nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒12‒19
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Internet infrastructure and competition in digital markets By Hanspach, Philip
  2. Can data openness unlock competition when the incumbent has exclusive data access for personalized pricing? By Rosa Branca Esteves; Francisco Carballo-Cruz
  3. Safeguarding Competition in Digital Markets: A Comparative Analysis of Emerging Policy and Regulatory Regimes By Prado, Tiago S.
  4. The dynamic effects of competition on investment: the case of the European mobile communications industry By Bahia, Kalvin; Castells, Pau
  5. Price Signalling and Private Motor Insurance in Ireland: A Breach of Competition Law? By Gorecki, Paul
  6. Intellectual Property Protection Lost and Competition: An Examination Using Machine Learning By Utku U. Acikalin; Tolga Caskurlu; Gerard Hoberg; Gordon M. Phillips
  7. Co-investment in the sharing of Telecommunications Infrastructures By Jeanjean, Francois
  8. Patents that match your standards: firm-level evidence on competition and innovation By Antonin Bergeaud; Julia Schmidt; Riccardo Zago
  9. Competing with precision: incentives for developing predictive biomarker tests By Kurt R. Brekke; Dag Morten Dalen; Odd Rune Straume
  10. The “Matthew Effect” and Market Concentration: Search Complementarities and Monopsony Power By Jesus Fernandez-Villaverde; Federico Mandelman; Yang Yu; Francesco Zanetti
  11. Personalized prices in a delivered pricing model with a price sensitive demand By Rosa Branca Esteves; Jie Shuai
  12. Climate Actions, Market Beliefs, and Monetary Policy By : Dierx, Adriaan; : Ilzkovitz, Fabienne; : Pataracchia, Beatrice; : Pericoli, Filippo
  13. Financial and regulatory assessment of Mobile Network Sharing as a trigger of cost efficient 5G rollout in CEE By Földes, Gábor
  14. Model of spatial competition on discrete markets By Andrea Civilini; Vito Latora
  15. Scope, Scale and Concentration: The 21st Century Firm By Gerard Hoberg; Gordon M. Phillips
  16. A More Dynamic Economy By Leigh, Andrew
  17. What Drives Stagnation: Monopsony or Monopoly? By Shubhdeep Deb; Jan Eeckhout; Aseem Patel; Lawrence Warren
  18. Differentiation Strategy for Firms: Online Ad versus Mass Media Ad By Fujisawa, Chieko; Kasuga, Norihiro
  19. Lending and monitoring: Big Tech vs Banks By Bouvard, Matthieu; Casamatta, Catherine; Xiong, Rui
  20. Local cocoa marketing under pressure: Sustainability certification and new forms of competition in Ghana's cocoa industry By Ollendorf, Franziska; Ansah, Goodlet
  21. Is disruption the second time around harder to do? The entry of Iliad into the Italian telecommunications market By Yang, Shengxing; Vialle, Pierre; Whalley, Jason

  1. By: Hanspach, Philip
    Abstract: Large digital platform companies increasingly integrate vertically by building Internet infrastructure, such as edge computing facilities, content delivery networks, or submarine cables. These investments enable new services while changing their bargaining power towards the upstream supplier. I model competing investment incentives in Internet infrastructure for an upstream player (e.g., an Internet Service Provider) and a large downstream platform and its effects on competition with smaller downstream platforms without proprietary infrastructure. Investment incentives increase discontinuously both upstream and downstream when the downstream platform has the larger network. With symmetric investment costs, the downstream platform will invest more than a pure upstream player. I discuss the model implications for net neutrality, network access regulation, and efficient side payments between platform and upstream industry.
    Keywords: platforms,multi-sided markets,competition policy,net neutrality,Internet,telecommunications infrastructure
    JEL: L13 L42 L51 L63 L86
    Date: 2022
  2. By: Rosa Branca Esteves (Universidade do Minho and NIPE); Francisco Carballo-Cruz (Universidade do Minho and NIPE)
    Abstract: This paper investigates the role of an incumbent´s data investment decisions in shaping the competitive interaction of firms and market structure. We provide antitrust agencies with some insights that may help them to determine whether and when personalized pricing (PP) by a dominant firm, which is enabled by the use of exclusive data, dampens competition and harms consumers. In markets with intermediate entry costs, where entry is blocked without any intervention, a data openness remedy, by means of a mandatory information sharing, is an effective tool to restore competition and boost consumer welfare. Even in markets where entry is inevitable, due to low entry costs, a mandatory information sharing to promote competitive PP further boosts consumer surplus in comparison to the case where only the incumbent employs PP. In contrast, public agencies should consider a ban on PP in markets with sufficiently high entry costs. In these markets, a mandatory information sharing remedy would simply not produce the desired competitive outcome.
