nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒03‒06
twelve papers chosen by
Russell Pittman
United States Department of Justice

  1. Product Differentiation and Oligopoly: A Network Approach By Bruno Pellegrino
  2. Distorted Innovation: Does the Market Get the Direction of Technology Right? By Daron Acemoglu
  3. Entry in a homogeneous Cournot-oligopoly is excessive if there is business stealing. This prediction assumes that production costs reduce profits and welfare equally. However, this need not be the case. If there is asymmetric information, suppliers or employees can utilize their superior knowledge to extract informational rents. Rent payments reduce profits and deter entry, but affect neither the optimal number of firms nor welfare directly. Therefore, entry becomes insufficient if informational rents are large enough. In the context of a moral hazard model, we show that insufficient entry occurs if entry costs are sufficiently high. Such costs lower the number of firms and, thereby, raise informational rents. By Marco de Pinto; Lazlo Goerke; Alberto Palermo
  4. Labor Market Concentration and Wages: Incumbents versus New Hires By Bassanini, Andrea; Batut, Cyprien; Caroli, Eve
  5. Labour Market Power and the Dynamic Gains to Openness Reforms By Priyaranjan Jha; Antonio Rodriguez-Lopez; Adam Hal Spencer
  6. Monetary Policy and Local Industry Structure By Popov, Alexander A.; Steininger, Lea
  7. Assessing the Quality of Public Services: For-profits, Chains, and Concentration in the Hospital Market By Johannes S. Kunz; Carol Propper; Kevin E. Staub; Rainer Winkelmann
  8. The role of market concentration in the agrifood industry By Hernandez, Manuel A.; Espinoza, Alvaro; Berrospi, Maria Lucia; Deconinck, Koen; Swinnen, Johan; Vos, Rob
  9. Rare Earth Elements: A game between China and the rest of the world By Behnaz Minooei Fard; Willi Semmler; Giovanni Di Bartolomeo
  10. La regulación ex ante de la competencia en la era digital By Da Silva, Filipe
  11. A note on industry concentration measurement By Ryan A. Decker; Jacob Williams
  12. Estimating Very Large Demand Systems By Lanier, Joshua; Large, Jeremy; Quah, John

  1. By: Bruno Pellegrino
    Abstract: This paper develops a theory of oligopoly and markups in general equilibrium. Firms compete in a network of product market rivalries that emerges endogenously out of the characteristics of the products and services they supply. My model embeds a novel, highly tractable and scalable demand system (GHL) that can be estimated for the universe of public corporations in the USA, using publicly-available data. Using the model, I compute firm-level markups and decompose them into: 1) a new measure of firm productivity that accounts for product quality; 2) a metric of network centrality, which captures the extent of competition from substitute products. I estimate that, in 2019, public corporations produced consumer surplus in excess of 10 US$ trillions (against $3 trillions of profits). Oligopoly lowers total surplus by 11.5% and depresses consumer surplus by 31%. My analysis also suggests that both numbers were significantly lower in the mid-90s (7.9% and 21.5%, respectively). These results should be interpreted with care due to data limitations.
    Keywords: competition, concentration, general equilibrium, market power, markups, mergers, monopoly, networks, oligopoly, text analysis
    JEL: D20 D40 D60 E20 L10 O40
    Date: 2023
  2. By: Daron Acemoglu
    Abstract: In the presence of markup differences, externalities and other social considerations, the equilibrium direction of innovation can be systematically distorted. This paper builds a simple model of endogenous technology, which generalizes existing comparative static results and characterizes potential distortions in the direction of innovation. I show that empirical findings across a number of different areas are consistent with this framework's predictions and I use data from several studies to estimate its key parameters. Combining these numbers with rough estimates of differential externalities and markups, I provide suggestive evidence that equilibrium distortions in the direction of technology can be substantial in the context of industrial automation, health care, and energy, and correcting these distortions could have sizable welfare benefits.
