nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒01‒16
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Data, Competition, and Digital Platforms By Dirk Bergemann; Alessandro Bonatti
  2. Acquisition-induced kill zone By Christopher Teh; Dyuti Banerjee; Chengsi Wang
  3. Self-Preferencing and Foreclosure in Digital Markets: Theories of Harm for Abuse Cases By Massimo Motta
  4. On the Role of Bargaining Power in Nash-in-Nash Bargaining: When More is Less By Marc Escrihuela-Villar; Walter Ferrarese; Alberto Iozzi
  5. Regulating big tech By Luigi Zingales
  6. Global Giants and Local Stars: How Changes in Brand Ownership Affect Competition By Alviarez, Vanessa; Head, Keith; Mayer, Thierry
  7. 포용적 혁신성장을 위한 주요국의 경쟁정책 분석과 정책적 시사점(Study of Competition Policies for Inclusive and Innovative Growth) By Han, Minsoo; Jang, Yungshin; Yoon, Sang-Ha; Oh, Taehyun; Kim, Subin
  8. Patents that Match your Standards: Firm-level Evidence on Competition and Growth By Bergeaud Antonin; Schmidt Julia; Zago Riccardo
  9. Informational Intermediation, Market Feedback, and Welfare Losses By Wenji Xu; Kai Hao Yang
  10. Strategic exporting in an international oligopoly By Kazuhiro Takauchi; Tomomichi Mizuno
  11. Omitted budget constraint bias in discrete-choice demand models By Pesendorfer, Martin; Schiraldi, Pasquale; Silva-Junior, Daniel
  12. The Simple Economics of Optimal Bundling By Frank Yang
  13. Using Demand Transfer Ratios to Infer Market Impacts of New Goods By Gayle, Philip; Lin, Ying

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti
    Abstract: We propose a model of intermediated digital markets where data and heterogeneity in tastes and products are defining features. A monopolist platform uses superior data to match consumers and multiproduct advertisers. Consumers have heterogenous preferences for the advertisers' product lines and shop on- or off-platform. The platform monetizes its data by selling targeted advertising space that allows advertisers to tailor their products to each consumer's preferences. We derive the equilibrium product lines and advertising prices. We identify search costs and informational advantages as two sources of the platform's bargaining power. We show that privacy-enhancing data-governance rules, such as those corresponding to federated learning, can lead to welfare gains for the consumers.
    Keywords: Data, Privacy, Data Governance, Digital Advertising, Competition, Digital Platforms, Digital Intermediaries, Personal Data, Matching, Price Discrimination
    JEL: D18 D44 D82 D83
    Date: 2022–08
  2. By: Christopher Teh (UNSW Sydney); Dyuti Banerjee (Department of Economics, Monash University); Chengsi Wang (Department of Economics, Monash University)
    Abstract: We study the impact of a dominant incumbent’s acquisition on entry and R&D incentives in a model with multiple start-ups. The incumbent’s acquisition directly suppresses entry and can distort the non-target start-up’s R&D incentives by creating a kill zone. The reduced threat of entry can also cause the incumbent to shelve the acquired technology. Despite these negative effects, acquisitions generally affect consumer welfare ambiguously due to synergy benefits. We study the design of merger policies aimed at minimizing acquisition-related harms. We also show that entry-for-buyout may not be a valid defense for start-up acquisitions when accounting for non-target start-ups.
    Keywords: Acquisitions, Innovation, Start-ups, Merger Policy, Remedies
    JEL: G34 L12 L41 O31
    Date: 2022–12
  3. By: Massimo Motta
    Abstract: Antitrust agencies all over the world have been investigating large digital platforms for practices which may constitute an abuse of dominance. Here I discuss practices (including ‘selfpreferencing’ and denial or degradation of interoperability) which can be interpreted as foreclosure in vertically-related or complementary markets. I discuss in particular a few high-profile cases involving Amazon, Apple, Facebook and Google. I focus on possible theories of harm for such cases and show that both original simple models and well-established economic theories (adapted or interpreted) provide a rationale for anti-competitive foreclosure.