    Keywords: Price discrimination, data investments, data barrier to entry, information, sharing, digital markets, GDPR, competition policy and regulation.
    JEL: D43 L13
    Date: 2021
  3. By: Prado, Tiago S.
    Abstract: This paper presents a comparative analysis of alternative competition policy and regulatory regimes that are proposed to safeguard competition in the digital economy. We review the causes of concentration in several digital markets, and differentiate the objectives of promoting competition in, and for incumbent digital platforms. Then, we analyze five regimes currently suggested in the research literature and explored by practitioners, ranging from precautionary competition policy and traditional ex ante regulatory remedies to ex post competition policy enforcement, ex post regulation and various self-regulation mechanisms. In a time when policy imitation is widespread, our main conclusion is that policy and regulatory regimes, to be effective to promote competition and investment in digital markets, must observe country-specific conditions and challenges. No single approach fits all conditions. This analysis should help policymakers to have a clearer picture on how to design measures to promote competition in the platform economy considering their local context.
    Keywords: digital platforms,competition,policy,regulation,antitrust,innovation
    JEL: L1 L4 L5 D6 O2
    Date: 2022
  4. By: Bahia, Kalvin; Castells, Pau
    Abstract: We evaluate the impact of competition on investments in Europe's mobile communications market during the 2011-2021 period. There are stark and sustained differences in market outcomes between three- and four-player markets in Europe, and economic theory suggests these could be partly explained by the dynamic effects of competition on the ability and incentives to invest by market players. We find strong evidence that market concentration in Europe is below optimal levels that would maximise investments, especially in four-player markets. The dispersion of fixed costs and assets among a greater number of players can result in diseconomies of scale and a less efficient use of resources. We also find evidence that investment incentives to improve quality and innovate are lower in markets with lower concentration indices and profit margins.
    JEL: K20 L10 L40 L96
    Date: 2022
  5. By: Gorecki, Paul
    Abstract: The Competition and Consumer Protection Commission (CCPC) allegations of price signalling in 2015 and 2016 by five insurers, a broker, and a broker representative body with respect to private motor insurance (PMI) premium increases did not reach, based on publicly available information, the threshold required to establish a concerted practice that breached competition law. There was a plausible alternative explanation, the underwriting cycle, for the premium increases. The failure of the CCPC to articulate a clear position on when public announcements on future prices are likely to breach competition law is likely to chill competition and damage consumer welfare. Had the CCPC investigated the alleged price signalling under the Competition (Amendment) Act 2022, which implements the ECN+ Directive, there is no reason to assume that the outcome would have been any different, despite extra powers such as civil fines.
    Keywords: private motor insurance; Competition Act 2002; Competition (Amendment) Act 2022; concerted practice; tacit collusion; Competition and Consumer Protection Commission; price signalling.
    JEL: D22 D43 G22 K21 L13 L41
    Date: 2022–11–28
  6. By: Utku U. Acikalin; Tolga Caskurlu; Gerard Hoberg; Gordon M. Phillips
    Abstract: We examine the impact of lost intellectual property protection on innovation, competition, acquisitions, lawsuits and employment agreements. We consider firms whose ability to protect intellectual property (IP) using patents is weakened following the Alice Corp. vs. CLS Bank International Supreme Court decision. This decision has impacted patents in multiple areas including business methods, software, and bioinformatics. We use state-of-the-art machine learning techniques to identify firms’ existing patent portfolios’ potential exposure to the Alice decision. While all affected firms decrease patenting post-Alice, we find an unequal impact of decreased patent protection. Large affected firms benefit as their sales and market valuations increase, and their exposure to lawsuits decreases. They also acquire fewer firms post-Alice. Small affected firms lose as they face increased competition, product-market encroachment, and lower profits and valuations. They increase R&D and have their employees sign more nondisclosure agreements.
