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on Industrial Competition |
| By: | Steven Berry (Cowles Foundation, Yale University); Philip Haile (Cowles Foundation, Yale University) |
| Abstract: | We examine identification of differentiated products demand when one has Òmicro dataÓ linking the characteristics and choices of individual consumers. Our model nests standard specifications featuring rich observed and unobserved consumer heterogeneity as well as product/market-level unobservables that introduce the problem of econometric endogeneity. Previous work establishes identification of such models using market-level data and instruments for all prices and quantities. Micro data provides a panel structure that facilitates richer demand specifications and reduces requirements on both the number and types of instrumental variables. We address identification of demand in the standard case in which non-price product characteristics are assumed exogenous, but also cover identification of demand elasticities and other key features when these product characteristics are endogenous and not instrumented. We discuss implications of these results for applied work. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2357&r=com |
| By: | Ali Hortacsu (University of Chicago and NBER); Olivia R. Natan (University of California, Berkeley); Hayden Parsley (University of Texas, Austin); Timothy Schwieg (University of Chicago, Booth); Kevin R. Williams (Cowles Foundation, Yale University) |
| Abstract: | We propose a demand estimation method that allows for a large number of zero sale observations, rich unobserved heterogeneity, and endogenous prices. We do so by modeling small market sizes through Poisson arrivals. Each of these arriving consumers solves a standard discrete choice problem. We present a Bayesian IV estimation approach that addresses sampling error in product shares and scales well to rich data environments. The data requirements are traditional market-level data as well as a measure of market sizes or consumer arrivals. After presenting simulation studies, we demonstrate the method in an empirical application of air travel demand. |
| Keywords: | Discrete Choice Modeling, Demand Estimation, Zero-Sale Observations, Bayesian Methods, Airline Markets |
| JEL: | C10 C11 C13 C18 L93 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2313r1&r=com |
| By: | Aniko …ry (Cowles Foundation, Yale University); Ali Horta su (University of Chicago and NBER); Kevin Williams (Cowles Foundation, Yale University) |
| Abstract: | We introduce a model of dynamic pricing in perishable goods markets with competition and provide conditions for equilibrium uniqueness. Pricing dynamics are rich because both own and competitor scarcity affect future profits. We identify new competitive forces that can lead to misallocation due to selling units too quickly: the Bertrand scarcity trap. We empirically estimate our model using daily prices and bookings for competing U.S. airlines. We compare competitive equilibrium outcomes to those where firms use pricing heuristics based on observed internal pricing rules at a large airline. We find that pricing heuristics increase revenues (4-5%) and consumer surplus (3%). |
| JEL: | C70 C73 D21 D22 D43 D60 L13 L93 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2341r1&r=com |
| By: | Ali Hortacsu (University of Chicago and NBER); Olivia R. Natan (University of California, Berkeley); Hayden Parsley (University of Texas, Austin); Timothy Schwieg (University of Chicago, Booth); Kevin R. Williams (Cowles Foundation, Yale University) |
| Abstract: | Firms facing complex objectives often decompose the problems they face, delegating different parts of the decision to distinct subordinates. Using comprehensive data and internal models from a large U.S. airline, we establish that airline pricing is inconsistent with canonical dynamic pricing models. However, we show that observed prices can be rationalized as an equilibrium of a game played by departments who each have decision rights for different inputs that are supplied to the observed pricing heuristic. Incorrectly assuming that the firm solves a standard profit maximization problem as a single entity understates overall welfare actually achieved but affects business and leisure consumers differently. Likewise, we show that assuming prices are set through standard profit maximization leads to incorrect inferences about consumer demand elasticities and thus welfare. |
| Keywords: | Dynamic Pricing, Pricing Heuristics, Organizational Structure, Revenue Management, Behavioral IO, Airlines |
| JEL: | C11 C53 D22 D42 L10 L93 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2312r3&r=com |
| By: | Marc Bourreau; Adrien Raizonville; Guillaume Thébaudin |
| Abstract: | Platform interoperability is considered a powerful tool to promote competition in digital markets when network effects are at play. We study the effect of interoperability on competition between two ad-financed platforms, allowing for endogenous multi-homing of consumers. When the platforms are symmetric and decide non-cooperatively on their level of interoperability, interoperability emerges in equilibrium if the value of multi-homers relative to single-homers is sufficiently low for advertisers. From a welfare perspective, the equilibrium level of interoperability can be either too low or too high. When one (“large”) platform has an installed base of customers, its incentive to make its services interoperable is lower than for the other, smaller platform. However, mandating interoperability between the asymmetric platforms is not always socially optimal. |
| Keywords: | interoperability, platform competition, multi-homing, advertising |
| JEL: | L13 L86 L15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10332&r=com |
