nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒01‒09
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Oligopoly Pricing: The Role of Firm Size and Number By Iwan Bos; Marco A. Marini
  2. Collusion and Predation Under Cournot Competition By Emilie Dargaud; Maxime Menuet; Petros G. Sekeris
  3. By Object or by Effect? The Collusive Potential of First Refusal Contracts By Patrick Van Cayseele; Andreas Bovin
  4. Win/Loss Data, Consumer Switching Costs: Measuring Diversion Ratios and the Impact of Mergers By Jeff Qiu; Masayuki Sawada; Gloria Sheu
  5. Bundling with Resale By Drew Vollmer
  6. Pré-installations, biais de statu quo et consolidation de la dominance : Les enseignements de lâarrêt du Tribunal de lâU.E. dans lâaffaire Google Android By Frédéric Marty
  7. When is resale valuable? And when can it be replaced with refunds? I study the performance of common reallocation mechanisms in perishable goods markets with demand uncertainty. Using primary and secondary market data on college football ticket sales, I design a structural model to evaluate the performance of resale, partial refunds, and a menu of refund contracts. In the model, consumers anticipate shocks when making initial purchases. After shocks are realized, they participate in an endogenous resale market. I find that refunds are more efficient than resale, but that resale is better for sellers and consumers than not reallocating. By Drew Vollmer
  8. Competition between Generic and Brand Name Drugs: New Evidence from the U.S. Pharmaceutical Market By Alberto Cavaliere; Ashin Moayedizadeh
  9. Product market regulation in Indonesia: An international comparison By Christine Lewis; Cristiana Vitale; Rosamaria Bitetti; Auxentius Andry Yudhianto; Javier Terrero-Davila
  10. Network Effects: Betwixt and Between By Mohammed Mardan; Mark J. Tremblay
  12. Economic effects of FDI: How important is rising market concentration? By Vrolijk, Kasper
  13. Cross-Border Mergers and Acquisitions By Erel, Isil; Jang, Yeejin; Weisbach, Michael S.
  14. Two short essays on services markets and services regulation By Kox, Henk L.M.

  1. By: Iwan Bos (Department of Organisation, Strategy and Entrepreneurship, Maastricht University); Marco A. Marini (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: This paper examines a homogeneous-good Bertrand-Edgeworth oligopoly model to explore the role of firm size and number in pricing. We consider the price impact of merger, breakup, investment, divestment, entry, and exit. A merger leads to higher prices only when it increases the size of the largest seller and industry capacity is neither too big nor too small post-merger. Similarly, breaking-up a firm only leads to lower prices when it concerns the biggest producer and aggregate capacity is within an intermediate range. Investment and entry (weakly) reduce prices, whereas divestment and exit yield (weakly) higher prices. Taken together, these findings suggest that size matters more than number in the determination of oligopoly prices.
    Keywords: Bertrand-Edgeworth Competition; Edgeworth Price Cycle; Firm Size Distribution; Oligopoly Pricing; Price Dispersion.
    JEL: D43 L11 L13
    Date: 2022–12
  2. By: Emilie Dargaud (Univ Lyon, Université Lumière Lyon 2, GATE, UMR 5824, F-69130 Ecully, France); Maxime Menuet (LEO, University of Orleans, Orleans, France. e-mail:; Petros G. Sekeris (Corresponding author: TBS Business School, 1 Place A. Jourdain, 31000 Toulouse, France)
    Abstract: This paper studies how predation strategies can affect the sustainability of collusion. We demonstrate that in the presence of few competitors collusion may be sustained at equilibrium for intermediate discount factors. In such instances predation implies that punishment strategies will yield low subgame perfect payoffs, thereby making collusion easier to sustain. For low discount factors collusion is not sustainable because of the high incentives to deviate to Cournot-Nash strategies. Moreover, for high discount factors it is always optimal to predate colluding firms, thus contrasting with much of the earlier literature showing that collusion is only achievable by sufficiently patient firms.
