nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒05‒01
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Platform Design Biases in Ad-Funded Two-Sided Markets By Jay Pil Choi; Doh-Shin Jeon
  2. Price Competition and Endogenous Product Choice in Networks: Evidence From the US Airline Industry By Christian Bontemps; Cristina Gualdani; Kevin Remmy
  3. Measuring Fair Competition on Digital Platforms By Lukas J\"urgensmeier; Bernd Skiera
  4. Non-compete Agreements in a Rigid Labour Market: The Case of Italy By Boeri, Tito; Garnero, Andrea; Luisetto, Lorenzo Giovanni
  5. A Disaggregated View of Market Concentration in the Food Retail Industry By Zeballos, Eliana; Dong, Xiao; Islamaj, Ergys
  6. Platform pricing choice : Exclusive deals or uniform prices By Shekhar, Shiva
  7. Search and Performance in Ecosystems: The Changing Role of Product Architectures By Axel Zeijen; Luigi Marengo; Stefano Brusoni
  8. Fighting Free with Free: Freemium vs. Piracy By Antoine Dubus; Christine Halmenschlager; Patrick Waelbroeck
  9. Demographic Origins of the Decline in Labor’s Share By Andrew Glover; Jacob Short
  10. Can e-commerce platforms build the resilience of brick-and-mortar businesses to the COVID-19 shock? An empirical analysis in the Chinese retail industry By Sirui Li; Ying Liu; Jing Su; Xin Luo; Xiao Yang
  11. Cancel the deal? An experimental study on the exploitation of irrational consumers By Cappelen, Alexander W.; Meissner, Stefan; Tungodden, Bertil
  12. How Voluntary Information Sharing Systems Form: Evidence from a U.S. Commercial Credit Bureau By José Liberti; Jason Sturgess; Andrew Sutherland
  13. The Information Content from Lending Relationships Across the Supply Chain By Theo Cotrim Martins; Rafael Schiozer; Fernando de Menezes Linardi
  14. Investigating the antecedents of consumer behavioral intention for sustainable fashion products: Evidence from a large survey of Italian consumers By Alvino, Letizia
  15. Should They Compete or Should They Cooperate? The View of Agency Theory By Fleckinger, Pierre; Martimort, David; Roux, Nicolas
  16. Was Robert Gibrat right? A test based on the graphical model methodology By Marco Guerzoni; Luigi Riso; Marco Vivarelli
  17. Describing the effect of influential spreaders on the different sectors of Indian market: a complex networks perspective By Anwesha Sengupta; Shashankaditya Upadhyay; Indranil Mukherjee; Prasanta K. Panigrahi
  18. The Effect of Product Quality and Price Fairness through Customer Loyalty on Local Skincare in Indonesia By Sheren Lanardi

  1. By: Jay Pil Choi (Michigan State University [East Lansing] - Michigan State University System); Doh-Shin Jeon (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We investigate how platform market power affects platforms' design choices in ad-funded two-sided markets, where platforms may find it optimal to charge zero price on the consumer side and to extract surplus on the advertising side. We consider design choices affecting both sides in opposite ways and compare private incentives with social incentives. Platforms' design biases depend crucially on whether they can charge any price on the consumer side. We apply the framework to technology adoption, privacy, and ad load choices. Our results provide a rationale for a tougher competition policy to curb market power of ad-funded platforms with free services.
    Date: 2022–02–25
  2. By: Christian Bontemps; Cristina Gualdani; Kevin Remmy
    Abstract: We develop a two-stage game in which competing airlines first choose the networks of markets to serve in the first stage before competing in price in the second stage. Spillovers in entry decisions across markets are allowed, which accrue on the demand, marginal cost, and fixed cost sides. We show that the second-stage parameters are point identified, and we design a tractable procedure to set identify the first-stage parameters and to conduct inference. Further, we estimate the model using data from the domestic US airline market and find significant spillovers in entry. In a counterfactual exercise, we evaluate the 2013 merger between American Airlines and US Airways. Our results highlight that spillovers in entry and post-merger network readjustments play an important role in shaping post-merger outcomes.
