nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒03‒27
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Collective dominance and oligopoly markets: industrial organization theory approaches By A. N. Morozov; K. A. Ionkina
  2. Competitive Model Selection in Algorithmic Targeting By Ganesh Iyer; T. Tony Ke
  3. A Welfare and Pass-Through Effects of Regulations within Imperfect Competition By Ellalee, Haider; Alali, Walid Y.
  4. The Effect of R&D on Quality, Productivity, and Welfare By Mons Chan; Amil Petrin; Frederic Warzynski
  5. Dynamic Pricing Regulation and Welfare in Insurance Markets By Naoki Aizawa; Ami Ko
  6. The Unexpected Compression: Competition at Work in the Low Wage Labor Market By David Autor; Arindrajit Dube; Annie McGrew
  7. Does offshoring shape labor market imperfections? A comparative analysis of Belgian and Dutch firms By Sabien Dobbelaere; Catherine Fuss; Mark Vancauteren
  8. Outsourcing, Occupationally Homogeneous Employers, and Wage Inequality in the United States By Elizabeth Weber Handwerker
  9. Imperfect competition, emissions tax and the Porter hypothesis By Flavio M. Menezes; Jorge Pereira
  10. Estimating Consumer Surplus Resulting from Lower Cross-Border E-Commerce Prices By Kim, Sukkyung
  11. The Economics of Digital Privacy By Avi Goldfarb; Verina F. Que
  12. How the Internet Changed the Market for Print Media By Manudeep Bhuller; Tarjei Havnes; Jeremy McCauley; Magne Mogstad
  13. Restrict the Middleman? Quantitative Models of PBM Regulations and Their Consequences By Casey B. Mulligan
  14. The Impact of Vertical Integration on Physician Behavior and Healthcare Delivery: Evidence from Gastroenterology Practices By Soroush Saghafian; Lina D. Song; Joseph P. Newhouse; Mary Beth Landrum; John Hsu
  15. Bank competition development against the backdrop of digitization By Vedev Alexey
  16. Curation Strategy of Platforms in the Sharing Economy: A Simple Micro Economic Approach By Noriyuki Doi
  17. Relational Contracts: Recent Empirical Advancements and Open Questions By Rocco Macchiavello; Ameet Morjaria
  18. Personalized Pricing with Invalid Instrumental Variables: Identification, Estimation, and Policy Learning By Rui Miao; Zhengling Qi; Cong Shi; Lin Lin

  1. By: A. N. Morozov (The Russian Presidential Academy Of National Economy And Public Administration); K. A. Ionkina (The Russian Presidential Academy Of National Economy And Public Administration)
    Abstract: This paper studies the prerequisites for the emergence of a firm’s market power using basic models of oligopoly. The significance of the study is related to identifying theoretical prerequisites that are essential for modifying the collective dominance institution, which can be considered a legal analogue of the economic concept of oligopoly. The objective of the paper is to identify the elements associated with the emergence of market power under the oligopoly model, allowing to shape theoretical basis for the collective dominance concept application. Multiple objectives have to be met before the said objective can be achieved: 1) highlighting the relevant signs of interaction between oligopolistic firms; 2) identifying limitations for the application of collective dominance concept in practice. The scientific novelty of the research lies in the formation of theoretical basis for the legal concept of collective dominance in Russia. The subject of the paper is the relationship between the concept of collective dominance in Russia and the basic oligopoly models. The study is part of a complex project which represents a RANEPA state research assignment and aims at exploring the effects of the collective dominance concept application in Russia. The study is based on industrial organization methods. The main findings of the study consist of the following: highlighting the aspects associated with market power emergence in oligopoly models (small number of participants, high entry costs, significant goods differentiation, high switching costs, full information for competitors and low availability of information for consumers); reflecting the prerequisites for the market power emergence under oligopoly in the Russian version of the collective dominance concept; stating the importance of a comprehensive application of the prerequisites under consideration through the analysis of oligopoly models. The conclusions of the research will used to design the roadmap for further reforms of the Russian collective dominance concept.
    Keywords: Market power, oligopoly, collective dominance, Bertrand model, Cournot model, Chamberlin's oligopoly model, Stackelberg model, cartel
  2. By: Ganesh Iyer; T. Tony Ke
    Abstract: This paper studies how market competition influences the algorithmic design choices of firms in the context of targeting. Firms face the general trade-off between bias and variance when choosing the design of a supervised learning algorithm in terms of model complexity or the number of predictors to accommodate. Each firm then appoints a data analyst that uses the chosen algorithm to estimate demand for multiple consumer segments, based on which, it devises a targeting policy to maximize estimated profit. We show that competition may induce firms to strategically choose simpler algorithms which involve more bias. This implies that more complex/flexible algorithms tend to have higher value for firms with greater monopoly power.