    Keywords: self-preferencing, abuse of dominance, monopolization, exclusionary practices, digital platforms, two-sided markets, vertical foreclosure
    JEL: D40 K21 L10 L40
    Date: 2022–12
  4. By: Marc Escrihuela-Villar (Universitat de les Illes Balears); Walter Ferrarese (Universitat de Les Illes Balears); Alberto Iozzi (Università di Roma ‘Tor Vergata’ & SOAS University of London)
    Abstract: In bargainings, the parties’ bargaining powers (BPs) may determine not only how the surplus is shared (share effect), but also the size of the aggregate surplus (size effect). Since the size effect may be positive or negative, the sign of the effect on a party’s payoff of a change in her BP is in principle undetermined. We first look at a general model with a party (the principal) negotiating with two counterparts. At the Nash-in-Nash solution, we show that the equilibrium payoff of the principal may be decreasing in her BP. Necessary conditions for this to occur are an asymmetric bargaining model and a sufficiently large difference in the way the bargained upon variables affect the principal’s payoff. We then revisit a standard linear vertical industry with one upstream firm, downstream Cournot competition, and public contracts. A negative effect on the upstream firm’s profits deriving from an increase in her BP is always found when the firm has different BPs across the negotiations and final goods are complements. We map these conditions to those characterised in the general model.
    Keywords: bargaining power, Nash-in-Nash, vertical relations
    JEL: D21 D43 D86
    Date: 2022–12–22
  5. By: Luigi Zingales
    Abstract: Digital markets are global in nature and prone to "tipping". The combination of these two factors makes the distortions of the inevitable monopolies in these markets very large, but it also undermines any effort at dealing with these distortions at a national level. I argue that the problem can only be solved by structural interventions that restore conditions for competition. Yet, no national regulator will have the ability to do so. Regulation can only arise in an international context. Paradoxically, the increasing international tension can create political opportunities for such international regulation.
    Keywords: Big tech, regulation, market power
    JEL: L5 L86
    Date: 2022–12
  6. By: Alviarez, Vanessa; Head, Keith; Mayer, Thierry
    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 counter-factual 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
    JEL: F23 F12 F61 L13 K21
    Date: 2021–06
    Abstract: 전 세계 주요국의 상위 1%의 소득비중은 증가하고 있으며 불평등지수도 증가세를 보이고 있다. 기존 연구들은 세계화, 숙련편향적 기술진보, 디지털전환등을 불평등 심화의 요인으로 지적한 바 있다. 하지만 보다 최근에는 이러한 요인들과 함께 시장경쟁의 약화 및 산업집중도 심화가 불평등 심화의 주요한 요인으로 주목받고 있다. 같은 맥락에서 시장경쟁을 촉진하는 경쟁정책의 역할에대해서도 기존의 전통적인 시각을 넘어서 불평등 심화에 대한 대응책으로서 고민해보아야 할 시점이다. 이러한 배경하에 본 연구는 주요국의 사례조사와 실증분석을 수행하고, 이를 통해서 우리 정부가 추구하고 있는 포용적 혁신성장을 달성하기 위한 경쟁정책 방향을 제안하고자 한다. The share of income possessed by the top 1% in major countriesis increasing, together with a rise in the inequality index. Previousstudies have pointed out globalization, skill-biased technologicalprogress, and digital transformation as factors for deepeninginequality. More recently, however, weakening market competitionand deepening industrial concentration along with these factorshave been noted as major factors in deepening inequality. In thesame context, the role of competitive policies in promoting marketcompetition should also be considered as a countermeasureagainst deepening inequality beyond the traditional view. Againstthis backdrop, this study conducts case studies and empirical analysis of major countries and proposes a competitive policy directionto achieve inclusive and innovative growth pursued by the Koreangovernment. First, in Chapter 2, we looked at changes in the industry concentration of the US and the EU—the former which enacted theSherman Act, the first antitrust law in the world, and the latter another pillar in the history of global competition policy—then examined recent trends of policies in both regions. In both the USand the EU, industrial concentration has generally increased alongwith the recent proliferation of the digital economy. In addition, as the enforcement of competition laws in these regions is strengthened, the direction of competition policy is changing toward regulating not only anti-competitive actions that directly affect consumer welfare but also actions that can indirectly affect consumerwelfare. For example, the US has issued an Executive Order onPromotion Competition in the American Economy, calling for awhole-of-government effort to prevent damage to workers, entrepreneurs, and consumers across the industry, promote profits,and promote competition. (the rest omitted)
    Keywords: 경쟁정책; 산업정책; Competition policy; industrial policy
    Date: 2021–12–30
  8. By: Bergeaud Antonin; Schmidt Julia; Zago Riccardo
    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
    JEL: L15 O31 O33
    Date: 2022
  9. By: Wenji Xu (College of Business, City University of Hong Kong); Kai Hao Yang (Cowles Foundation and School of Management, Yale University)
    Abstract: This paper examines the welfare implications of third-party informational intermediation. A seller sets the price of a product that is sold through an informational intermediary. The intermediary can disclose information about the product to consumers and earns a fixed percentage of sales revenue in each period. The intermediary's market base grows at a rate that increases with past consumer surplus. We characterize the stationary equilibria and the set of subgame perfect equilibrium payoffs. When market feedback (i.e., the extent to which past consumer surplus affects future market bases) increases, welfare may decrease in the Pareto sense.
