nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒11‒21
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Imperfect Competition with Costly Disposal By Lenhard, Severin
  2. Foreclosure and Tunneling with Partial Vertical Ownership By Matthias Hunold; Vasilisa Petrishcheva
  3. Privatization, Entry and Corporate Social Responsibility with Consumer Cognition By Wen, Jun; Diao, Yu; Wang, Leonard F. S.; Sun, Ji
  4. Zero-Ending Prices, Cognitive Convenience, and Price Rigidity* By Avichai Snir; Haipeng Allan Chen; Daniel Levy
  5. A Theory of Stable Market Segmentations By Nima Haghpanah; Ron Siegel
  6. Costly Participation and Default Allocations in All-Pay Contests By Shelegia, Sandro; Wilson, Chris M.
  7. Competitive Equilibria in Incomplete Markets with Risk Loving Preferences By Herings, Jean-Jacques; Zhan, Yang
  8. The Heterogenous Effects of Employers’ Concentration on Wages: Better Sorting or Uneven Rent Extracting? By Axelle Arquié; Julia Bertin
  9. Worker power, rent-seeking and income inequality in Canada: A sector-level analysis By Silas Xuereb
  10. Ex-post evaluation of the American Airlines-US Airways merger: a structural approach By Christian Bontemps; Kevin Remmy; Jiangyu Wei
  11. Price dispersion in the rideshare industry : a study of the Mexico City market By Sullivan, Tom
  12. Innovation Begets Innovation and Concentration: the Case of Upstream Oil & Gas in the North Sea By Michele Fioretti; Alessandro Iaria; Aljoscha Janssen; Robert K Perrons; Clément Mazet-Sonilhac
  13. The Newsroom Dilemma By Ayush Pant; Federico Trombetta
  14. Two-Sided Market Power in Firm-to-Firm Trade By Michele Fioretti; Vanessa Alvariez; Ayumu Ken Kikkawa; Monica Morlacco
  15. The Market for Chicken Raised Without Antibiotics, 2012–17 By Page, Elina T; Short, Gianna; Sneeringer, Stacy; Bowman, Maria
  16. The Food Retail Landscape Across Rural America By Stevens, Alexander; Cho, Clare; Cakir, Metin; Kong, Xiangwen; Boland, Michael A
  17. The Effect of Supply Base Diversification on the Propagation of Shocks By Girish Bahal; Connor Jenkins; Damian Lenzo
  18. What drives most jumps in global crude oil prices? Fundamental shortage conditions, Cartel, geopolitics or the behavior of market financial participants By Refk Selmi; Shawkat Hammoudeh; Mark Wohar

  1. By: Lenhard, Severin
    JEL: D04 L11 L13 L50
    Date: 2022
  2. By: Matthias Hunold (University of Siegen); Vasilisa Petrishcheva (University of Potsdam)
    Abstract: We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target (tunneling). Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.
    Keywords: Backward ownership, Entry deterrence, Foreclosure, Minority shareholdings, Partial ownership, Uniform pricing, Vertical integration
    JEL: G34 L22 L40
    Date: 2022–11
  3. By: Wen, Jun; Diao, Yu; Wang, Leonard F. S.; Sun, Ji
    Abstract: In this paper, we formulate a mixed triopoly with product differentiation and consumer cognition in which a welfare-maximizing public firm and CSR-concerned private firms conduct quantities competition. The government decides the optimal degree of privatization of public firm. We find that the privatization degree of public firm is closely related to product differentiation and consumer cognition. When private firm enters, whether CSR efforts are made or not, the degree of privatization will be higher. Furthermore, if the public firm is the leader of the industry, government’s optimal choice of privatization is not to privatize. The total output level, consumer surplus and social welfare are lower than those of Cournot competitors.
    Keywords: Privatization; Corporate Social Responsibility; Mixed Triopoly; Consumer Cognition
    JEL: D43 L13 L21 L31 M14
    Date: 2022–10–26
  4. By: Avichai Snir; Haipeng Allan Chen; Daniel Levy (RCEA - Rimini Center for Economic Analysis, Emory University [Atlanta, GA], Bar-Ilan University [Israël], International Centre for Economic Analysis, ISET - International School of Economics at TSU)
    Abstract: We assess the role of cognitive convenience in the popularity and rigidity of 0ending 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 Dominick's and Nielsen. In the Dominick's 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 Dominick's and Nielsen's 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.