    JEL: D43 L13 M37
    Date: 2023–03
  3. By: Ellalee, Haider; Alali, Walid Y.
    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
    JEL: A2 D6 F3
    Date: 2022
  4. By: Mons Chan; Amil Petrin; Frederic Warzynski
    Abstract: In this paper we provide a methodology that jointly studies production and demand for multi-product firms using detailed firm-product level data from Denmark. We estimate marginal cost by combining production function estimation with a cost function that allows for quasi-fixed inputs. We use a discrete choice demand model that extends insights from Berry, Levinsohn and Pakes (1995) to obtain a measure of the demand shock (quality). We estimate the relationship between product (process) R&D and quality (efficiency), and find strong evidence that process innovation is related to higher efficiency, while product innovation is associated with higher product quality. We discuss the welfare implications of these two distinct innovation activities.
    JEL: L1
    Date: 2023–02
  5. By: Naoki Aizawa; Ami Ko
    Abstract: While the traditional role of insurers is to provide protection against idiosyncratic risks of individuals, insurers themselves face substantial uncertainties due to aggregate shocks. To prevent insurers from passing through aggregate risks to consumers, governments have increasingly adopted dynamic pricing regulations that limit insurers' ability to change premiums over time. This paper develops and estimates an equilibrium model with dynamic pricing and firm entry and uses it to evaluate the design of dynamic pricing regulations in the U.S. long-term care insurance (LTCI) market. We find that stricter dynamic pricing regulation lowers social welfare as the benefit from improved premium stability is outweighed by the cost of reduced insurer participation. The welfare loss from stricter dynamic pricing regulation could be mitigated if the government also expands public LTCI through Medicaid.
    JEL: D14 G22 I13 L11 L51
    Date: 2023–02
  6. By: David Autor; Arindrajit Dube; Annie McGrew
    Abstract: Labor market tightness following the height of the Covid-19 pandemic led to an unexpected compression in the US wage distribution that reflects, in part, an increase in labor market competition. Rapid relative wage growth at the bottom of the distribution reduced the college wage premium and counteracted approximately one-quarter of the four-decade increase in aggregate 90-10 log wage inequality. Wage compression was accompanied by rapid nominal wage growth and rising job-to-job separations—especially among young non-college (high school or less) workers. At the state-level, post-pandemic labor market tightness became strongly predictive of price increases (price-Phillips curve), real wage growth among low-wage workers (wage-Phillips curve), and aggregate wage compression. Simultaneously, the wage-separation elasticity—a key measure of labor market competition—rose among young non-college workers, with wage gains concentrated among workers who changed employers and industries. Seen through the lens of a canonical job ladder model, the pandemic increased the elasticity of labor supply to firms in the low-wage labor market, reducing employer market power and spurring rapid relative wage growth among young non-college workers who disproportionately moved from lower-paying to higher-paying and potentially more-productive jobs.
    JEL: E31 J2 J3 J42 J64
    Date: 2023–03
  7. By: Sabien Dobbelaere (Vrije Universiteit Amsterdam); Catherine Fuss (National Bank of Belgium); Mark Vancauteren (Universiteit Hasselt)
    Abstract: We study the relationship between offshoring and the prevalence and intensity of labor market imperfections at the firm level in Belgium and the Netherlands. Wage markup pricing stemming from workers’ monopoly power is more prevalent than wage markdown pricing originating from firms’ monopsony power in both countries. Offshoring benefits firms in that imports of final as well as intermediate goods are associated with a higher prevalence and intensity of wage markdowns. The widening effect of offshoring on wage markdowns arises from an increase in productivity that is only imperfectly passed through into an increase in wages. Offshoring is negatively related to the prevalence of wage markups. This also holds for the intensity of wage markups measured by workers’ bargaining power in Belgium.
    Keywords: Wage markdowns, wage markups, firm-level offshoring
    JEL: F14 F16 J42 J50
    Date: 2023–02–17
  8. By: Elizabeth Weber Handwerker
    Abstract: /2020/ec200030.htm
    Date: 2022
  9. By: Flavio M. Menezes (Australian Institute for Business and Economics, University of Queensland, Brisbane, Australia); Jorge Pereira (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: This paper investigates the conditions under which the design of an emissions tax can align social and private interests. Our contribution is to determine the general conditions for firms' profits and social welfare to be higher under the implementation of an emissions tax than under no tax. We consider n firms producing an homogeneous product and competing over supply schedules, which covers a continuum of imperfect competition equilibria from Bertrand to Cournot. We show that, as competition intensifies, the pass-through of the tax to consumers increases, to a point where the price rises more than offsets the net result of the investment outlay. Our analysis provides new insights into the trade-off between environmental policy, market competition and the so-called "win-win" outcome for firms and society.