    JEL: C65 J23 J24 L65 O14 O31 O33
    Date: 2023–02
  3. By: Marco de Pinto (University of Applied Labour Studies, Mannheim); Lazlo Goerke (Institute for Labour Law and Industrial Relations in the EC, University of Trier, IZA Bonn and CESifo Muenchen); Alberto Palermo (Institute for Labour Law and Industrial Relations in the EC, University of Trier)
    Keywords: Oligopoly, excessive entry, informational rents, moral hazard
    JEL: D43 D82 L51
  4. By: Bassanini, Andrea (OECD); Batut, Cyprien (Paris School of Economics); Caroli, Eve (Université Paris-Dauphine)
    Abstract: We investigate the impact of labor market concentration on average wages and decompose it into its effects on new hires and incumbents, where incumbents are defined as individuals who were already employed in the same firm the year before. Using administrative data for France, we find that concentration negatively affects both new hires' and incumbents' wages with elasticities ranging from -0.0287 to -0.0296 and -0.0185 to -0.0230, respectively. It also reduces the probability that a worker be a new hire rather than an incumbent. When decomposing the overall effect of labor market concentration on wages into its different components, we find that the negative effect on incumbents' wages accounts for between two thirds and three fourth of the total.
    Keywords: labor market concentration, monopsony, wages, incumbents
    JEL: J31 J42 L41
    Date: 2023–01
  5. By: Priyaranjan Jha; Antonio Rodriguez-Lopez; Adam Hal Spencer
    Abstract: We develop a dynamic general equilibrium framework with firm heterogeneity and monopsonistic labour markets, for quantification of the impact of trade and FDI liberalisation episodes. Firms make standard extensive margin investment choices into exporting and multinational statuses. The labour market features upward-sloping supply curves and love of variety in employment. These features interact with the variable-fixed cost tradeoff of outward activity. We calibrate the model to U.S. data and study the effect of reductions in tariffs and outward FDI taxes in both bilateral and unilateral contexts, examining steady state and transitional effects. We compare the predictions of this model with a more standard version with perfectly competitive labour markets. Our headline finding is that the model with labour market power gives substantially different quantitative estimates to the perfectly competitive version. For instance, a bilateral trade liberalisation gives welfare gains that are over 10 times larger in the presence of monopsony power. Significant quantitative differences persist with a variety of robustness exercises.
    Keywords: monopsonistic labour market, trade liberalisation, love of firm variety, dynamics, foreign direct investment, corporate taxation
    JEL: F12 F13 F16 F23 F40 H25
    Date: 2023
  6. By: Popov, Alexander A.; Steininger, Lea
    Abstract: We study how monetary policy affects local market competition in a union of countries experiencing different economic conditions: the euro area. We find that when monetary conditions tighten (loosen), from the point of view of an individual economy, market concentration increases (declines). This effect is more pronounced when interest rates have been low-for-long, and it is stronger in sectors that are relatively more sensitive to changes in financing conditions. The underlying mechanism is a decline (increase) in short-term debt and investment by smaller and medium-size firms, relative to large firms, following monetary policy tightening (easing).
    Keywords: Eurozone, Monetary Union, Monetary Policy, Low Interest Rates, Competition
    Date: 2023–02
  7. By: Johannes S. Kunz (Monash University); Carol Propper (Imperial College London); Kevin E. Staub (University of Melbourne); Rainer Winkelmann (University of Zurich)
    Abstract: We examine variation in US hospital quality across ownership, chain membership, and market concentration. We use a new measure of quality derived from the penalties imposed on hospitals under the flagship Hospital Readmissions Reduction Program. We document a robust and sizable negative for-profit quality gap: for-profit hospitals are consistently of lower quality. We find that a substantial part of the gap is related to being located in less competitive markets. This reduction occurs most for hospitals that are part of large national chains. For such hospitals we find no quality gap in fully competitive markets.
    Keywords: Hospital Readmissions, Affordable Care Act, Hospital Quality, Competition, Hospital Chains
    JEL: H51 I11 I18
    Date: 2023–02
  8. By: Hernandez, Manuel A.; Espinoza, Alvaro; Berrospi, Maria Lucia; Deconinck, Koen; Swinnen, Johan; Vos, Rob
    Abstract: The role of market concentration and potential market power exertion in the agri-food industry is a topic of longstanding interest and concern to policymakers, stakeholders, and researchers. This study provides a comprehensive overview of recent trends in market concentration upstream, midstream, and downstream the agri-food industry at the global, regional, and country level, and assesses how and to what extent concentration could be affecting market conduct and performance of food systems in developed and developing countries. The analysis additionally discusses, to the extent detectable, implications of concentration, including vertical and horizontal integration that favor concentration, for food security and nutrition and environmental sustainability. While market concentration in the agri-food industry has increased across most segments, the evidence on market power exertion is inconclusive. Several knowledge and data gaps are identified and additional research is necessary to derive more general conclusions and policy recommendations.
