nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒04‒24
nine papers chosen by
Russell Pittman
United States Department of Justice

  1. Pretend-But-Perform Regulation of a Duopoly under Three Competition Modes By Saglam, Ismail
  2. The effects of personal data management on competition and welfare By Jiajia Cong; Noriaki Matsushima
  3. When Is Product Personalization Profit-Enhancing? A Behavior-Based Discrimination Model By Didier Laussel; Joana Resende
  4. Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation By Johannes Muthers; Sebastian Wismer
  5. Sectoral total factor productivity and its determinants: Firm-level evidence from Kazakhstan By Zarina Adilkhanova
  6. Social Learning and Strategic Pricing with Rating Systems By Chia-Hui Chen; Kong-Pin Chen; Junichiro Ishida
  7. The Effects of the Pandemic on Market Power and Profitability By Juan Andres Espinosa-Torres; Jaime Ramirez-Cuellar
  8. Analysis of the 3D Printing Industry's Competitiveness across the Value Chain and Policy Implications By Shim, Woojung; Kyung, Heekwon
  9. Strategic Limitation of Market Accessibility: Search Platform Design and Welfare By Christopher The; Chengsi Wang; Makoto Watanabe

  1. By: Saglam, Ismail
    Abstract: This paper considers a duopoly with asymmetric costs and demand uncertainty to study the welfare effects of pretend-but-perform regulation (PPR) of Koray and Sertel (1988) under three modes of competition, involving the Cournot, conjectural variations, and supply function competitions. PPR induces a two-stage game where each firm declares in the first stage a cost report and produces in the second stage accordingly. Theoretically characterizing and numerically computing the equilibrium of this game, we show that the consumer surplus increases if PPR is applied under the Cournot competition and it decreases if PPR is applied under the other modes of competition.
    Keywords: Duopoly; regulation, Cournot, conjectural variations, supply function equilibrium.
    JEL: D43 L13 L51
    Date: 2022–12
  2. By: Jiajia Cong; Noriaki Matsushima
    Abstract: This study examines how consumers' personal data management affects firms' competition in the data collection and data application markets and welfare outcomes. Consumers purchase products from differentiated firms in two markets. Firms compete to collect consumer data first to predict their preferences in the data application market, where each firm offers personalized prices to its targeted consumers and a uniform price to untargeted consumers. Before firms offer prices, their targeted consumers can erase data to become untargeted for a fixed cost. We show that consumers' privacy management mitigates price competition, reduces firms' profits, and harms consumer surplus and social welfare in the data application market; privacy management intensifies competition and improves consumer surplus in the data collection market. Across these two markets, profits and social welfare decline. The change in consumers' two-market surplus depends on their foresight regarding the outcomes in the data application market, with only forward-looking consumers having a higher surplus. We extend the model in several directions, including data-enabled product personalization, privacy costs, data portability, and data ownership, and discuss the implications for privacy laws.
    Date: 2023–03
  3. By: Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Joana Resende (Cef.up, Economics Department, University of Porto)
    Abstract: This paper investigates duopoly competition when horizontally differentiated firms are able to make personalized product-price offers to returning customers, within a behavior-based discrimination model. In the second period, firms can profile old customers according to their preferences, selling them targeted products at personalized prices. Product-price personalization (PP) allows firms to retain all old customers, eliminating second-period customer poaching. The overall profit effects of PP are shown to be ambiguous. In the second period, PP improves the matching between customers' preferences and firms' offers, but firms do not make any revenues in the rival's turf. In the Bertrand outcome, second-period profits only increase for both firms if the size of their old turfs are not too different or initial products are not too differentiated. However, the additional second-period profits may be offset by lower first-period profits. PP is likely to increase firms' overall discounted profits when consumers' (firms') discount factor is low (high) and firms' initial products are exogenous and sufficiently different. When the location of initial products is endogenous, profits are hurt because of an additional location (strategic) effect aggravating head-to-head competition in the first period. Likewise, when a fraction of active consumers conceals their identity, PP increases second-period profits at the cost of aggressive first-period price competition. Finally, we show that the room for profitable PP enlarges considerably if firms rely on PP as an effective device to sustain tacit collusive outcomes, with firms credibly threatening to respond to first-period price deviations with second-period aggressive relocations of their standard products. This paper was accepted by Matthew Shum, marketing.
    Keywords: behavior-based discrimination, price and product targeting, consumer poaching, consumer retention, segmentation, tacit collusion
    Date: 2022–12
  4. By: Johannes Muthers; Sebastian Wismer
    Abstract: This paper deals with trade platforms whose operators not only allow third party sellers to offer their products to consumers, but also offer products themselves. In this context, the platform operator faces a hold-up problem if he uses classical twopart tariffs only as potential competition between the platform operator and sellers reduces platform attractiveness. Since some sellers refuse to join the platform, some products that are not known to the platform operator will not be offered at all. We find that revenue-based fees lower the platform operator’s incentives to compete with sellers, increasing platform attractiveness. Therefore, charging such proportional fees can be profitable, which may explain why several trade platforms indeed charge proportional fees.