    JEL: D43 G34 O31 O33 O34
    Date: 2022–11
  7. By: Jeanjean, Francois
    Abstract: This paper studies the effects of infrastructure sharing agreements on telecommunications markets. Using a model with an investment stage where firms compete" 'a la Cournot", I find that, infrastructure sharing agreements increase investment at industry level. Indeed, the sharing of infrastructures reduces costs of investment for involved operators and encourage them to invest more. This holds except if involved operators are much less efficient than their competitors (i.e., they have much higher marginal costs before investment). Furthermore, infrastructure sharing agreements generally increase both investments and consumer surplus, except if involved operators are much less efficient than their competitors or if they have very different level of efficiency. The infrastructure sharing agreement is even more effective when the most efficient operators are involved.
    Keywords: Mobile telecommunications,network sharing,competition,consumer welfare
    JEL: L40 L96 L11
    Date: 2022
  8. By: Antonin Bergeaud; Julia Schmidt; Riccardo Zago
    Abstract: When a technology becomes the new standard, the firms that are leaders in producing this technology have a competitive advantage. Matching the semantic content of patents to standards and exploiting the exogenous timing of standardization, we show that firms closer to the new technological frontier increase their market share and sales. In addition, if they operate in a very competitive market, these firms also increase their R&D expenses and investment. Yet, these effects are temporary since standardization creates a common technological basis for everyone, which allows followers to catch up and the economy to grow.
    Keywords: standardization, patents, competition, innovation, text mining
    Date: 2022–10–24
  9. By: Kurt R. Brekke (Norwegian School of Economics (NHH), Department of Economics); Dag Morten Dalen (BI Norwegian Business School); Odd Rune Straume (Department of Economics/NIPE, University of Minho)
    Abstract: We study the incentives of drug producers to develop predictive biomarkers, taking into account strategic interaction between drug producers and health plans. For this purpose we develop a two-dimensional spatial framework that allows us to capture the informational role of biomarkers and their effects on price competition and treatment choices. Although biomarkers increase the information available to prescribers, we identify an anticompetitive effect on the prices set by producers of therapeutically substitutable drugs. We also find that better information about each patient´s most therapeutically appropriate drug does not necessarily lead to more efficient treatment outcomes.
    Keywords: Pharmaceutical markets; Precision medicine; Therapeutic competition; Predictive biomarkers.
    JEL: I11 I18 L13 L65
    Date: 2022
  10. By: Jesus Fernandez-Villaverde (University of Pennsylvania); Federico Mandelman (Federal Reserve Bank of Atlanta); Yang Yu (Shanghai University of Finance and Economics); Francesco Zanetti (University of Oxford)
    Abstract: This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms’ output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong “Matthew effect” that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality.
    Keywords: Market concentration, superstar firms, search complementarities, monopsony power in the labor market
    JEL: C63 C68 E32 E37 E44 G12
    Date: 2021–02
  11. By: Rosa Branca Esteves (Universidade do Minho and NIPE); Jie Shuai (Wenlan School of Business, Zhongnan University of Economics and Law)
    Abstract: This paper provides a first assessment of the profit and welfare effects of firms’ ability to charge personalized prices where consumer demand is sensitive to price changes. In a mill pricing model, regardless of demand elasticity, personalized priicing (PP) raises consumer surplus at the expense of profits. In contrast, in a delivered pricing model, if demand is sufficiently elastic, PP boosts profits at the expense of consumer surplus and overall welfare. Moving from PP in a mill to a delivery pricing model, benefits industry profits and harms consumer surplus and welfare.
    Date: 2022
  12. By: : Dierx, Adriaan (European Commission); : Ilzkovitz, Fabienne (Universite Libre de Bruxelles); : Pataracchia, Beatrice (European Commission); : Pericoli, Filippo (EMCDDA)
    Abstract: Through its competition policy interventions the European Commission not only addresses infringements of EU competition law by the firms directly involved, but it also deters possible future anticompetitive behaviour by these firms and other market players. The present paper represents the diffusion amongst market players of such deterrent effects by a mixed-influence diffusion model, which includes both an external triggering factor and an internal propagation mechanism. Within the present context, interventions by the European Commission serve as the trigger and interactions between market players, in particular via legal counsels and law firms, stimulate the propagation of the interventions’ deterrent effects. The parameters of the mixed-influence diffusion model are calibrated using survey-based information on average deterrence multipliers and an assessment of the reputation of the European Commission as an enforcer of EU competition rules. On this basis, estimates of the deterrent effect of each individual intervention by the European Commission can be obtained.