    Keywords: Endogenous Market Structure, Networks, Airlines, Oligopoly, Product Repositioning, Mergers, Remedies
    JEL: D43 L14 L22 L40 L93
    Date: 2023–03
  3. By: Lukas J\"urgensmeier; Bernd Skiera
    Abstract: Digital platforms use recommendations to facilitate the exchange between platform actors, such as trade between buyers and sellers. Platform actors expect, and legislators increasingly require that competition, including recommendations, are fair - especially for a market-dominating platform on which self-preferencing could occur. However, testing for fairness on platforms is challenging because offers from competing platform actors usually differ in their attributes, and many distinct fairness definitions exist. This article considers these challenges, develops a five-step approach to measure fair competition through recommendations on digital platforms, and illustrates this approach by conducting two empirical studies. These studies examine Amazon's search engine recommendations on the Amazon marketplace for more than a million daily observations from three countries. They find no consistent evidence for unfair competition through search engine recommendations. The article also discusses applying the five-step approach in other settings to ensure compliance with new regulations governing fair competition on digital platforms, such as the Digital Markets Act in the European Union or the proposed American Innovation and Choice Online Act in the United States.
    Date: 2023–03
  4. By: Boeri, Tito (Bocconi University); Garnero, Andrea (OECD); Luisetto, Lorenzo Giovanni (University of Michigan)
    Abstract: Non-compete clauses (NCCs) limiting the mobility of workers have been found to be rather widespread in the US, a flexible labour market with large turnover rates and a limited coverage of collective bargaining. This paper explores the presence of such arrangements in a rigid labour market, with strict employment protection regulations by OECD standards and where all employees are, at least on paper, subject to collective bargaining. Based on a representative survey of employees in the private sector, an exam of collective agreements and case law, we find that in Italy i) collective agreements play no role in regulating the use of NCCs while the law specifies only the formal requirements, ii) about 16% of private sector employees are currently bound by a NCC, iii) NCCs are relatively frequent among low educated employees in manual and elementary low paid occupations having no access to any type of confidential information, and iv) in addition to NCCs, a number of other arrangements limit the post-employment activity of workers. Many of the NCCs do not comply with the minimum requirements established by law and yet workers do not consider them as unenforceable and appear to behave as they were effective. Even when NCCs are unenforceable they appear to negatively affect wages when they are introduced without changing the tasks of the workers involved. Normative implications are discussed in the last section of the paper.
    Keywords: non-compete clauses, monopsony, labour market concentration
    JEL: J31 J41 J42 L40
    Date: 2023–03
  5. By: Zeballos, Eliana; Dong, Xiao; Islamaj, Ergys
    Abstract: The U.S. food retail sector has experienced substantial change in market concentration over the last three decades. To understand how the change in concentration might impact consumers, researchers would ideally focus on geographic markets that mimic where consumers actually shop. This report investigates the changes in food retailing market concentration at the national, State, Metropolitan Statistical Area (MSA), and county levels in the United States from 1990 to 2019, using data from the National Establishment Time Series dataset. The research finds that food-retailing market concentration at the county level is much higher than estimates of concentration using national-level data. Food retailing markets in rural and small nonmetro counties are considerably more concentrated than food retailing markets in metro and large nonmetro counties. Further, the study documents a significant rise in food retailing market concentration in the United States over the last three decades, at the national level as well as the State, MSA, and county levels during the period. Finally, the study shows that when excluding the largest food retailer, the concentration in retailing at the national and State level, markets would have been lower, but at the MSA and county level, markets would have been higher for most of the period analyzed.
    Keywords: Consumer/Household Economics, Demand and Price Analysis, Financial Economics, Marketing, Public Economics
    Date: 2023–01–05
  6. By: Shekhar, Shiva (Tilburg University, School of Economics and Management)
    Date: 2022
  7. By: Axel Zeijen; Luigi Marengo; Stefano Brusoni
    Abstract: A crucial assumption in organization theory is that product architectures form a stable basis on which firms make strategic choices, over a period of time. However, emerging digital technologies challenge this idea, by allowing firms to redesign architectures at will. In this paper, we explore this novel phenomenon, its effects, and its theoretical implications. We develop an NK model suitable for studying (i) variable interdependence structures between components and (ii) the dynamics of search and adaptation in ecosystems. We find that the possibility to redesign product architectures undercuts the stability on which vertical relationships are based. We distinguish two pathways through which firms can benefit from redesigning product architectures: by enhancing the fitness landscape (landscape redesigns) or by altering the conditions on which inter-firm coordination is based (ecosystem redesigns). The availability of these two pathways depends on a firm's positioning (vertical scope and location in the value chain). Our results shed light on the changing role of interdependence structures in ecosystems, the differential advantages of integration and specialization strategies, and the effects of digital technologies in both technical and organizational domains.