| By: | David W. Berger; Thomas Hasenzagl; Kyle F. Herkenhoff; Simon Mongey; Eric A. Posner |
| Abstract: | While the labor market implications of mergers have been historically ignored as “out of market” effects, recent actions by the Department of Justice (DOJ) place buyer market power (i.e., monopsony) at the forefront of antitrust policy. We develop a theory of multi-plant ownership and monopsony to help guide this new policy focus. We estimate the model using U.S. Census data and demonstrate the model’s ability to replicate empirically documented paths of employment and wages following mergers. We then simulate a representative set of U.S. mergers in order to evaluate merger review thresholds. Our main exercise applies the DOJ and FTC’s product market concentration thresholds to local labor markets. Assuming mergers generate efficiency gains of 5 percent, our simulations suggest that workers are harmed, on average, under the enforcement of the more lenient 2010 merger guidelines and unharmed, on average, under enforcement of the more stringent 1982 merger guidelines. We also provide a framework for further research evaluating alternative concentration thresholds based on assumptions about the efficiency effects of mergers and the resource constraints of regulators. Finally, we provide guidance for using the Gross Downward Wage Pressure method for evaluating the impact of mergers on labor markets. |
| JEL: | D40 E20 H0 J0 K0 L0 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31147&r=com |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT Sloan School of Management); Nicholas Wu (Cowles Foundation, Yale University) |
| Abstract: | We develop an auction model for digital advertising. A monopoly platform has access to data on the value of the match between advertisers and consumers. The platform support bidding with additional information and increase the feasible surplus for on-platform matches. Advertisers jointly determine their pricing strategy both on and off the platform, as well as their bidding for digital advertising on the platform. We compare a data-augmented second-price auction and a managed campaign mechanism. In the data-augmented auction, the bids by the advertisers are informed by the data of the platform regarding the value of the match. This results in a socially efficient allocation on the platform, but the advertisers increase their product prices off the platform to be more competitive on the platform. In consequence, the allocation off the platform is inefficient due to excessively high product prices. The managed campaign mechanism allows advertisers to submit budgets that are then transformed into matches and prices through an autobidding algorithm. Compared to the data-augmented second-price auction, the optimal managed campaign mechanism increases the revenue of the digital platform. The product prices off the platform increase and the consumer surplus decreases. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2359&r=com |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti |
| Abstract: | We analyze digital markets where a monopolist platform uses data to match multiproduct sellers with heterogeneous consumers who can purchase both on and off the platform. The platform sells targeted ads to sellers that recommend their products to consumers and reveals information to consumers about their values. The revenueoptimal mechanism is a managed advertising campaign that matches products and preferences efficiently. In equilibrium, sellers offer higher qualities at lower unit prices on than off the platform. Privacy-respecting data-governance rules such as organic search results or federated learning can lead to welfare gains for consumers. |
| Keywords: | Data, Data, Privacy, Data Governance, Digital Advertising, Competition, Digital Platforms, Digital Intermediaries, Personal Data, Matching, Price Discrimination, Automated Bidding, Algorithmic Bidding, Managed Advertising Campaigns, Showrooming |
| JEL: | D18 D44 D82 D83 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2343r&r=com |
| By: | David Autor; Christina Patterson; John Van Reenen |
| Abstract: | National industrial concentration in the U.S. has risen sharply since the early 1980s, but there remains dispute over whether local geographic concentration has followed a similar trend. Using near population data from the Economic Censuses, we confirm and extend existing evidence on national U.S. industrial concentration while providing novel evidence on local concentration. We document that the Herfindhahl index of local employment concentration, measured at the county-by-NAICS six-digit-industry cell level, fell between 1992 and 2017 even as local sales concentration rose. The divergence between national and local employment concentration trends is attributable to the structural transformation of U.S. economic activity: both sales and employment concentration rose within industry-by-county cells; but reallocation of sales and employment from relatively concentrated Manufacturing industries (e.g., steel mills) towards relatively un-concentrated Service industries (e.g. hair salons) reduced local concentration. A stronger between-sector shift in employment relative to sales drove the net fall in local employment concentration. Holding industry employment shares at their 1992 level, average local employment concentration would have risen by about 9% by 2017. Instead, it fell by 5%. Falling local employment concentration may intensify competition for recent market entrants. Simultaneously, rising within industry-by-geography concentration may weaken competition for incumbent workers who have limited sectoral mobility. To facilitate analysis, we have made data on these trends available for download. |