    Keywords: Collusion, Predation, Cournot competition
    JEL: D43 L13 L41
    Date: 2022
  3. By: Patrick Van Cayseele; Andreas Bovin
    Abstract: This article examines the collusive potential of first refusal contracts, which are contracts that grant one party, the buyer, a right of first refusal on the output of another party, the seller. When two parties enter into this type of contract, the seller is obligated to offer any output she wishes to sell to the buyer first. It is only after a 'first refusal' by the buyer that output can be offered to third parties. We compare the outcomes which arise under first refusal contracts with those resulting from explicit cooperation. Our findings suggest that these contracts can result in an identical distortion of competition, while remaining under the radar of antitrust authorities.
    Keywords: Right of first refusal, contract, theory of harm, abuse of bargaining power
    JEL: L4 L40 L41 L42
    Date: 2022
  4. By: Jeff Qiu (U.S. Department of Justice); Masayuki Sawada (U.S. Department of Justice); Gloria Sheu (U.S. Department of Justice)
    Abstract: The diversion ratio is a key input to many indicators of merger harm. Measuring the diversion ratio, however, is challenging in the presence of state dependence driven by things like consumer switching costs. We propose an identification strategy for diversion based on win/loss data. First, we show that win/loss data from the merging firms and market shares for all firms in two periods are sufficient to identify the diversion ratios between the merging partners. Second, we show that win/loss data from the merging firms alone are sufficient for partial identification, and we construct a lower bound that provides a good approximation to the diversion ratio when switching costs are high. We demonstrate the performance of our method with numerical simulations and with an application to the Anthem/Cigna merger..
    Date: 2022–12
  5. By: Drew Vollmer (U.S. Department of Justice)
    Abstract: How does resale affect multiproduct bundling? I investigate using a model of monopoly bundling with costly resale. Consumers purchase in the primary market while anticipating resale, then participate in a resale market with market-clearing prices. Resale forces the monopolist to balance the additional profit from a discounted bundle against the opportunity for consumer arbitrage. In equilibrium, the monopolist may still other a discounted bundle, but resale reduces the returns to bundling and has an ambiguous effect on consumer and total welfare. When consumers have heterogeneous costs of resale, it is possible for consumers to resell in equilibrium.
    Date: 2022–12
  6. By: Frédéric Marty
    Abstract: The Google Android judgment, pronounced by the E.U. General Court on 14 September 2022, has confirmed the main substance of the European Commission's July 2018 decision sanctioning Google’s exclusionary practices. This working paper focuses on one of the dimensions of the judgment confirming the decision's analysis of the anti-competitive foreclosure effects of pre-installation contractual provisions for some of the Google’s applications. These must be considered from the perspective of a tying practice and from the angle of the exploitation of a status quo bias from users. The analysis of this specific case opens a discussion on platform neutrality requirements in the context of the publication of the European legislation on digital markets and services. L’arrêt Google Android rendu par le Tribunal de l’U.E. le 14 septembre 2022 a confirmé l’essentiel de la décision de la Commission européenne qui avait sanctionné en juillet 2018 des pratiques de verrouillage anticoncurrentiel. Ce cahier de recherche porte sur l’une des dimensions de l’arrêt confirmant l’analyse de la décision quant aux effets d’éviction anticoncurrentielle reliés aux clauses de pré-installations de certaines applications. Celles-ci doivent être envisagée sous l’angle d’une pratique de ventes liées et sous celui de l’exploitation d’un biais de statu quo de la part des utilisateurs. L’analyse de ce cas ouvre une discussion sur les exigences de neutralité des plateformes dans le contexte de la publication des lois européennes sur les marchés et sur les services numériques.