    Keywords: diffusion; deterrent effect; competition policy; European Commission; mixed-influence model; reputation
    JEL: L40 C54 C68 E17 O43
    Date: 2022–11
  13. By: Földes, Gábor
    Abstract: Telecommunication sector faces to parallel investments into both fiber and 5G, however due to monetization challenges, return on investments often lag behind normal profit expectations. Co-investment, like mobile network sharing can promote cost efficiency, however cooperation raises regulatory concerns related to competition and innovation in the EU. The purpose of this paper to assess the Czech and Hungarian mobile network sharing agreements in CEE that both show higher degree of cooperation, therefore not cleared by the competition regulations, however has been placed in unchanged form for 8 years. The research question is to assess the procompetitive and anticompetitive theoretical aspects and actual impacts of opposed cooperation in terms of net effect, whether benefits outweigh potential drawbacks in particular to foreseen 5G rollout. The research methodology covers the empirical comparison of Czech and Hungarian market data related to market shares, prices and data traffic volume, as well as network quality data on coverage and capacity in 2014-2021-time frame. The main finding is that, although live network sharing agreements have been opposed, main anticompetitive effects could not be justified, and majority of procompetitive benefits fails to be rejected, with the exemption of efficiency gains pass through customers that remains unclear. Despite of benefits may outweigh potential drawbacks even in these not recommended cases, due to lack of regulatory clearance, the 5G rollout launched without sharing, causing social welfare loss. The originality of the paper that it provides an empirical research on such a live network sharing case that is not recommended and not cleared, as sharing contains active network elements and even spectrum, highlighting that even these cases' procompetitive advantages may outweigh anticompetitive ones.
    Keywords: 5G,mobile network sharing,cost efficiency,coopetition,competition regulation
    Date: 2022
  14. By: Andrea Civilini; Vito Latora
    Abstract: We propose a dynamical model of price formation on a spatial market where sellers and buyers are placed on the nodes of a graph, and the distribution of the buyers depends on the positions and prices of the sellers. We find that, depending on the positions of the sellers and on the level of information available, the price dynamics of our model can either converge to fixed prices, or produce cycles of different amplitudes and periods. We show how to measure the strength of competition in a spatial network by extracting the exponent of the scaling of the prices with the size of the system. As an application, we characterize the different level of competition in street networks of real cities across the globe. Finally, using the model dynamics we can define a novel measure of node centrality, which quantifies the relevance of a node in a competitive market.
    Date: 2022–11
  15. By: Gerard Hoberg; Gordon M. Phillips
    Abstract: We provide evidence that over the past 30 years, U.S. firms have expanded their scope of operations. Increases in scope and scale were achieved largely without increasing traditional operating segments. Scope expansion significantly increases valuation and is primarily realized through acquisitions and investment in R&D, but not through capital expenditures. We show that traditional concentration ratios do not capture this expansion of scope. Our findings point to a new type of firm that increases scope through related expansion, which is highly valued by the market.
    JEL: D20 D43 G30 O31 O34
    Date: 2022–11
  16. By: Leigh, Andrew (Australian National University)
    Abstract: Economic dynamism is fundamental to productivity and living standards. Several important metrics suggest that the Australian economy has become less dynamic over recent decades. The share of workers starting a new job has fallen. Among employing businesses, the start! up rate has declined. On average, markets have become more concentrated. Mark!ups have increased. Reinvigorating competition policy may be an important means of boosting dynamism and raising the rate of productivity growth.
    Keywords: market concentration, markups, new business formation, job mobility
    JEL: D43 K21 L40
    Date: 2022–10
  17. By: Shubhdeep Deb; Jan Eeckhout; Aseem Patel; Lawrence Warren
    Abstract: Wages for the vast majority of workers have stagnated since the 1980s while productivity has grown. We investigate two coexisting explanations based on rising market power: 1. Monopsony, where dominant firms exploit the limited mobility of their own workers to pay lower wages; and 2. Monopoly, where dominant firms charge too high prices for what they sell, which lowers production and the demand for labor, and hence equilibrium wages economy-wide. Using establishment data from the US Census Bureau between 1997 and 2016, we find evidence of both monopoly and monopsony, where the former is rising over this period and the latter is stable. Both contribute to the decoupling of productivity and wage growth, with monopoly being the primary determinant: in 2016 monopoly accounts for 75% of wage stagnation, monopsony for 25%.