| JEL: | E23 J42 L10 L11 L22 R11 R12 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31130&r=com |
| By: | David W. Berger; Kyle F. Herkenhoff; Andreas R. Kostøl; Simon Mongey |
| Abstract: | We contribute a theory in which three channels interact to determine the degree of monopsony power and therefore the wedge between a worker’s spot wage and her marginal product (henceforth, the wage markdown): (1) heterogeneity in worker-firm-specific preferences (nonwage amenities), (2) firm granularity, and (3) off- and on-the-job search frictions. We use Norwegian data to discipline each channel and then reproduce novel reduced-form empirical relationships between market concentration, job flows, wages and wage inequality. Our main exercise quantifies the contribution of each channel to income inequality and wage markdowns. The markdowns are 21 percent in our baseline estimation. Removing nonwage amenity dispersion narrows them by a third. Giving the next-lowest-ranked competitor a seat at the bargaining table narrows them by half. Removing search frictions narrows them by two-thirds. Each counterfactual shows decreased wage inequality and increased welfare. |
| JEL: | E02 J01 J42 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31149&r=com |
| By: | Sabien Dobbelaere (Vrije Universiteit Amsterdam); Daniel Prinz (Institute for Fiscal Studies); Grace McCormack (Harvard); Sándor Sóvágó (University of Groningen) |
| Date: | 2022–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:22/45&r=com |
| By: | Ron Berman (University of Pennsylvania - The Wharton School); Aniko Oery (Cowles Foundation, Yale University); Xudong Zheng (Johns Hopkins University, Department of Economics) |
| Abstract: | We compare influencer marketing to targeted advertising from information aggregation and product awareness perspectives. Influencer marketing leverages network effects by allowing consumers to socially learn from each other about their experienced content utility, but consumers may not know whether to attribute promotional post popularity to high content or high product quality. If the quality of a product is uncertain (e.g., it belongs to an unknown brand), then a mega influencer with consistent content quality fosters more information aggregation than a targeted ad and thereby yields higher profits. When we compare influencer marketing to untargeted ad campaigns or if the product has low quality uncertainty (e.g., belongs to an established brand), then many micro influencers with inconsistent content quality create more consumer awareness and yield higher profits. For products with low quality uncertainty, the firm wants to avoid information aggregation as it disperses posterior beliefs of consumers and leads to fewer purchases at the optimal price. Our model can also explain why influencer campaigns either "go viral" or "go bust, " and how for niche products, micro-influencers with consistent content quality can be a valuable marketing tool. |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2358&r=com |
| By: | Nuri Ersahin; Mariassunta Giannetti; Ruidi Huang |
| Abstract: | Using textual analysis of earnings conference calls, we quantify firms’ supply chain risk and its sources. Our proxy for supply chain risk exhibits large cross-sectional and time-series variation that aligns with reasonable priors and is unprecedently high during the Covid-19 pandemic. In addition, a firm exhibits high supply chain risk when its suppliers also do so. We find that firms that experience an increase in supply chain risk establish relationships with closer and domestic suppliers and with suppliers that are industry leaders, but also continue to work with suppliers in other continents. In addition, firms that do not face financial constraints become more likely to engage in vertical mergers and acquisitions. |
| JEL: | F15 G31 G34 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31134&r=com |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa) |
| Abstract: | The present study investigates how increasing bank accounts and bank concentration affect mobile money innovations in 148 countries. It builds on scholarly and policy concerns in the literature that increasing bank accounts may not be having the desired effects on financial inclusion on the one hand and on the other, that bank concentration which is a proxy for market power is a relevant mobile money innovation demand factor. The empirical evidence is based on Tobit regressions. From the findings, it is apparent that boosting bank accounts is positively related to the three mobile money innovations (i.e. mobile bank accounts and the mobile phone used to send money). Moreover, some critical levels of bank account penetration require complementary policies in order to maintain the positive relationship between boosting bank accountsand positive outcomes in terms of money mobile innovations.Conversely, financial inclusion in terms of the three mobile money innovations is not significantly apparent upon enhancing bank concentration. Policy implications are discussed in the light of the provided thresholds for complementary policies. |
| Keywords: | Mobile money; technology; diffusion; financial inclusion; inclusive innovation, information asymmetry |
| JEL: | D10 D14 D31 D60 O30 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:23/019&r=com |
| By: | Bing Guo; Dennis C. Hutschenreiter; David Pérez-Castrillo; Anna Toldrà-Simats |
