nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒03‒13
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Reversal of Bertrand-Cournot Ranking for Optimal Privatization Level By Paul, Arindam; De, Parikshit
  2. Resale price maintenance in a successive monopoly model By Dertwinkel-Kalt, Markus; Wey, Christian
  3. Strategic choice of price-setting algorithms By Buchali, Katrin; Grüb, Jens; Muijs, Matthias; Schwalbe, Ulrich
  4. Market Power and Price Exposure- Learning from Changes in Renewable Energy Regulation By Natalia Fabra; Imelda
  5. Patents that match your standards: firm-level evidence on competition and innovation By Bergeaud, Antonin; Schmidt, Juliane; Zago, Riccardo
  6. Did Labour Market Concentration Lower Wages Growth Pre-COVID? By Jonathan Hambur
  7. Efficient Market Structures Under Incomplete Information By Kai Hao Yang; Alexander K. Zentefis
  8. Monetary policy and local industry structure By Popov, Alexander; Steininger, Lea
  9. Cryptocurrency competition: An empirical test of Hayek's vision of private monies By Mayer, Fabian; Bofinger, Peter
  10. Full Surplus Extraction from Colluding Bidders By Daniil Larionov
  11. A Welfare and Pass-Through Effects of Regulations within Imperfect Competition By Alali, Walid Y; Ellalee, Haider
  12. Selling Data to a Competitor By Ronen Gradwohl; Moshe Tennenholtz
  13. New approaches to shipbuilding capacity assessments By Karin Gourdon; Laurent Daniel; Takuya Adachi; Emilie Berger
  14. The research of pricing mechanisms of public procurement system in the Russian Federation. By S.G. Belev; A.G. Efremov; A.G. Efremov; A.V. Kireeva; A.B. Zolotareva; E.O. Matveev; I.A. Sokolov;; Komarnitskaya A. N.; O.V. Suchkova.

  1. By: Paul, Arindam; De, Parikshit
    Abstract: We consider a vertically related differentiated product mixed duopoly market where a public and private firm compete in the downstream market. The public firm is partially privatized and a welfare maximizing regulator chooses the privatization level. The production of the final commodity requires a key input that is supplied by a foreign monopolist who in the upstream market can practice either uniform or discriminatory pricing. We show that with uniform pricing regime the privatization is always larger under Cournot competition while in case of discriminatory pricing regime, the privatization level under Bertrand competition is always larger. We also find that under discriminatory pricing regime, the Cournot-Bertrand ranking of other relevant variables are sensitive to the degree of substitutability.
    Keywords: D4, D6, H4, L1, L2
    JEL: L1 L2
    Date: 2022–09–15
  2. By: Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We present a model to explain why a manufacturer may impose a minimum resale price (min RPM) in a successive monopoly setting. Our argument relies on the retailer having non-contractible choice variables, which could represent the price of a substitute good and/or the effort the retailer exerts for service provision or advertising. Our explanation for a min RPM is empirically distinguishable from alternative justifications for a min RPM that rely, for instance, on retailer competition and service free riding among retailers. Whether a min RPM benefits or harms consumers depends on-as we show-why a min RPM is implemented: if the goal is to soften competition with the substitute product, it tends to harm consumers, and if the goal is to secure service provision, it tends to benefit consumers.
    Keywords: Resale Price Maintenance, Vertical Restraints, Cost Pass-Through, Retailing
    JEL: L12 L41 D42 K21
    Date: 2023
  3. By: Buchali, Katrin; Grüb, Jens; Muijs, Matthias; Schwalbe, Ulrich
    Abstract: Recent experimental simulations have shown that autonomous pricing algorithms are able to learn collusive behavior and thus charge supra-competitive prices without being explicitly programmed to do so. These simulations assume, however, that both firms employ the identical price-setting algorithm based on Q-learning. Thus, the question arises whether the underlying assumption that both firms employ a Q-learning algorithm can be supported as an equilibrium in a game where firms can chose between different pricing rules. Our simulations show that when both firms use a learning algorithm, the outcome is not an equilibrium when alternative price setting rules are available. In fact, simpler price setting rules as for example meeting competition clauses yield higher payoffs compared to Q-learning algorithms.
    Keywords: pricing algorithms, algorithmic collusion, reinforcement learning
    JEL: D43 D83 L13 L49
    Date: 2023
  4. By: Natalia Fabra (Universidad Carlos III de Madrid); Imelda (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: Given the critical role of renewable energies in current and future electricity markets, it is important to understand how they affect firms’ pricing incentives. We study whether the price-depressing effect of renewables depends on their degree of market price exposure. Paying renewables with fixed prices, rather than market-based prices, is more effective at curbing market power when the dominant firms own large shares of renewables, and vice-versa. Our empirical analysis leverages several short-lived changes to renewables regulation in the Spanish market and shows that switching from full-price exposure to fixed prices caused a 2-4 percent reduction in the average price-cost markup.
