops a duopoly model of user-generated content (UGC) platforms that compete for consumers and content producers in two-sided markets with network externalities. Each platform can choose the level of investment into a content quality assurance (CQA) system and the level of advertising. Our model shows that network effects are crucial in determining the platforms' optimal strategy and the behavior (single vs. multi-homing) of their users. Specifically, we find that consumers are multi-homing and producers are single-homing when the network effects obtained by producers are weak, while the opposite is true if these network effects are strong. Moreover, our model shows that the user behavior and the network effects determine whether a platform has incentives to place ads and/or invest into CQA. In general, weak network effects induce a platform to invest into a CQA system except when consumers and producers are multi-homing. The results in our model suggests the need for platform companies to assess the magnitude of network effects on their platform to predict the behavior of their users, which in turn will determine the optimal CQA and advertising strategy. |
| Keywords: | UGC platform; two-sided market; multi-homing; network externalities; platform investment |
| JEL: | C72 D85 L14 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:zrh:wpaper:395&r=com |
| By: | Iootty De Paiva Dias,Mariana; Pop,Georgiana; Pena,Jorge O. |
| Abstract: | This paper explores firm-level heterogeneity to identify the underlying drivers of market power trends in Romania and the implications for competition and economic growth. The results show that the (sales-weighted) average markup in Romania increased by around 15 percent between 2008 and 2017. A key driving force behind this aggregate trend was the ability of a small fraction of firms -- the top decile firms in the markup distribution -- to increase their markups. These firms do not seem to follow the typical superstar firms' profile: they are smaller, less efficient, and less likely to invest in intangible assets than other firms in the markup distribution and overrepresented in less knowledge-intensive service sectors (for example, the retail and trade sector). This suggests that the increase in markups in Romania might be associated with an environment that is less conducive to competition. A decomposition exercise shows that the increase in aggregate markups has been driven mostly by incumbents rather than new entrants and exiting firms, which could be interpreted as a sign of consolidation of market power among existing firms. The paper also finds that certain firm characteristics matter to explain differences in markup performance: size, age, research and development profile, export propensity, location, and especially ownership. Further, the paper shows that additional productivity dividends are associated with increased competition in Romania. Overall, these findings illustrate potential policy angles that need to be tackled to enhance market contestability and boost productivity growth, such as addressing regulations that restrict entry and rivalry in the retail trade sector, which concentrates a substantial proportion of high-markup firms, as well as promoting competitive neutrality across markets where public and private actors compete. |
| Keywords: | International Trade and Trade Rules,Food&Beverage Industry,Plastics&Rubber Industry,Common Carriers Industry,Construction Industry,Business Cycles and Stabilization Policies,General Manufacturing,Pulp&Paper Industry,Textiles, Apparel&Leather Industry,Mining&Extractive Industry (Non-Energy),Economic Theory&Research,Industrial Economics,Economic Growth |
| Date: | 2020–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9487&r=com |
| By: | Chan, Jackie M.L.; Irlacher, Michael; Koch, Michael |
| JEL: | F12 F14 G34 L22 L25 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc22:264022&r=com |
| By: | W. Benedikt Schmal |
| Abstract: | Collusive practices of firms continue to be a major threat to competition and consumer welfare. Academic research on this topic aims at understanding the economic drivers and behavioral patterns of cartels, among others, to guide competition authorities on how to tackle them. Utilizing topical machine learning techniques in the domain of natural language processing enables me to analyze the publications on this issue over more than 20 years in a novel way. Coming from a stylized oligopoly-game theory focus, researchers recently turned toward empirical case studies of bygone cartels. Uni- and multivariate time series analyses reveal that the latter did not supersede the former but filled a gap the decline in rule-based reasoning has left. Together with a tendency towards monocultures in topics covered and an endogenous constriction of the topic variety, the course of cartel research has changed notably: The variety of subjects included has grown, but the pluralism in economic questions addressed is in descent. It remains to be seen whether this will benefit or harm the cartel detection capabilities of authorities in the future. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.02957&r=com |
| By: | Gibbon, Alexandra J.; Schain, Jan Philip |
| JEL: | L10 L41 L60 G23 G32 O34 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc22:264011&r=com |