| Abstract: | Institutional investors’ ownership in public firms has become increasingly concentrated in the last decades. We study the heterogeneous effects of large versus more dispersed institutional owners on firms’ innovation strategies and their innovation output. We find that large institutional investors induce managers to increase spending in internal R&D by reducing short-term pressure. However, to avoid empire building and dilution, large institutional investors prevent acquisitions, which reduces firms’ investment in external innovation. The overall effect on firms’ future patents and citations is negative. By acquiring less innovation from external sources, firms reduce the returns of their investment in internal R&D, jeopardizing their total innovation output. We use the mergers of financial institutions as exogenous shocks on firms’ institutional ownership concentration. Our findings complement the previously found positive effects of institutional ownership on firm innovation and indicate that the effects become negative when institutional investors become large owners. |
| Keywords: | institutional ownership, blockholders, innovation, acquisitions |
| JEL: | G32 G24 O31 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1390&r=com |
| By: | Andrea La Nauze; Erica Myers |
| Abstract: | We use an experiment to test whether consumers optimally acquire information on energy costs in appliance markets where, like many contexts, consumers are poorly informed and make mistakes despite freely available information. To test for optimal information acquisition we compare the average utility gain from improved decision making due to information with willingness to pay for information. We find that consumers acquire information suboptimally. We then compare two behavioral policies: a conventional subsidy for energy-efficient products and a non-traditional subsidy paying consumers to acquire information on energy costs. The welfare effects of each policy depend on the benefits of improved decisions versus the losses of mental effort (from the information subsidy) or distorted choices (from the product subsidy). In our context, information subsidies dominate product subsidies. In a variety of settings where decisions are made and information is delivered online, paying for attention could more effectively target welfare improvements. |
| Keywords: | endogenous information acquisition, behavioral bias, information interventions, energy efficiency |
| JEL: | D91 D12 D83 Q41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10335&r=com |
| By: | Guerzoni, Marco; Riso, Luigi; Vivarelli, Marco |
| 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. |
| JEL: | L11 D92 |
| Date: | 2023–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2023006&r=com |
| By: | Thierry Blayac (CEE-M, Univ Montpellier, CNRS, INRAE, Institut Agro, Montpellier, France); Patrice Bougette (Université Côte d'Azur; GREDEG, CNRS, France); Florent Laroche (Université Lyon 2; LAET, CNRS, France) |
| Abstract: | This paper provides an empirical analysis of the determinants of service prices and frequencies of conventional high-speed rail (HSR) in France. We use original data for the period 09/2019-03/2020 and consider the intensity of intermodal competition and the diversification strategy of the incumbent rail operator. The main econometric results show that the determinants of the price per kilometer of conventional HSR services (1st and 2nd class) are partly common (especially for the variables explaining the technical characteristics of the routes and the alternative offer) and partly specific (competitive environment, economic and demographic environment). Frequencies depend mainly on travel time. On the routes for which the conventional HSR does not provide a quality service (frequency and/or price), a complementary alternative offer compensates the low frequency of conventional HSR services. |
| Keywords: | HSR; Intermodal competition; Multiproduct firms' strategies; Low-cost transportation; France |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2023-01&r=com |
| By: | Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | [Extrait] Le 18 décembre dernier, lorsque des passagers ont pu embarquer à Paris dans un train Trenitalia à destination de Lyon, une étape symbolique dans l'ouverture à la concurrence et la fin du monopole historique de la SNCF a été franchie. Et cette actualité n'est pas seule en la matière. À l'automne, sur le réseau TER, Transdev a devancé la SNCF lors de l'appel d'offres pour l'exploitation de la liaison Nice-Marseille. [...] Ouvrir le rail à la concurrence reste un point de débat assez sensible [...] |
| Keywords: | Libéralisation, Secteur ferroviaire, Ouverture à la concurrence |
| Date: | 2022–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04056692&r=com |
| By: | Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | [Extrait] La crise liée au coronavirus en avait retardé l'échéance. Pour la première fois, le 18 décembre 2021, un train d'une compagnie étrangère reliait deux villes françaises après plus de 80 ans de monopole par la SNCF. Une rame Frecciarossa du transporteur Trenitalia quittait Paris pour Milan, desservant au passage Lyon-Part Dieu, Chambéry et Modane du côté français des Alpes. Deux allers-retours quotidiens pour commencer, puis trois à partir du mois d'avril et cinq deux mois plus tard, les trois derniers seulement entre Paris et Lyon. L'ouverture à la concurrence, promettait l'Union européenne, devait offrir au consommateur une qualité de service renforcée à des prix plus attractifs en obligeant un opérateur en situation de monopole à comprimer ses marges. Nos travaux de recherche synthétisant plusieurs observations faites sur le Vieux Continent tendaient à montrer que l'hypothèse semblait vérifiée avec des écarts plus ou moins importants selon les pays. Un an après, qu'en est-il sur la ligne à grande vitesse Paris-Lyon, la plus ancienne et la plus empruntée d'Europe (44 millions de passagers en 2019) ? ... |
| Keywords: | Covid, Coronavirus, Transport ferroviaire, Concurrence, Libéralisation, SNCF |
| Date: | 2022–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04058217&r=com |