    Keywords: Technology; R&D; Environment; Policy; Emission tax; Subsidy; Porter Hypothesis
    JEL: H23 O32 O38 Q55 Q58
    Date: 2023–02–28
  10. By: Kim, Sukkyung (Korea Institute for Industrial Economics and Trade)
    Abstract: Cross-border B2C e-commerce is growing rapidly in Korea. According to data released by Statistics Korea, Korea’s total retail import value from the cross-border e-commerce trade in 2017 stood at about KRW 2.2 trillion, while in 2021 it reached KRW 5.1 trillion.2 The total retail value of consumer goods in 2017 and in 2021 was KRW 440.3 trillion and KRW 518.5 trillion, respectively.3 Thus the share of the total retail value of consumer goods accounted for by cross-border e-commerce retail imports rose from 0.5 percent in 2017 to one percent in 2021. In the literature on cross-border e-commerce in Korea, studies have found that cross-border e-commerce increases consumer welfare. But no research has determined quantitatively how the degree to which this occurs. Therefore, this study aims to estimate the level of consumer welfare that domestic consumers can obtain from cross-border e-commerce. Increases in consumer welfare due to cross-border e-commerce can be divided into increases due to lower prices and increases due to wider product variety. This study aims to identify the increases in consumer welfare due to lower prices by estimating consumer surplus.
    Keywords: cross-border e-commerce; BDC e-commerce; consumer surplus; consumer welfare; consumer economics; exports; e-commerce exports; consumer choice; consumer decision-making; retails sales; retail distribution; innovation; competition policy
    JEL: F10 F12 F14 F16 F23 F31 I30 L81 O31 O38
    Date: 2023–02–28
  11. By: Avi Goldfarb; Verina F. Que
    Abstract: There has been increasing attention to privacy in the media and in regulatory discussions. This is a consequence of the increased usefulness of digital data. The literature has emphasized the benefits and costs of digital data flows to consumers and firms. The benefits arise in the form of data-driven innovation, higher quality products and services that match consumer needs, and increased profits. The costs relate to intrinsic and instrumental values of privacy. Under standard economic assumptions, this framing of a cost-benefit tradeoff might suggest little role for regulation beyond ensuring consumers are appropriately informed in a robust competitive environment. The empirical literature thus far has focused on this direct cost-benefit assessment, examining how privacy regulations have affected various market outcomes. However, an increasing body of theory work emphasizes externalities related to data flows. These externalities, both positive and negative, suggest benefits to the targeted regulation of digital privacy.
    JEL: L51 L86
    Date: 2023–02
  12. By: Manudeep Bhuller; Tarjei Havnes; Jeremy McCauley; Magne Mogstad
    Abstract: Combining comprehensive data from the Norwegian media market on newspaper circulation, readership, revenues, factor inputs, and product characteristics with plausibly exogenous variation in the availability and adoption of broadband internet, this paper provides causal evidence on how the internet affected the traditional print media market. Household adoption of broadband internet triggered large reductions in print readership and circulation and equally large increases in online news readership. Despite strong substitution from print to online news consumption, newspaper firms’ revenues fell by almost 30%. Newspaper firms responded by dramatically cutting costs, either by shedding labor inputs or by reducing the physical size of newspaper sheets, and in doing so avoided meaningful losses in profits. The printed newspaper product available to customers also changed, as newspapers shifted content away from tabloid to more serious news. This paper offers a case study on how an adverse technology shock transmits through firms with multiple margins of adjustment, and provides an explanation for the economic resilience of newspapers.
    JEL: L11 L82 L86 O33 R22
    Date: 2023–02
  13. By: Casey B. Mulligan
    Abstract: This paper provides the first quantitative economic models of pharmacy benefit management regulation. The price-theoretic models allow for various market frictions and imperfections including market power, coordination costs, tax distortions, and incomplete innovation incentives. A rigorous economic interpretation is provided for what are sometimes called “rebate walls” or “rebate traps.” Applicable types of regulation include rebate rules, such as the HHS rebate rule and the Insulin Act; disclosure requirements such as the PBM Transparency Act of 2023; and pharmacy contract restrictions such as the CMS Medicare rule to take effect in 2024. Utilization of brands and generics, plan spending, cost sharing, spillovers to nonpharmacy medical spending, government budgets, and the pace of drug innovation are among the outcomes tracked by the open-source model.