    Keywords: agricultural economics; agrifood sector; environment; food security; nutrition; sustainability; market concentration
    Date: 2023
  9. By: Behnaz Minooei Fard; Willi Semmler; Giovanni Di Bartolomeo
    Abstract: The economics of rare earth elements (REEs) has become a critical issue due to the growing demand for these crucial materials in the transition to renewable energies. The monopolistic structure of the REE market dominated by China and its unstable supply of REEs has raised concerns globally about potential supply chain disruptions. With the largest REE reserves and refining capacity, China exerts market power, causing supply chain problems and price volatility. However, China's growing consumption of REEs may exceed its domestic production and lose its control over the supply since other countries move into the market. This paper uses a game-theoretic stylization to examine competition between China and the rest of the world (ROW). We investigate how China uses a limit-pricing mechanism to prevent the entrance of fringe firms from the ROW and show how the ROW is limited to quantity adjustments. We also examine the market's transformation from a monopoly to a foreseeable duopoly. The focus is on the supply side of the market, the resource extraction by China and the ROW, and the depletion of the discovered resources. Additionally, we assess the role of the impact of marginal costs and supporting policies on these dynamics. Our model variants are solved numerically using the moving-horizon strategy in differential games provided by the non-linear model predictive control (NMPC) technique, allowing us to predict the outcome of the interaction between China and the ROW and the impact of their decision-making.
    Keywords: Rare earth elements; differential games; non-linear model predictive control
    JEL: C61 C7 Q3
    Date: 2023–02
  10. By: Da Silva, Filipe
    Abstract: Debido a las características técnico-económicas de los nuevos modelos de negocio en la economía digital, la regulación actual sobre competencia muestra cierta insuficiencia para prevenir y corregir las prácticas reñidas con la competencia en estos mercados. Como consecuencia, expertos han recomendado la adopción de regulación innovadora ex ante para complementar las herramientas tradicionales en mercados digitales. Salvo en el caso de control de concentraciones, la utilización de herramientas ex ante no es tan frecuente y muchas autoridades han emitido algunas reservas en cuanto a su uso en la región y en el mundo. Este documento busca relevar la información sobre cómo se están preparando las autoridades de competencia de América Latina y el Caribe para enfrentar los desafíos que plantean los mercados digitales, mapeando herramientas ex ante y capacidades frente a la presencia de prácticas anticompetitivas desplegadas por plataformas digitales.
    Date: 2022–12–29
  11. By: Ryan A. Decker; Jacob Williams
    Abstract: Industry concentration—the share of sales or output accounted for by the largest firms within an industry—has received widespread attention recently, in part because concentration has generally risen in recent decades (figure 1). Measurement challenges are at the core of concentration-based inquiry: industry sales concentration is one of the lowest-frequency business statistics produced by the U.S. statistical agencies, with concentration data being released only twice per decade as part of the Economic Censuses.
    Date: 2023–02–03
  12. By: Lanier, Joshua; Large, Jeremy; Quah, John
    Abstract: We present a discrete choice, random utility model and a new estimation technique for analyzing consumer demand for large numbers of products. We allow the consumer to purchase multiple units of any product and to purchase multiple products at once (think of a consumer selecting a bundle of goods in a supermarket). In our model each product has an associated unobservable vector of attributes from which the consumer derives utility. Our model allows for heterogeneous utility functions across consumers, complex patterns of substitution and complementarity across products, and nonlinear price effects. The dimension of the attribute space is, by assumption, much smaller than the number of products, which effectively reduces the size of the consumption space and simplifies estimation. Nonetheless, because the number of bundles available is massive, a new estimation technique, which is based on the practice of negative sampling in machine learning, is needed to sidestep an intractable likelihood function. We prove consistency of our estimator, validate the consistency result through simulation exercises, and estimate our model using supermarket scanner data.
    Keywords: discrete choice, demand estimation, negative sampling, machine learning, scanner data
    JEL: C13 C34 D12 L20 L66
    Date: 2022–06

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