    Keywords: Digital technologies; ecosystems; firms' boundaries.
    Date: 2023–04–13
  8. By: Antoine Dubus (D-MTEC - Department of Management, Technology, and Economics [ETH Zürich] - ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]); Christine Halmenschlager; Patrick Waelbroeck
    Abstract: In this article, we show how freemium business models can deter piracy. We analyze a simple freemium model in which a firm offers both a free version and a premium version. The firm can restrict the use of the free version. Consumers can choose between the free and the premium version, but can also get an illegal digital copy. More restrictions can increase the number of premium users but divert other users to piracy. On the contrary, fewer restrictions deter online piracy. We show that with a low level of piracy, the firm sets a high level of restrictions on the free version, which makes the traditional premium business model more profitable than the freemium model. We therefore challenge the idea that strong copyright laws are necessary to protect digital markets. We argue that there are market solutions to fight free with free that better segment consumer audiences according to their willingness to pay for digital music.
    Keywords: Online piracy, versioning, freemium, streaming, copyright, music
    Date: 2023–02–16
  9. By: Andrew Glover; Jacob Short
    Abstract: Since 1980, the earnings share of older workers has risen in the United States. At the same time, labor’s share of income has declined significantly. We hypothesize that an aging workforce has contributed to the decline in labor’s share of income. We formalize this hypothesis in an on-the-job search model in which employers of older workers may have substantial monopsony power due to the decline in labor market dynamism that accompanies aging. The greater monopsony power manifests as a growing wedge between a worker’s earnings and their marginal product over the life cycle. We estimate the profile of these wedges using cross-industry variation in labor’s share and the age distribution of earnings. We find that a 60-year-old worker receives half the marginal product relative to when they were 20. Together with recent demographic trends, this can account for 59% of the recent decline in labor’s share of earnings in the United States.
    Keywords: Labour markets; Productivity
    JEL: D33 E25 J1 J3 J62
    Date: 2023–04
  10. By: Sirui Li; Ying Liu; Jing Su; Xin Luo; Xiao Yang
    Date: 2022–05–05
  11. By: Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Meissner, Stefan (Factworks GmbH); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Consumers can sometimes be exploited because they make mistakes in their valuation of products. We present the results from a large-scale experimental study that examines whether third-party spectators from the general population in the United States cancel a deal where a buyer has made a mistake in the valuation of a product and agreed to pay more for the product than the seller knows it is worth. We find that the majority of the spectators cancel such deals even when the seller’s involvement is limited to accepting a proposal made by the buyer. A substantial share of these spectators are also willing to fine the seller. However, a large minority of the spectators are willing to uphold the deal even when the seller has proposed the deal and obfuscated the information provided to the buyer. Our results shed new light on when people view market transactions as acceptable and their attitudes to government regulation of businesses.
    Keywords: Consumers; irrational behavior
    JEL: D63
    Date: 2023–04–06
  12. By: José Liberti (De Paul University and Northwestern University); Jason Sturgess (Queen Mary University of London); Andrew Sutherland (MIT Sloan School of Management)
    Abstract: We use the introduction of a U.S. commercial credit bureau to study when lenders adopt voluntary information sharing technology and the resulting consequences for competition and credit access. Our results suggest that lenders trade off access to new markets against heightened competition for their own borrowers. Lenders that do not share initially lose borrowers to competitors that share, which ultimately compels them to share and leads to the formation of an information sharing system. We find access to credit improves but only for high-quality borrowers in markets with greater lender adoption. Our results offer the first direct evidence on when financial intermediaries adopt information sharing technologies and how sharing systems form and evolve.
    Keywords: information sharing, access to credit, financial intermediation, fintech, SMEs.
    JEL: G21 G23 G32
    Date: 2021–06–01
  13. By: Theo Cotrim Martins; Rafael Schiozer; Fernando de Menezes Linardi
    Abstract: Using unique administrative data on firm-to-firm payments and bank-to-firm lending, we investigate how lending to a firm is affected by same-bank lending to the firm’s customers and suppliers. We show that bank lending increases when the same bank also lends to the firm’s customers or suppliers. Additionally, we find that the revelation of negative information about the creditworthiness of a firm’s major customer causes an increase in the cost and a reduction in the duration of the loans provided to the firm. These results suggest that lending to firms connected through the supply chain conveys valuable information to banks.