    Keywords: exclusionary practices,tying,status quo bias,dark patterns,platform neutrality, pratiques dâévictions anticoncurrentielles,ventes liées,biais de statu quo,architectures de choix trompeuses,neutralité des plateformes
    JEL: K21 L42 L86
    Date: 2022–12–01
  7. By: Drew Vollmer (U.S. Department of Justice)
    Date: 2022–02
  8. By: Alberto Cavaliere (University of Pavia); Ashin Moayedizadeh (University of Pavia)
    Abstract: This paper explores different aspects of competition in the U.S. pharmaceutical industry in order to broaden our insight into price competition in the pharmaceutical market. The main focus is on the effects of patent expiry and generic entry on the brand and generic name drug prices. Using an unbalanced panel dataset of 19 branded and corresponding generic drugs, which faced their first generic entry between 2010 and 2014, we discovered that the Generic Competition Paradox does not arise according to the results obtained with our dataset. Though prices of brand-name drugs are continuously rising, each new generic entrant is associated with an average 2.6 percent decrease in the brand-name drug price. Moreover, the empirical findings in this study fully support the idea of market segmentation based on insurance coverage. We can state that after generic entry, the originator firms appear to demand higher prices in order to exercise price discrimination and exploit the market segment that is less price sensitive.
    Keywords: Pharmaceutical industry, Generic entry, Brand drug price, Generic Competition Paradox, Market segmentation theory
    JEL: I11 L11 L65 D4
    Date: 2022–12
  9. By: Christine Lewis; Cristiana Vitale; Rosamaria Bitetti; Auxentius Andry Yudhianto; Javier Terrero-Davila
    Abstract: Appropriately designed Product Market Regulation (PMR) is essential to enhance productivity, boost economic growth and increase welfare. Regulation is needed to address market failures and guarantee the health and safety of consumers. However, by limiting the entry and expansion of firms, a too stringent regulatory environment can hinder an efficient allocation of resources both within and across industries. This paper provides a detailed review of PMR in Indonesia and analyses the country’s performance in this area relative to OECD countries, other G-20 members and regional peers. To do so, it relies on the OECD’s PMR Indicators, which have been recently compiled for Indonesia. These indicators assess the extent to which the regulatory framework of a country is competition-friendly across a range of sectors and regulatory areas. The analysis reveals that PMR in Indonesia is less conducive to competition than in most OECD countries. The scope for improvement is particularly great in areas such as barriers in network sectors, command-and-control regulation, public procurement, the governance of State-owned Enterprises (SOEs) and the extent to which the impact on competition is assessed when designing new regulation. The paper proposes concrete policy measures to align the regulatory environment of Indonesia with that of best performing countries.
    Keywords: Competition, Governance of State-Owned Enterprises, Indonesia, Product Market Regulation, Productivity, Professional Services, Public Procurement, Regulation
    JEL: D24 D4 H57 K23 K32 L1 L2 L3 L4 L5 L6 L7 L8 L9 O53
    Date: 2022–12–16
  10. By: Mohammed Mardan; Mark J. Tremblay
    Abstract: We challenge the dichotomy of network effects and highlight that they are not an exogenous characteristic of networks, but endogenous to the decisions of network users. When users choose which activities to perform in a network, multi-activity users transform indirect into direct network effects and a network effectively becomes one-sided if merely multi-activity users frequent it. Our work contributes to theory by determining the underlying micro-foundations that produce what the literature calls a two-sided market and by highlighting how the standard two-sided pricing results arises only under very specific conditions. We also contribute to estimation by illustrating how the presence of multi-active users can challenge identification in network industries.
    Keywords: platforms, one-sided markets, two-sided markets, multi-siding users
    JEL: L10 L20 D21 D42
    Date: 2022
  11. By: Morozov Anton (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: In response to the recent garbage crises, the Russian government has implemented a reform to normalize the municipal waste (MSW) industry. Further steps of the state in this direction should be associated with the formation of a long-term strategy based on the principles of sustainable development.