    Keywords: Intermediation, Platform Tariff, Hold-Up Problem
    JEL: D40 L14 L81
    Date: 2023–03
  5. By: Zarina Adilkhanova (NAC Analytica, Nazarbayev University)
    Abstract: This paper analyzes total factor productivity and domestic competition among firms in Kazakhstan. We show that the total factor productivity in many industries falls significantly from 2009 to 2017. At the same time, 3 to 10 of the largest firms occupy a significant market share in most industries, demonstrating the elements of oligopolistic competition. The lack of market competition and the monopolization of markets prove to be barriers to productivity growth within sectors. We also estimate the impact of various financial indicators and variables such as subsidies, R&D, and transportation costs on firm-level TFP in Kazakhstan. The results demonstrate that increased investments, profits, wages, subsidies, and the presence of employees aged under 30 or with higher education have a significant positive effect on TFP. Moreover, the uneven distribution of subsidies among firms also contributes to the development of a monopoly in the market. Almost the same firms receive subsidies every year, which aggravates the market power of these firms. Statistics show that 5 companies in the market receive up to 80% of subsidies in manufacturing and agriculture.
    Keywords: Total Factor Productivity (TFP); Sectoral analysis, HHI, Concentration ratio
    JEL: D24 G30 O16
    Date: 2022–06
  6. By: Chia-Hui Chen; Kong-Pin Chen; Junichiro Ishida
    Abstract: Despite widespread use in online transactions, rating systems only provide summary statistics of buyers' diverse opinions at best. To investigate the consequences of this coarse form of information aggregation, we consider a dynamic lemons market in which buyers share their evaluations anonymously through a rating system. When the buyers have diverse preferences, the value of a good rating depends endogenously on the seller's pricing strategy, which in turn creates complicated dynamic interactions and results in stochastic price fluctuations. Occasional flash sales induced by the rating system yield a non-trivial welfare effect that stands in sharp contrast to standard adverse selection models: all buyers are weakly better off with information asymmetry than without. Incentivizing buyers to leave ratings may backfire by exacerbating the seller's strategic pricing incentives.
    Date: 2023–03
  7. By: Juan Andres Espinosa-Torres; Jaime Ramirez-Cuellar
    Abstract: We explore firm-level markup and profit rates during the COVID-19 pandemic for a panel of 3, 611 publicly traded firms in Compustat and find increases for the average firm. We offer conditions to give markups and profit rate forecasts a causal interpretation of what would have happened had the pandemic not happened. Our estimations suggest that had the pandemic not happened, markups would have been 4% and 7% higher than observed in 2020 and 2021, respectively, and profit rates would have been 2.1 and 6.4 percentage points lower. We perform a battery of tests to assess the robustness of our approach. We further show significant heterogeneity in the impact of the pandemic on firms by key firm characteristics and industry. We find that firms with lower than forecasted markups tend to have lower stock-exchange tenure and fewer employees.
    Date: 2023–03
  8. By: Shim, Woojung (Korea Institute for Industrial Economics and Trade); Kyung, Heekwon (Korea Institute for Industrial Economics and Trade)
    Abstract: 3D printing is a new manufacturing method used to make customized products that is also instrumental in driving manufacturing innovation. The global market for this technology has expanded rapidly thanks to a sharp increase in industrial applications. However growth of the Korean 3D printing market has hit a wall and specialized companies in Korea operate at a lower capacity than counterparts in major competitor countries. The Korean 3D printing sector urgently needs to raise its competitiveness, which is inferior despite receiving systematic policy support since 2016. Against this backdrop, for this paper we examine the value chain structure of the industry and analyze competitive advantage at each stage of the value chain. Based on the results of the analysis we propose directions for policy to enhance the competitiveness of the Korean 3D printing segment.
    Keywords: 3D printing; additive manufacturing; manufacturing innovation; innovation policy; manufacturing policy; Korea; supply chains; value chain analysis; competition policy; competitiveness
    JEL: L52 L53 L60 L64 L65 L69 O31 O32 O38
    Date: 2021–07–21
  9. By: Christopher The; Chengsi Wang; Makoto Watanabe
    Abstract: This paper explores the relation ship between market accessibility and various participants welfare in an intermediated directed-search market. For a general class of meeting technologies, we provide a necessary and sufficient condition under which efficiency requires imperfect accessibility, such that each sellers listing is only observed by some but not all buyers. We show that the platform optimally implements the efficient out come, but fully extracts surplus from the transactions it intermediates. We also find that in general, buyers prefer to minimize market accessibility, while sellers prefer a weakly greater accessibility level than that which is socially efficient. The efficiency of imperfect accessibility is robust to the introduction of a second chance for unmatched buyers to search.
    Keywords: meeting technology, directed search, platform, intermediation, accessibility JEL Classification: D83, J64, M37
    Date: 2023–03

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