    Keywords: Market Power. Monopsony. Monopoly. Markdowns. Markups. Wage Stagnation. Concentration. HHI.
    Date: 2022–10
  18. By: Fujisawa, Chieko; Kasuga, Norihiro
    Abstract: This study analyzes advertiser firms' product differentiation strategies and the relationship two media advertising effect, mass media and online media. We derive an inverse demand function from the utility function relating to the evaluation of the goods' additional information that consumers obtain from advertisements, and we analyze the advertising choices of firms using a two-stage decision-making model. The analysis results indicate that firms choose asymmetric advertising to take advantage of the interdependent effects of two advertising and differentiation and to increase profit through rivals' advertising effects. However, the profits of firms are the highest when both firms choose the discriminatory online media advertising. Social welfare is highest in symmetric choice of the discriminatory online advertising, but consumer surplus is highest in symmetric choice of the discriminatory mass media advertising.
    Keywords: Online media advertising,Mass media advertising,Targeting,Differentiation Strategy,Interaction
    Date: 2022
  19. By: Bouvard, Matthieu; Casamatta, Catherine; Xiong, Rui
    Abstract: We show that by lending to merchants and monitoring them, an e-commerce platform can price-discriminate between merchants with high and low financial constraints: the platform offers credit priced below market rates and designed to select merchants with lower capital or collateral while simultaneously increasing the platform’s access fees. The credit market then becomes endogenously segmented with banks focusing on less financially constrained borrowers. Lending by the platform expands with its monitoring efficiency but can arise even when the platform is less efficient than banks at monitoring. Platform credit benefits more financially constrained merchants as well as buyers, but can hurt less financially constrained merchants if cross-side network effects with buyers are too small. The platform’s propensity to offer credit and the financial inclusion of more constrained merchants depends on the platform’s market power.
    Keywords: Big Tech; banks; two-sided markets; financial constraints; financial inclusion;; market power
    Date: 2022–11
  20. By: Ollendorf, Franziska; Ansah, Goodlet
    Abstract: In the context of persisting sustainability challenges in the Global Cocoa-Chocolate Chain (GCCC), sustainability certification gained momentum as a major industry response. While much research has been undertaking regarding effects of certification schemes on farming practices and farmers' livelihoods, there is little understanding of how these private sector responses transform the local economy. Taking the case of sustainability certification in the cocoa industry of Ghana, this study provides an empirical insight in effects of the rapid proliferation of sustainability certification on the local marketing environment and new forms of competition among local market players. Applying a lens of Global Value Chain theory, the study offers a discussion on upgrading opportunities for local companies and their responses to certification-linked pressures. In the Ghanaian cocoa sector, t sustainability certification became a key tool of competition for farmers among local buying companies. Yet, due to the lack of pre-financing capacities for the costly implementation of certification schemes, and the lack of off-taking arrangements, local Licensed Buying Companies (LBCs) are structurally disadvantaged with the implementation of certification schemes compared to their transnational counterparts and therefore face a strong tendency of losing market shares. The paper contributes to the study of sustainability in the GCCC in two ways: 1) It provides insights on the functioning of the so far understudied local marketing segment and changing dynamics of competition and governance, and 2) it enlarges the sustainability debate by including structural transformations of the industry linked to the implementation of certification.
    Date: 2022
  21. By: Yang, Shengxing; Vialle, Pierre; Whalley, Jason
    Abstract: Although market entry has been a longstanding feature of mobile telecommunication markets, relatively few entrants have transformed the market(s) that they have entered. One such company is CK Hutchison, while another is Iliad, whose entry into the French mobile market profoundly and irrevocably changed it. This paper explores whether Iliad has been able to repeat this initial 'success' of disrupting the French market when it entered a second large European market, namely, Italy. We begin by outlining the circumstances that led to the entry of Iliad into the Italian market, and then chart is development as a new entrant. Through adopting such a longitudinal approach, we are able to demonstrate how Iliad has encountered numerous challenges and has adopted a different approach to that which was so success in France. We conclude that disruption the second time around is more difficult to achieve.
    Keywords: Iliad,disruption,Italy,mobile telecommunications
    Date: 2022

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