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on Industrial Competition |
| By: | Walter Beckert (Birkbeck, University of London); Paolo Siciliani (Bank of England) |
| Abstract: | This paper studies regulatory policy interventions that are aimed at protecting sticky consumers who are exposed to the risk of being taken advantage of. We model heterogeneous consumer switching costs alongside asymmetric market shares. This setting encompasses many markets in which established firms are challenged by new entrants. We identify circumstances under which such interventions can be counterproductive: with regard to the stated consumer protection objective and also with regard to the complementary aim to promote competition. |
| Keywords: | switching costs, price discrimination, uniform pricing, most-favoured customer clauses, price regulation, competition |
| JEL: | L11 L13 D4 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:2202&r=com |
| By: | KAWAHAMA Noboru |
| Abstract: | Concerns about the concentration of economic power in digital platforms have transformed the framework of the debate over competition law (including related areas) over the past few years. One of the driving forces behind this change has been the rise of a position in the United States known as the neo-Brandeis movement. While there has been much praise and criticism of this position, it is hard to deny that it has already become a driving force for regulation. While this position began within academia, it also has an aspect of activism, making it difficult to organize the debate. At first glance, the "consumer welfare standard" seems self-explanatory, but its usage in the U.S. is quite unique. In Europe and Japan, "consumer welfare standards" have never been dominant in the U.S. sense, nor have "consumer welfare" standards been technically a regulatory standard under Japanese law in the Antimonopoly Law. However, we have adopted a market power standard that is similar in content to the consumer welfare standard, which is generally responsive to the criticisms of the neo-Brandeisan position. On the other hand, it can be pointed out that Japan's market dominance standard differs in the absence of monopoly power regulation. Although the neo-Brandeisian position has been propagated in Japan, it is difficult to accurately evaluate it without an understanding of the differences between Japan and the U.S. with respect to the "consumer welfare standard" and the "market power standard†. While there are few arguments in favor of the neo-Brandeisian position in its entirety, it is an obstacle to understanding the current situation in which arguments that follow a similar logic are gaining ground in popularity in many respects. This DP aims to clarify the implications of the new Brandeis movement for Japan's competition policy by elucidating the problems with the "consumer welfare standard" and the significance of the "market power standard" in the United States. |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:23001&r=com |
| By: | Luca Fontanelli; Mattia Guerini; Mauro Napoletano (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po) |
| Abstract: | We build a simple dynamic model to study the effects of technological learning, market selection and international competition in the determination of export flows and market shares. The model features two countries populated by firms with heterogeneous productivity levels and sales. Market selection in each country is driven by a finite pairwise Pólya urn process. We show that market selection leads either to a national or to an international monopoly in presence of a static distribution of firm productivity levels. We then incorporate firm learning and entry-exit in the model and we show that the market structure does not converge to a monopoly. In addition, we show that the extended model is able to jointly reproduce a wide ensemble of stylized facts concerning intra-industry trade, industry and firm dynamics. |
| Keywords: | firm dynamics, market selection, Pólya urn, international trade, industrial dynamics |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:spmain:hal-03370650&r=com |
| By: | armstrong, mark; Vickers, John |
| Abstract: | Edgeworth's paradox of taxation occurs when an increase in the unit cost of a product causes a multiproduct monopolist to reduce prices. We give simple illustrations of the paradox, including how it can arise with uniform pricing. We then give a general analysis of the case of linear marginal cost and demand conditions, and characterize which matrices of cost passthrough terms are consistent with profit maximization. When the firm supplies at least one pair of substitute products we show how Edgeworth's paradox always occurs with a suitable choice of cost function. We then establish a connection between Ramsey pricing and the paradox in a form relating to consumer surplus, and use it to find further examples where consumer surplus increases with cost. |
| Keywords: | Multiproduct pricing; Edgeworth's paradox of taxation; cost passthrough; Ramsey pricing |
| JEL: | D42 H22 L12 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115898&r=com |
| By: | Relihan, Lindsay |