| By: | Silvia Del Prete (Bank of Italy); Cristina Demma (Bank of Italy); Iconio Garrí (Bank of Italy); Marco Piazza (Bank of Italy); Giovanni Soggia (Bank of Italy) |
| Abstract: | The literature has shown that in the short- and medium-term bank mergers and acquisitions (M&As) may generate a temporary reduction in firm credit. Using bank-firm matched data, this paper investigates the impact of M&As involving Italian banks over the period 2009-2019 on credit to firms, exploring possible heterogeneities across several dimensions. During a 3-year time window after each deal, we detect a reduction in loans to firms financed by target banks, in line with the existing evidence. The drop is smaller for infra-group mergers, when the target is healthy or is the firm’s main bank, while is larger for southern firms, independently of bank location. Other things being equal, we suggest that this “South effect†is mainly related to the negative externalities that characterize the business environment in Southern Italy, for which southern firms are more likely to be subject to a severe selection after a bank reorganization. |
| Keywords: | business lending, mergers and acquisitions, banking system’s structure, North-South divide |
| JEL: | D40 G10 G21 G34 L10 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1382_22&r=com |
| By: | Crowley,Meredith A; Han,Lu; Prayer,Thomas |
| Abstract: | Do preferential trade agreements (PTAs) lead to greater market integration, more intense competition and less market power for firms? This paper integrates the detailed data on 257 preferential trade agreements from the World Bank's Deep Trade Agreements (DTA) database with administrative customs datasets of product-level exports by firms from thirteen developing and emerging countries to estimate the responsiveness of firm-level exports, export prices, and destination-specific markups to trade and domestic policy commitments enshrined in deep trade agreements. The findings suggest that both the direct and indirect effects of deep trade agreement provisions on export sales are quantitatively significant. Perhaps more interestingly, the finding of a suggestive evidence of a pro-competitive effect of PTAs. |
| Keywords: | International Trade and Trade Rules,Trade Policy,Rules of Origin,Trade and Multilateral Issues,Trade and Services,Industrial and Consumer Services and Products |
| Date: | 2021–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9600&r=com |
| By: | Takanori ADACHI; Mark J. TREMBLAY |
| Abstract: | In this paper, we determine how a no-surcharge rule (NSR) impacts effective prices in retail markets (prices that include any consumer payment rewards). This question is fundamentally related to policy, and we provide robust answers by considering how a variety of market structures are impacted by multiple payment methods and different surcharging rules. We find that when a no-surcharge rule is applied, effective prices in a particular market are often higher across all payment methods. In this case, the no-surcharge rule protects a double marginalization effect where the premium payment method inserts an additional margin that harms all consumers and all merchants, and this loss in welfare can be rectified by allowing merchant surcharging across payment methods. Our results are robust across retail market structures, suggesting that NSRs are generally harmful (except for the payment companies). |
| Keywords: | Credit cards, merchant fees, consumer rewards, Ohio v.s. American Express |
| JEL: | L10 L20 L42 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:kue:epaper:e-22-003&r=com |
| By: | Alisa Frey; Justus Haucap |
| Abstract: | This paper is about the price effects caused by a VAT (value-added tax) reduction for menstrual hygiene products in Germany. Several aspects make this VAT reduction particularly interesting: The exogeneity of the reduction under otherwise constant economic conditions, the reduction was substantial and permanent, demand for the products is inelastic and in many cases, pass-through rates are more than 100 percent. We find that the VAT reduction is completely passed through to consumers. Despite this complete pass-through, we still detect a significant effect of retailer competition: When more retailers offer a product, the price reduction is larger. |
| Keywords: | VAT reduction, pass-through, hygiene products, retailer competition |
| JEL: | H22 H25 H32 K34 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9962&r=com |
| By: | Jacques Crémer (TSE-R - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Gary Biglaiser (UNC - University of North Carolina [Chapel Hill] - UNC - University of North Carolina System); André Veiga (Imperial College London) |
| Abstract: | We study incumbency advantage in markets with positive consumption externalities. Users of an incumbent platform receive sto- chastic opportunities to migrate to an entrant and can either accept them or wait for a future opportunity. In some circumstances, users have incentives to delay migration until others have migrated. If they all do so, no migration takes place, even when migration would have been Pareto-superior. We use our framework to identify environments where incumbency advantage is larger. A key result is that having more migration opportunities actually increases incumbency advantage. |
| Keywords: | Platform,Migration,Standardization and Compatibility,Industry Dynamics |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03792918&r=com |