    JEL: D43 D71 I11 I13 L14 L51
    Date: 2023–03
  14. By: Soroush Saghafian; Lina D. Song; Joseph P. Newhouse; Mary Beth Landrum; John Hsu
    Abstract: US healthcare is undergoing a period of substantial change, with many hospitals vertically integrating with physician practices. Such integration could improve quality by promoting care coordination, but could also worsen it by impacting care delivery. Evidence on how physicians alter their behavior from the changes in financial ownership and the incentive structures of the integrated organizations is scant. We examine Medicare patients treated by gastroenterologists, a specialty with a recent increase in vertical integration. Using a causal model and large-scale patient-level national panel data that include 2.6 million patient visits across 5, 488 physicians, we examine changes in various measures of care delivery. We find that physicians significantly alter care processes (e.g., in using anesthesia with deep sedation) after they vertically integrate, and that patients' post-procedure complications increase substantially. We provide evidence that the financial incentive structure of the integrated practices is the main reason for the changes in physician behavior, since it discourages the integrated practices from allocating expensive resources to relatively unprofitable procedures. Although integration improves operational efficiency measured by physicians' throughput, it negatively affects quality and overall spending. We note some potential policy levers through which policymakers could mitigate the negative consequences of vertical integration.
    JEL: I11
    Date: 2023–02
  15. By: Vedev Alexey (Gaidar Institute for Economic Policy)
    Abstract: Current global economy development trends make banks to speed up their transfer from traditional business models to financial ecosystems based on modern digital instruments. This suggests modernization of the overall banking supervision system, introduction of new regulatory principles and control methods and adjustment of traditional approaches to a new environment. The study looks into the digital transformation’s negative effects on the level of competition in the banking sector and provides an in-depth analysis of international experience in implementing financial and technological innovations in commercial banks, as well as approaches to evaluating the level of banking competition. The study is aimed at developing the guidelines for upgrading banking oversight and regulation to facilitate organizational and stabilizing effect and bolster confidence in banks as financial intermediaries, as well as proposals on introduction of new mechanisms of neutralizing bank risks amid technological transformation of the Russian financial sector.
    Keywords: Russian economy, banking sector, banking competition, bank risks, Russian financial sector
    JEL: G21 G24 G28
    Date: 2022
  16. By: Noriyuki Doi (Emeritus Professor and Visiting Researcher at Innovation System Research Center, Kwansei Gakuin University)
    Abstract: Platform curation plays a key role in the sharing economy, and suggests challenging perspectives and opportunities in policy-making. This paper focuses on the curation by sharing platforms, and explains its incentives and social welfare effects, using a simple micro-economic theory, and taking into consideration some features observed in the sharing economy. And future policy and research agenda are summarized.
    Keywords: sharing economy, platform, curation, social welfare regulation
    JEL: L41 L42 L43
    Date: 2023–03
  17. By: Rocco Macchiavello; Ameet Morjaria
    Abstract: Relational contracts - informal self-enforcing agreements sustained by repeated interactions - are ubiquitous both within and across organizational boundaries. This review highlights recent empirical contributions in selected areas. We begin by reviewing some recent work that explicitly takes the dynamic incentive compatibility constraints that underpin relational contract models to the data. We then discuss the relationship between relational contracting and firms' performance. We conclude pointing in directions that we consider to be particularly ripe for future work.
    JEL: D86 F14 L14 O19
    Date: 2023–02
  18. By: Rui Miao; Zhengling Qi; Cong Shi; Lin Lin
    Abstract: Pricing based on individual customer characteristics is widely used to maximize sellers' revenues. This work studies offline personalized pricing under endogeneity using an instrumental variable approach. Standard instrumental variable methods in causal inference/econometrics either focus on a discrete treatment space or require the exclusion restriction of instruments from having a direct effect on the outcome, which limits their applicability in personalized pricing. In this paper, we propose a new policy learning method for Personalized pRicing using Invalid iNsTrumental variables (PRINT) for continuous treatment that allow direct effects on the outcome. Specifically, relying on the structural models of revenue and price, we establish the identifiability condition of an optimal pricing strategy under endogeneity with the help of invalid instrumental variables. Based on this new identification, which leads to solving conditional moment restrictions with generalized residual functions, we construct an adversarial min-max estimator and learn an optimal pricing strategy. Furthermore, we establish an asymptotic regret bound to find an optimal pricing strategy. Finally, we demonstrate the effectiveness of the proposed method via extensive simulation studies as well as a real data application from an US online auto loan company.
    Date: 2023–02

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