    Keywords: Informational intermediary, market size, market feedback, consumer surplus, Pareto-inferior outcomes, Markov perfect equilibrium, subgame perfect equilibrium.
    JEL: C73 D61 D82 D83 L15 M37
    Date: 2022–10
  10. By: Kazuhiro Takauchi (Faculty of Business and Commerce, Kansai University); Tomomichi Mizuno (Graduate School of Economics, Kobe University)
    Abstract: In this paper, we build a model in which firms choose whether to export. We show that if the fixed export cost is small and the transport cost is high, the coexistence of exporters and non- exporters can appear. We also show that trade liberalization may reduce consumer and total surpluses. Because the competition authority often cherishes consumer welfare, our finding offers an important insight into the relation between export activity and competition policy.
    Keywords: Exporting; Fixed export cost; Transport cost; Trade liberalization; Oligopoly
    JEL: F12 F13
    Date: 2022–12
  11. By: Pesendorfer, Martin; Schiraldi, Pasquale; Silva-Junior, Daniel
    Abstract: A large body of discrete-choice demand studies estimate a demand model in which the consumer’s budget constraint is not taken into account. We illustrate how incorrectly specifying the consideration set, when in fact the budget constraint binds for some products, may bias the demand estimates. We illustrate and quantify the nature of the bias in three ways: (i) in analytical examples; (ii) in field data commonly used in the literature and (iii) in a Monte Carlo study. We find that the price sensitivity can be substantially lower when correctly imposing the budget constraint, and own-price elasticities are typically overestimated although the direction of the own-price elasticity bias is in general ambiguous and depends on the income distribution.
    Keywords: omitted budget constraint bias; discrete choice demand; automobile inustry; Elsevier deal
    JEL: D10 D40 L10 L62
    Date: 2023–01–01
  12. By: Frank Yang
    Abstract: We study optimal bundling when consumers differ in one dimension. We introduce a partial order on the set of bundles defined by (i) set inclusion and (ii) sales volumes (if sold alone and priced optimally). We show that if the undominated bundles with respect to this partial order are nested, then nested bundling (tiered pricing) is optimal. We characterize which nested menu is optimal: Selling a given menu of nested bundles is optimal if a smaller bundle in (out of) the menu sells more (less) than a bigger bundle in the menu. We apply these insights to connect optimal bundling and quality design to price elasticities and cost structures: (i) when price elasticities are quasi-convex on the set of bundles, nested bundling is always optimal and the optimal mechanism simply creates nests in the order of price elasticities; (ii) when consumers' preferences are multiplicative, the optimal quality design can be characterized by the lower monotone envelope of the average cost curve.
    Date: 2022–12
  13. By: Gayle, Philip; Lin, Ying
    Abstract: This paper introduces a measure we call a “demand transfer ratio” (DTR) that is a useful metric for inferring and communicating important market impacts associated with new product introductions. We show that the sign and magnitude of the demand transfer ratio can be used to infer whether the presence of new goods expanded aggregate demand in the relevant market and/or have a demand-cannibalizing effect on pre-existing products. In principle, our unit free DTR metric can be computed for the introduction and presence of new products across a wide cross section of industries for the purpose of comparing the demand transference impacts of various technology innovations and further studying what measurable attributes, strategies, and/or policies are associated with the most impactful innovations in an economy.
    Keywords: Demand transfer ratios; New product introduction; Aggregate demand expansionary effect; Demand-cannibalizing effect; Innovation and Technological Change; Environmental Policy
    JEL: D11 L13 M31 O33 Q55 Q58
    Date: 2022–12–20

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