    Keywords: Cognitive Convenience,Transaction Convenience,Price Rigidity,Price Stickiness,Sticky Prices,Rigid Prices,0-Ending Prices,Round Prices,Convenient Prices,9-Ending Prices,Just Below Prices,Psychological Prices,Price Points
    Date: 2022–10–02
  5. By: Nima Haghpanah; Ron Siegel
    Abstract: We consider a monopolistic seller in a market that may be segmented. The surplus of each consumer in a segment depends on the price that the seller optimally charges, which depends on the set of consumers in the segment. We study which segmentations may result from the interaction among consumers and the seller. Instead of studying the interaction as a non-cooperative game, we take a reduced-form approach and introduce a notion of stability that any resulting segmentation must satisfy. A stable segmentation is one that, for any alternative segmentation, contains a segment of consumers that prefers the original segmentation to the alternative one. Our main result characterizes stable segmentations as efficient and saturated. A segmentation is saturated if no consumers can be shifted from a segment with a high price to a segment with a low price without the seller optimally increasing the low price. We use this characterization to constructively show that stable segmentations always exist. Even though stable segmentations are efficient, they need not maximize average consumer surplus, and segmentations that maximize average consumer surplus need not be stable. Finally, we relate our notion of stability to solution concepts from cooperative game theory and show that stable segmentations satisfy many of them.
    Date: 2022–10
  6. By: Shelegia, Sandro; Wilson, Chris M.
    Abstract: Some important forms of contests have participation costs and `default allocations’ where the contest prize is still awarded even when no-one actively competes. We solve a general, all-pay contest model that allows for flexible forms of these features under arbitrary asymmetry. We then use our framework to better connect the literatures on contests and sales price competition, and use this connection to solve some long-standing problems. Finally, we analyze how participation costs and default allocations can be used as novel, practical tools in contest design. Throughout, the combined presence of participation costs and default allocations often reverse otherwise familiar intuitions.
    Keywords: All-Pay Contests; Participation Costs; Default Allocations; Clearinghouse; Sales; Contest Design
    JEL: C72 D43 L13
    Date: 2022–10–17
  7. By: Herings, Jean-Jacques (Tilburg University, Center For Economic Research); Zhan, Yang
    Keywords: Risk lovers; competitive equilibrium; market incompleteness; equilibrium existence
    Date: 2022
  8. By: Axelle Arquié; Julia Bertin
    Abstract: Are workers equal in front of employers' concentration? We show, using instrumental variable estimations for France between 2000 and 2019, that employers' concentration has a negative heterogenous effect on wage, with the lowest earners being the most vulnerable. This increased wage inequality could reflect some efficiency gains if concentration allows employers to impose a more demanding selection process, improving sorting i.e. workers selection, thus generating both inequality and higher productivity. We find, exploring within-firm and between-firm inequality, that it is not the case. Employers' concentration instead generates wage inequality by undercutting relatively more the bargaining power of the lowest earners.
    Keywords: Labor Market Concentration;Inequality;Sorting
    JEL: J31 J42
    Date: 2022–10
  9. By: Silas Xuereb (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, WIL - World Inequality Lab)
    Abstract: Neoclassical economics' explanations of the income distribution typically ignore the role of various forms of power. This paper explores the relationships between worker power, market power, rentseeking and the income distribution using a novel panel dataset on sector-level income distributions in Canada from 2000-2019. Levels of within-sector inequality were relatively stable throughout this time period but there is significant between-sector variation. Finance and insurance contributes disproportionately to top-end income inequality. Workers' bargaining power explains a significant portion of between-sector variation in inequality. Increases in market power and decreases in unionization are related to increases in sector-level income inequality. Increases in real average incomes at the sector level are associated with increases in top shares three years later and this effect is mitigated by high unionization. Results are discussed within the broader context of Canadian income inequality and the relationship between power and wage-setting.
    Date: 2022–09
  10. By: Christian Bontemps (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); Kevin Remmy (université de Mannheim); Jiangyu Wei (Compass Lexecon)
    Abstract: In this paper, we estimate a structural model of the domestic US airline market to analyse the effect of the recent merger between American Airlines and US Airways. Our results show that, between 2011 and 2016, a substantial fuel price drop, in conjunction with changes in consumer preferences towards direct flights, completely rationalises the observed decrease in prices. However, we estimate that, during the same period, more than half of the consumer welfare increase is due, on top of these environmental changes, to the ex-post optimisation of the networks of the newly merged airline and of its competitors.
    Keywords: Merger,Airlines,Network,Structural model,Nested logit,Airfare,Demand,Supply
    Date: 2022–04
  11. By: Sullivan, Tom (Monash University)
    Abstract: Nascent and highly dynamic industries such as the rideshare industry have disrupted traditional industries and business models. The use of technology has allowed firms like Uber and Didi to compete over both consumers and workers on an increasingly sophisticated level. This paper explores the use of algorithmic pricing strategies employed by the rideshare industry and the impact of such strategies on the overall level of competition in the market. It uses the Mexico City, Mexico, rideshare industry as a case study. The paper shows that specific firms target specific consumers based on whether those consumers are informed or uninformed about other options in the market, and do so at specific times based on the level of demand in the market. The findings of the paper are relevant for both economic understanding of such markets as well as policy responses.