| Abstract: | Is online retail a complement or substitute to local offline economies? This paper provides the first evidence that consumers use time saved from online retail to increase their trips for time-intensive services like coffee shops. I use new, detailed data on the daily transactions of millions of anonymized customers. I then estimate a discrete choice model of consumer trip choice, which embeds time use mechanisms and accounts for correlations in trip utility shocks. I show that the model matches key features of observed behaviour that are missed by more standard models, such as the disproportionate increase in trips to nearby coffee shops when consumers switch to online groceries. Model counterfactuals are used to forecast changes in future trip demand and outline strategies, which offline retailers can use to compete against online retail. For consumers, I find that the welfare gains from online grocery platforms go disproportionately to high-income consumers. |
| Keywords: | online; retail; time use; tips |
| JEL: | D12 J20 L81 R12 |
| Date: | 2022–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:117805&r=com |
| By: | Samuel Dodini; Michael F. Lovenheim; Kjell G. Salvanes; Alexander Willén |
| Abstract: | This paper extends the literature on monopsony and labor market concentration by taking a task-based approach and estimating the causal effect of concentration in the demand for skills on labor market outcomes. The prior literature has focused on industry and occupation concentration and likely overstates the degree of monopsony power, since worker skills are substitutable across different firms, occupations, and industries. Exploiting linked employer-employee data that cover the universe of Norwegian workers over time, we find that our job task-based measure shows lower degrees of concentration than the conventional industry-and occupation-based measures. We also find that the gender gap in concentration is substantially larger using this measure. Exploiting mass layoffs and establishment closures as exogenous shocks to local labor demand, we show that workers who experience a mass separation have substantially worse subsequent labor market outcomes when they are in more concentrated labor markets defined by skill clusters. Our results point to the existence of employer market power in the economy that is driven by the concentration of skill demand across firms. |
| JEL: | J23 J24 J42 J63 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30823&r=com |
| By: | Xiaoliang Li; Bo Li |
| Abstract: | In this paper, we explore a dynamic Bertrand duopoly game with differentiated products, where firms are boundedly rational and consumers are assumed to possess an underlying CES utility function. We mainly focus on two distinct degrees of product substitutability. Several tools based on symbolic computations such as the triangular decomposition method and the PCAD method are employed in the analytical investigation of the model. The uniqueness of the non-vanishing equilibrium is proved and rigorous conditions for the local stability of this equilibrium are established for the first time. Most importantly, we find that increasing the substitutability degree or decreasing the product differentiation has an effect of destabilization for our Bertrand model, which is in contrast with the relative conclusions for the Cournot models. This finding could be conducive to the revelation of the essential difference between dynamic Cournot and Bertrand oligopolies with differentiated goods. In the special case of identical marginal costs, we derive that lower degrees of product differentiation mean lower prices, higher supplies, lower profits, and lower social welfare. Furthermore, complex dynamics such as periodic orbits and chaos are reported through our numerical simulations. |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2301.01007&r=com |
| By: | Philippe Aghion; Antonin Bergeaud; Matthieu Lequien; Marc Melitz; Thomas Zuber |
| Abstract: | We decompose the “China shock” into two components that induce different adjustments for firms exposed to Chinese exports: an output shock affecting firms selling goods that compete with similar imported Chinese goods, and an input supply shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the output shock is detrimental to firms' sales, employment, and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the input supply shock on firms' sales, employment and innovation. |
| Keywords: | Competition Shock, Patent, Firms, Import |
| JEL: | F14 O19 O31 O33 O34 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:899&r=com |
| By: | Buehler, Stefan; Chen, Rachel; Halbheer, Daniel |
| Abstract: | This paper develops an analytical framework to study how firms should design a product by choosing its recyclability and price when consumers adopt a life-cycle approach and decide whether to recycle an end-of-life product. We show that, under a linear business model, the firm offers a non-recyclable product even if consumers care about recyclability. Under a circular business model, the firm generates revenue from both sales and recycling, and determines recyclability by balancing the marginal changes in the consumers’ expected end-of-life utility and the unit production cost net of the expected value of the recovered resources. We identify conditions under which the firm offers a fully recyclable product and all consumers return the product for recycling. In addition, we show that stronger consumer concerns about recyclability and a higher market value of the recovered resources increase recyclability, but have an ambiguous impact on price, demand, profit, and the waste footprint of the firm. Further, we characterize conditions under which transitioning from a linear to a circular business model is profitable and socially desirable. Finally, we examine how the firm can boost circularity by leveraging deposit-refund systems, product buyback, or retaining product ownership. |