    Date: 2023–03
  14. By: Alvino, Letizia (Tilburg University, School of Economics and Management)
    Date: 2022
  15. By: Fleckinger, Pierre; Martimort, David; Roux, Nicolas
    Abstract: What is the most efficient way of designing incentives for a group of agents? Over the past five decades, agency theory has provided various answers to this crucial question. This line of research has argued that, depending on the specific organizational context, the best channel for providing incentives involves either relying on collective compen-sations or, on the contrary, employing relative performance evaluations. In the first scenario, cooperation among agents is the key aspect of the organization. In the second, competition among agents prevails. This paper provides a comprehensive overview of this extensive literature, with the aim of understanding the conditions under which one or the other type of incentive scheme is more desirable for the principal of the organiza-tion. To achieve this, we use a flexible workhorse model that is capable of addressing a wide range of scenarios characterized by different technologies, information constraints, and behavioral norms.
    JEL: D20 D86 J33 L23 M12 M50
    Date: 2023–03
  16. By: Marco Guerzoni (DEMS, Università di Milano-Bicocca, Milano, Italy - BETA, University of Strasbourg, France); Luigi Riso (Dipartimento di Politica Economica, DISCE, Università Cattolica del Sacro Cuore, Milano, Italy); Marco Vivarelli (Dipartimento di Politica Economica, DISCE, Università Cattolica del Sacro Cuore, Milano, Italy – UNU-MERIT, Maastricht, The Netherlands – IZA, Bonn, Germany)
    Abstract: Using both regression analysis and an unsupervised graphical model approach (never applied before to this issue), we confirm the rejection of the Gibrat’s law when our firm-level data are considered over the entire investigated period, while the opposite is true when we allow for market selection. Indeed, the growth behavior of the re-shaped (smaller) population of the survived most efficient firms is in line with the Law of Proportionate Effect; this evidence reconciles early and current literature testing Gibrat’s law and may have interesting implications in terms of both applied and theoretical research.
    Keywords: Gibrat’s Law, firm survival, market selection, firm growth
    JEL: L11
    Date: 2023–03
  17. By: Anwesha Sengupta; Shashankaditya Upadhyay; Indranil Mukherjee; Prasanta K. Panigrahi
    Abstract: Market competition has a role which is directly or indirectly associated with influential effects of individual sectors on other sectors of the economy. The present work studies the relative position of a product in the market through the identification of influential spreaders and its corresponding effect on the other sectors of the market using complex network analysis during the pre-, in-, and post-crisis induced lockdown periods using daily data of NSE from December, 2019 to June, 2021. The existing approaches using different centrality measures failed to distinguish between the positive and negative influences of the different sectors in the market which act as spreaders. To obviate this problem, this paper presents an effective measure called LIEST (Local Influential Effects for Specific Target) that can examine the positive and negative influences separately with respect to any crisis period. LIEST considers the combined impact of all possible nodes which are at most three steps away from the specific targets for the networks. The essence of non-linearity in the network dynamics without considering single node effect becomes visible particularly in the proposed network.
    Date: 2022–10
  18. By: Sheren Lanardi (BINUS Business School Undergraduate, 11480, Jakarta, Indonesia Author-2-Name: Dony Saputra Author-2-Workplace-Name: BINUS Business School Undergraduate, 11480, Jakarta, Indonesia Author-3-Name: Vanessa Virginia Author-3-Workplace-Name: BINUS Business School Undergraduate, 11480, Jakarta, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Purpose - This study discusses the emergence of various local skincare companies that manufacture high-quality products at a fair price and have successfully attracted customer loyalty through their customer engagement. This paper aims to identify the effect of Product Quality and Price Fairness on Customer Loyalty and Customer Engagement as intervening variables in local skincare products. Methodology/Technique - This study used quantitative methods. The data collection technique is questionnaires distributed to 171 skincare users. All the data is processed with Path Analysis using double-multiple linear regression SPSS. Findings - The results are that Product Quality and Price Fairness have a significant effect on Customer Engagement and Customer Loyalty, Product Quality does not have a significant effect on Customer Loyalty, and Product Quality has a significant effect on Customer Loyalty through Customer Engagement. In contrast, Price Fairness does not significantly affect Customer Loyalty through Customer Engagement. Novelty - This research novelty is filling the gap of previous research by combining the direct effects of Product Quality and Price Fairness from several studies focusing on Customer Engagement as mediation to Customer Loyalty. Type of Paper - Empirical"
    Keywords: Customer Engagement; Customer Loyalty; Price Fairness; Product Quality; Skincare.
    JEL: F44 M20 M30
    Date: 2023–03–31

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