    Keywords: Rideshare ; Uber ; algorithm ; pricing ; competition ; consumer JEL Classification: D4 ; L1
    Date: 2022
  12. 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); Robert K Perrons (QUT - Queensland University of Technology [Brisbane]); Clément Mazet-Sonilhac (Centre de recherche de la Banque de France - Banque de France, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    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
  13. By: Ayush Pant; Federico Trombetta
    Abstract: Conventional wisdom suggests that competition in the modern digital environment is pushing media outlets towards early release of less accurate information. We show that this is not necessarily the case. We argue that two opposing forces determine the resolution of the speed-accuracy trade-off: preemption and reputation. More competitive environments may be more conducive to reputation building. Therefore, it is possible to have better reporting in a more (Internet-driven) competitive world. However, we show that the audience may be worse-off due to another consequence of the Internet – outlets’ better initial information. Finally, we show how a source may exploit the speed-accuracy trade-off to get “unverified facts” out to the audience quickly.
    JEL: D43 D83 L82
    Date: 2022
  14. By: Michele Fioretti (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Vanessa Alvariez (IDB - Inter-American Development Bank - Inter-American Development Bank); Ayumu Ken Kikkawa (UBC - University of British Columbia); Monica Morlacco (USC - University of Southern California)
    Abstract: Global value chains (GVCs) typically involve large firms exerting bargaining power over the terms of trade. We develop a novel theory of international prices accounting for these features of GVCs and illustrate their e↵ect on the pass-through of trade shocks into import prices. We build a new dataset merging transaction-level U.S. import data with balance sheet data for both importers and exporters to evaluate the model's performance. Our estimated model generates more accurate predictions of pair-level price changes following trade shocks than standard models, improving the estimated impact of the 2018 trade war on aggregate U.S. import prices by 40-60%.
    Date: 2022–04–04
  15. By: Page, Elina T; Short, Gianna; Sneeringer, Stacy; Bowman, Maria
    Abstract: Scanner data were used to analyze expenditure shares, national average prices, and demographics for chicken products labeled raised without antibiotics (RWA). The results showed a rise in household expenditures for RWA-labeled products across market segments. Further, the analysis found demographic differences for those who bought RWA-labeled chicken products.
    Keywords: Demand and Price Analysis
    Date: 2021–09
  16. By: Stevens, Alexander; Cho, Clare; Cakir, Metin; Kong, Xiangwen; Boland, Michael A
    Abstract: An examination of the landscape of food retailers across the contiguous United Stated focusing on rural America and food stores.
    Keywords: Community/Rural/Urban Development
    Date: 2021–06
  17. By: Girish Bahal; Connor Jenkins; Damian Lenzo
    Abstract: This paper studies the role of supply base diversification on the propagation of shocks through production networks. We identify exogenous shocks with the occurrence of natural disasters in the US between 1978 and 2017. We find that affected suppliers reduce customers’ sales growth by ≈25%, on average. Notably, firms that source intermediate inputs across many suppliers, geographies, or industries attenuate shocks to their suppliers by ≈60-70%. We interpret our empirical findings using a general equilibrium model of production networks. First, we establish that diverse firms exhibit gross substitutability among inputs relative to non-diverse firms, suggesting diverse firms insulate themselves by substituting away from disrupted suppliers. By estimating the structural elasticity parameters, we find real GDP would have been ≈$740 billion lower in 2017 in the absence of diversified firms.
    Keywords: production network, propagation of firm-level shocks, supply-chain diversity
    JEL: L14 E23 E32
    Date: 2022–09
  18. By: Refk Selmi (ESC PAU - Ecole Supérieure de Commerce, Pau Business School); Shawkat Hammoudeh (Lebow College of Business, Drexel University - CERAG - Centre d'études et de recherches appliquées à la gestion - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique); Mark Wohar (University of Nebraska Omaha - University of Nebraska System)
    Abstract: Several studies have emphasized the potential role of oil price volatility as a leading macroeconomic indicator, since it provides prominent information to energy traders, market participants and policymakers. In an effort to shed fresh insights on the underlying factors of wide oil price changes, the objective of this paper is twofold. First to capture large oil price changes caused by the arrival of surprising news (i.e., jumps); second to distinguish between short-, medium-and long-term determinants of jumps in oil prices due to changes in oil supply and demand fundamentals, factors associated with the market power of oil producers, speculation, geopolitical risks and OPEC's spare capacity. Using an Empirical Mode Decomposition (EMD), we find that oil supply and demand forces are the most prevalent in determining oil price changes in the long run, which is quite predictable. OPEC gains increasing importance in the medium-and long-terms. Our method also allows us to show that OPEC's use of spare capacity moderately reduces oil price volatility in the short-term, thus suggesting a limited stabilizing influence on the oil market. We consider broader policy implications for our results.
    Keywords: Oil price jumps,oil price determinants,Empirical Mode Decomposition,Empirical Mode Decomposition JEL classification: G15,C11,C58,Q30,Q31
    Date: 2022–08–01

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