    Keywords: Market power; Forward contracts; Arbitrage; Renewables
    JEL: D47 L14 J52 Q20
    Date: 2022–12–28
  5. By: Bergeaud, Antonin; Schmidt, Juliane; 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: 2022–10–24
  6. By: Jonathan Hambur (Reserve Bank of Australia)
    Abstract: Wages growth in Australia was lower than expected prior to COVID-19 based on historical determinants. One possible explanation for this is that employment had become more concentrated among a small number of large employers. This reduced outside options for workers and lowered their bargaining power and wages. This paper examines concentration in Australian labour markets and its impacts on wages using a large and representative database derived from administrative tax data. Labour markets have not, on average, become more concentrated over time. However, the impact of any given level of concentration has increased since the 2010s. This may help explain surprisingly low wages growth pre-COVID, despite labour market concentration having remained constant. Simple back-of-the-envelope estimates suggest that the greater impact of concentration may have lowered wages by a little under 1 per cent on average between 2011 and 2015. Declining firm entry and dynamism appear to have contributed to the increased impact of concentration, and lower wages growth, by lowering competition for labour among incumbent firms. Declining union coverage and occupational mobility may also have played a role, but declining firm entry appears to have been the main driver.
    Keywords: wages; market power; labour markets; concentration
    JEL: C23 C55 D22 D43 E24 J30
    Date: 2023–03
  7. By: Kai Hao Yang; Alexander K. Zentefis
    Abstract: In economies with incomplete information, laissez-faire price competition is not, in general, constrained Pareto efficient. But which market structures are? We consider an environment in which firms have private information about costs and consumers make discrete choices over goods. Surveying an expansive class of market structures, we show that the constrained efficient ones are equivalent to price competition, but with lump-sum transfers and yardstick price ceilings that depend on the prices of competing firms.
    Date: 2023–02
  8. By: Popov, Alexander; Steininger, Lea
    Abstract: We study how monetary policy affects local market competition in a union of countries ex-periencing 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). JEL Classification: E2, G1, G12
    Keywords: Competition, Eurozone, Low Interest Rates, Monetary Policy, Monetary Union
    Date: 2023–02
  9. By: Mayer, Fabian; Bofinger, Peter
    Abstract: We investigate monopolistic tendencies and the intensity of currency competition on the crypto market in the light of Hayek's "Denationalization of money". Interestingly, Hayek never considered differentiation and specialization by innovative private currencies could lead lasting currency competition instead of network effects. We argue that competition between private currencies could run on different functions of money, especially the function as a store of value and that as a means of exchange, which partly explains the differences in the set-up of private currencies that Hayek demanded and that of cryptocurrencies. Drawing on a large sample of 101 cryptocurrencies and a time frame from 2016 to 2022, we empirically examine the evolution and degree of competition on the crypto market, also taking changes in general crypto market structure into account. We find that competition is strong for unpegged cryptocurrencies that mostly compete as a speculative store of value. Competition is also strong for stablecoins when competing as a stable store of value. Competition is much less pronounced for the function as a means of exchange and network effects and monopolistic tendencies are more likely to be present on this sub-market.
    Keywords: Hayek, Cryptocurrencies, Functions of Money, Currency Competition, NetworkEffects, Monopol
    JEL: B25 D40 E42 E50 E51 L11
    Date: 2023
  10. By: Daniil Larionov
    Abstract: I consider a repeated auction setting with colluding buyers and a seller who adjusts reserve prices over time without long-term commitment. To model the seller’s concern for collusion, I introduce a new equilibrium concept: collusive public perfect equilibrium (cPPE). For every strategy of the seller I define the corresponding “buyer-game†in which the seller is replaced by Nature who chooses the reserve prices for the buyers in accordance with the seller’s strategy. A public perfect equilibrium is collusive if the buyers cannot achieve a higher symmetric public perfect equilibrium payoff in the corresponding buyer-game. In a setting with symmetric buyers with private binary iid valuations and publicly revealed bids, I find a collusive public perfect equilibrium that allows the seller to extract the entire surplus from the buyers in the limit as the discount factor goes to 1. I therefore show that a patient, non-committed seller can effectively fight collusion even when she can only set reserve prices and has to satisfy stringent public disclosure requirements.