    Keywords: MSW market research, competition research
    Date: 2021–01
  12. By: Vrolijk, Kasper
    Abstract: Many governments adopt policies and actively compete to attract foreign direct investment (FDI). Particularly for lower-income countries, attracting FDI - and with it the benefits of cooperating with multi-national enterprises (MNEs) - is a promising strategy for participating in global supply chains and increasing local firm productivity. However, empirical findings show contrasting effects and there is heated debate over FDI's advantages and drawbacks. The current trend to rising market concentration also begs the question: Have FDI effects changed in recent years? This Policy Brief aims to address these questions by studying FDI and what the apparent growth in market concentration implies. Although foreign investment theoretically raises productivity, creates employment and offers many other benefits, the empirical evidence is not unequivocal. Initial coarse country-level data found that receptivity to FDI raises the host country's economic growth. But later research used more detailed sector data and showed ambiguous effects (Görg & Greenaway, 2004). New microdata confirm that FDI effects are differential: Not all workers and households benefit equally. They also showcase the different ways in which MNEs and FDI benefit firms, workers and households in host countries. Recently, superstar firms, which capture large shares of industries and thereby increase market con-centration, have emerged. Linked to reduced national economic dynamism and evident in global markets, the rise of superstar firms could negatively impact on FDI effects. They differ from MNE competition effects and confer market power so that MNEs can determine prices and wages. This trend toward rising market concentration is observed across multiple sectors and has several possible causes, such as technological and legal factors. A literature survey reveals a lack of evidence about how rising concentration in global markets is affecting FDI gains. However, other evidence suggests that the positive spillovers to domestic firms may well be lower, with higher market concentration negatively affecting wages and employment. The following takeaways can be derived for policy-making: 1. Integrate competition policy: Competition effects should be considered when evaluating FDI and policies should be introduced to ensure competitive practises after FDI entry. 2. Improve monitoring: Collect data on competi-tive forces and how they change when MNEs enter host economies. 3. Absorb regressive effects: Introduce social benefits to counter the potential mixed effects of FDI and MNE market power.
    Keywords: Trade & investment,FDI
    Date: 2022
  13. By: Erel, Isil (Ohio State University and ECGI, Brussels); Jang, Yeejin (UNSW Sydney); Weisbach, Michael S. (Ohio State University and ECGI, Brussels)
    Abstract: One of the most consequential events in any firm’s lifetime is a major acquisition. Because of their importance, mergers and acquisitions (M&As) have been an enormous area of research. However, the vast majority of this research and survey papers summarizing this research have focused on domestic deals. Cross-border ones, however, constitute about 30% of the total number and 37% of the total volume of M&As around the world since the early 1990s. We survey the literature on cross-border M&As, focusing on international factors that can lead firms to acquire a firm in another country. Such factors include differences in economic development, laws, institutions, culture, labor rights, protection of intellectual property, taxes, and corporate governance.
    JEL: F00 G32 G34
    Date: 2022–10
  14. By: Kox, Henk L.M.
    Abstract: The first of both short essays deals with two structural constraints that distinguish services markets from e.g. markets for manufacturing products. The 'nearness restriction' requires that producer and consumer of the service product are present on the same location. The 'non-storability restriction' is even more binding and requires that producer and consumer are present at the same time (synchronicity); the implication is that the consumer is a co-producer. Services branches differ with respect to the binding intensity of both restrictions. The nearness and non-storability limitations define a services market in space and time, with impacts for market functioning, productivity (capacity use) and product tradability. Technological trends, especially digitalisation are oriented at relieving the bindingness of both restrictions, and indirect also of the co- producer role for the service consumer. The second essay links the services market characteristics to the role of the a priori product quality uncertainty, which always drove product market regulation by local and national authorities. Regulatory differences between countries nowadays are an important obstacle to international services trade.
    Keywords: services,market forms,nearness restriction,non-storability restriction,productivity and capacity use,services regulation,international trade in services
    JEL: L8 D4 L1 L5
    Date: 2021

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