| Keywords: | Circular business model, waste footprint, resource footprint, recycling, reverse supply chain, pricing |
| JEL: | D21 L21 M21 M31 Q53 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2023:02&r=com |
| By: | Isabel Helmrath (University of Siegen); Matthias Hunold; Johannes Muthers |
| Abstract: | We analyze self- and joint procurement of countries with heterogeneous demand for a good offered by a price discriminating monopolist. We find that not only countries with low but also with high demand can benefit from committing to jointly procure equal quantities at a uniform price, even if the supplier is capacity constrained. Free-riding of outside buyers as well as too much heterogeneity of insiders make the buyer group unstable. Uniform price procurement without a quantity restriction is only stable with intra-group transfers. We relate our findings to the COVID-19 vaccine procurement of the European Union. |
| Keywords: | joint procurement, group purchase, heterogeneous buyer group, vaccine procurement, price discrimination |
| JEL: | C79 D42 L12 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2022-14&r=com |
| By: | Shuichiro Nishioka (West Virginia University, Department of Economics); Mari Tanaka (Hitotsubashi University) |
| Abstract: | This paper builds an empirically tractable framework for the analysis of marginal costs in markup estimates from the production approach and examines how markups differ by the scope of variable inputs. Using plant-product matched data from Japan, we show that changes in markups can capture price and marginal cost dynamics, irrespective of the scope of variable inputs. Markups, however, are negatively and conditionally correlated with real output when only the most flexible intermediate inputs are selected as variable inputs. We find that the properties of markups depend on how variable inputs are selected and how underlying marginal costs are specified. |
| Keywords: | Markups, Variable inputs, Marginal costs, Plant-product matched data, Japanese manufacturing |
| JEL: | D22 D24 L11 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:wvu:wpaper:23-01&r=com |
| By: | Suman Banerjee; Ravi Jagannathan; Kai Wang |
| Abstract: | Using a two-period model of a commodity market with a large number of atomistic consumers and two strategic sellers, we show that a speculator with access to storage can lower the market price while buying and raise the price while selling by clever use of limit, stop-loss, and market orders. The speculator profits from it. This creates price volatility even though there is no demand or supply uncertainty, and all market participants act rationally. Prices are more volatile when the speculator has access to free disposal. Such speculative activity makes the strategic sellers worse off and consumers better off. Our results are robust to introducing demand uncertainty, having more than one large speculator, and more than two strategic sellers. When there are multiple strategic sellers consumers can be worse off. |
| JEL: | G0 G1 G10 G12 G18 G19 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30828&r=com |
| By: | Mark Duggan; Atul Gupta; Emilie Jackson; Zachary S. Templeton |
| Abstract: | Privatization has been shown to increase growth and profitability of public firms. However, effects on consumers are understudied. We study potential trade-offs in the US hospital sector where public control declined by 42% over 1983–2019. Private operators may improve hospitals’ financial performance, but a focus on profitability may adversely affect access to care for certain patients. Using national data across all hospitals and patients, we study 258 hospital privatizations over the 2000–2018 period. Private operators improve profitability so that hospitals generate a modest surplus, primarily by increasing mean revenue per patient. However, this is partly achieved by differentially reducing the intake of low-income Medicaid patients, who are typically less profitable than other groups due to lower reimbursement rates. While other patients appear to be absorbed by neighboring hospitals, Medicaid patients experience an aggregate decline in utilization at the market-level, which we interpret as a decline in access to care. Hospital privatization therefore partially offsets the benefits of providing publicly funded health insurance through Medicaid, and our estimates imply it is quantitatively important. The aggregate decline in Medicaid volume is detected only in more concentrated hospital markets, suggesting market power is a key driver. |
| JEL: | H11 I11 I13 I18 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30824&r=com |
| By: | Roberta Piermartini; Adam Jakubik; Alexander Keck |