    Keywords: Repeated Auctions, Auction Design, Collusion, Full Surplus Extraction
    JEL: D44 D47 C73
    Date: 2023–02
  11. By: Alali, Walid Y; Ellalee, Haider
    Abstract: Abstract: This paper furnishes an inclusive framework to examine the welfare effects of the interventions of multiple policies, and other exterior alterations under imperfect competition and an assertion on particular and .the leading case of the ad valorem taxes. In particular, for the tax pass-through, we furnish ‘‘sufficient statistics” equations for measures of the two welfare under the demand of the impartially general class, market competition and production cost. The measures are i) Public fund of the marginal value, ii) Incidence. We start with the status of symmetric firms' face up with both ad valorem taxes and unit tax to derive an empirically pertinent set of formulas and simple. Next, we make a substantial generalization of these results to include firm heterogeneity using the idea of tax revenue defined as a public function defined by a vector of policy instruments including governmental and non-governmental interventions and other non-tax costs.
    Keywords: Imperfect Competition, Pass-through, Marginal Value of Public, Funds, Incidence, Sufficient Statistics
    Date: 2022
  12. By: Ronen Gradwohl; Moshe Tennenholtz
    Abstract: We study the costs and benefits of selling data to a competitor. Although selling all consumers' data may decrease total firm profits, there exist other selling mechanisms -- in which only some consumers' data is sold -- that render both firms better off. We identify the profit-maximizing mechanism, and show that the benefit to firms comes at a cost to consumers. We then construct Pareto-improving mechanisms, in which each consumers' welfare, as well as both firms' profits, increase. Finally, we show that consumer opt-in can serve as an instrument to induce firms to choose a Pareto-improving mechanism over a profit-maximizing one.
    Date: 2023–02
  13. By: Karin Gourdon; Laurent Daniel; Takuya Adachi; Emilie Berger
    Abstract: Accurate measurement of shipbuilding capacity is critical to inform market stakeholders of excess capacity issues. This report presents several approaches to improve the estimates of shipbuilding capacity. It shows how the use of average production would allow for smoothening the proxy of capacity in the yard-by-yard production approach. It discusses how firm level indicators, such as productivity, can also be considered. An analysis of productivity developments for a sample of shipbuilding firms shows that their productivity evolves in function of the market situation which, therefore, should be taken into account in the proxies of capacity based on yard production. Finally, the report studies how mergers and acquisitions of shipbuilding firms may impact capacity.
    Keywords: capacity, mergers and acquisitions, productivity, shipbuiding
    Date: 2023–02–16
  14. By: S.G. Belev (The Russian Presidential Academy Of National Economy And Public Administration); A.G. Efremov (The Russian Presidential Academy Of National Economy And Public Administration); A.G. Efremov (The Russian Presidential Academy Of National Economy And Public Administration); A.V. Kireeva (The Russian Presidential Academy Of National Economy And Public Administration); A.B. Zolotareva (The Russian Presidential Academy Of National Economy And Public Administration); E.O. Matveev (The Russian Presidential Academy Of National Economy And Public Administration); I.A. Sokolov; (The Russian Presidential Academy Of National Economy And Public Administration); Komarnitskaya A. N. (The Russian Presidential Academy Of National Economy And Public Administration); O.V. Suchkova. (The Russian Presidential Academy Of National Economy And Public Administration)
    Abstract: This article presents the main results of research on the topic of the research of the pricing mechanisms within the public procurement system in the Russian Federation. The goal of this article is to estimate the effect of the pricing mechanism on the efficiency of public procurement system in the Russian Federation. This research examines the initial maximum contract price (IMCP) mechanism as one possible reason for persistent inefficiency of the public procurement system. The authors discuss composite auctions (in which the winner is selected based on more than just price criteria) in the procurement of the results of research and development (R&D) work in Russia. It is found that unscrupulous customers can collude with suppliers to manipulate (overstate) the IMCP and restrict competition, which results in a higher final contract price and losses to the state budget. Using the metric of interaction frequency, we identified suppliers potentially affiliated with the customers. The results of econometric modeling suggest that potentially affiliated suppliers win the auctions with bids closer to the initial maximum contract price (IMCP) than independent suppliers. This result is observed regardless of specification changes and different evaluation methods. Potentially affiliated bidders have higher quality scores in contests with potentially affiliated organizers. At the same time, independent participants receive lower scores in such auctions. Therefore, a potentially affiliated bidder can set a higher price, winning due to overstated quality criteria.
    Keywords: vertical collusion, public procurement, composite auctions, R&D, affiliation, quality criterion, tobit regression, federal public procurement system, initial maximum contract price.

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