| Abstract: | Economic theory suggests that countries’ tariff commitments in trade agreements reflect their import market power at the time of negotiations. However, as countries grow, their market power in different sectors can change in unforeseen ways and their commitments may no longer reflect changed economic conditions. Using a newly built dataset of pre-Uruguay Round applied tariffs and relying on the theoretical framework of the terms-of-trade motive for trade agreements, we estimate hypothetical tariff commitments under current levels of market power and compare them with actual tariff commitments. We find that lower tariff commitments required to reflect current economic conditions would amount to a reduction in annual tariff costs of up to $26.4 billion – equivalent to nearly 10% of global tariff costs. Our results reveal substantial heterogeneity between countries and sectors. The sectors with the largest potential tariff cost reductions are vehicles (HS 87) and machinery and appliances (HS 84-85). Product-level tariff reductions would range from 0 to 18.5 percentage points and are on average largest for China. In the past, the GATT/WTO system has updated tariff commitments through periodic rounds of negotiations, and our findings support the revival of the WTO's negotiation function in this area. |
| Keywords: | trade agreements; trade policy; terms of trade |
| Date: | 2023–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/005&r=com |
| By: | Ceesay, Muhammed |
| Abstract: | How much does it hurt seller revenue if some bidders know that others are colluding? Using a simple model of first and second price Independent Private Value auctions with uniformly distributed values where a single bidder knows privately of the existence of collusion by others, we show that this knowledge leads him to bid shading (weakly) in the first price auction compared to what he would have bid otherwise. This in turn yields the result that the second price auction dominates the first price auction in terms of seller revenue. This contrasts results from the literature showing that under our framework, when bidding is done while the presence of colluding bidders is common knowledge, the first price auction dominates the second price auction. |
| Keywords: | Almost-All-Inclusive Ring, Informational Structures |
| JEL: | D44 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:268306&r=com |
| By: | Prince, Ehsanur Rauf; Barmon, Basanta Kumar; Islam, Teresa |
| Abstract: | Market integration is a metric for market efficiency, notably pricing efficiency. This paper examined the type and degree of market integration in Bangladesh using latest available weekly rice market price data from the six district markets in Bangladesh from January 2014 to December 2018. The findings demonstrated that the wholesale price series of rice are stationary at first difference, but non-stationary at levels. The vector error correction model is then implemented after the Johansen-Juselius approach has been used to examine the co-integrating relationship between the various district markets. The negative and statistically significant coefficients of error correction term for the rice markets in Barishal, Chattogram, and Sylhet districts show that short-run dynamics are convergent with long-term equilibrium. According to the estimated results of the error correction model, there is an equilibrium relationship between the rice markets in Dhaka with rice markets in Barishal, Chattogram, Dinajpur, and Khulna over the long run. In the short run, the calculated co-efficient values, however, indicate that there is only a weak transmission of price changes from one district market to another within the same week. |
| Keywords: | Market Integration Spatial Price Transmission Agricultural Trade Error Correction Model Bangladeshi Rice Market Agricultural Market Integration |
| JEL: | Q11 Q13 Q14 Q18 Q19 |
| Date: | 2022–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115927&r=com |
| By: | Sabien Dobbelaere (: Vrije Universiteit Amsterdam, Tinbergen Institute and IZA Institute of Labor Economics); Catherine Fuss (Economics and Research Department, NBB); Mark Vancauteren (Universiteit Hasselt and Statistics Netherlands (CBS)) |
| Abstract: | This paper examines the relationship between offshoring and the prevalence and intensity of labor market imperfections at the firm level. For this purpose, we use Belgian and Dutch manufacturing firm-level data over the period 2009-2017 from Business registers and VAT declarations combined with information in the Transaction Trade database that reports values and volumes of international transactions at the country, firm and product level. In both countries, we find that wage markup-pricing stemming from workers’ monopoly power is more prevalent than wage markdown-pricing originating from employers’ monopsony power. Offshoring benefits Belgian and Dutch employers in that imports of final as well as intermediate goods are associated with a larger prevalence and intensity of wage markdowns. The opposite holds for the prevalence of wage markups. In Belgium, we also find that offshoring is negatively related to the intensity of wage markups measured by workers’ bargaining power. The origin of imports matters for the prevalence of labor market imperfections in Belgian firms. This is far less so in Dutch firms, which could be explained by their more global focus and the more global scale of the vertical chain in which they operate. |
| Keywords: | Wage markdowns, wage markups, firm-level offshoring |
| JEL: | F14 F16 J42 J50 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:202211-425&r=com |