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on Industrial Competition |
| By: | Daniel McFadden |
| Abstract: | The elegant economic picture of rational consumers achieving Pareto optimality through trade in decentralized self-organized markets is blurred by market imperfections and choices inconsistent with consumer self-interest. Behavioral economics has documented these errors in choice, and considered interventions that can mitigate harm to individuals from bad choices. This essay considers more broadly market distortions that arise when sellers design and market products to exploit consumer errors, and suggests market management policies to mitigate these distortions. I give examples in which consumers’ lack of attention and diligence in collecting, filtering, and processing information has an outsize effect on market outcomes. I discuss identification and estimation of a two-stage model of decision-making, with attention determined in the first stage, and choice among alternatives described in the second stage. The stages in this model are linked by unobservable factors and identified by available information specific to each. I use this model to quantify the effects of inattention in a market for health insurance. |
| JEL: | D01 D04 D15 D18 D47 D83 D91 L14 L15 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31165&r=com |
| By: | Simon Cowan |
| Abstract: | The conditions for monopolization to be good for social welfare are examined. Social welfare can be higher when a monopoly sells to a monopoly, with double margins, than when a competitive industry sells to a downstream Cournot oligopoly with differing efficiency levels. This requires inverse demand to be sufficiently concave, and cannot hold when demand is convex. When there are no vertical issues an efficient monopoly can yield higher social welfare than an asymmetric Cournot duopoly as long as demand is logconcave. In general greater demand concavity increases the relative importance of the benefit of redistributing output to the efficient firm. |
| Date: | 2023–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:1006&r=com |
| By: | Dirk Bergemann; 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 revenue-optimal 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. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.07653&r=com |
| By: | Shubhdeep Deb (UPF Barcelona); Jan Eeckhout (Institute for Fiscal Studies); Aseem Patel (University of Essex); Lawrence Warren (US Census Bureau) |
| Date: | 2022–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:22/40&r=com |
| By: | Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | This contribution considers how anti-competitive agreements can be impacted by algorithms, especially those that use artificial intelligence, and by the use of blockchains. In both cases, the aim is to analyze how these technical devices can contribute to the consolidation of agreements, how they can hinder the supervision exercised by -competition authorities and the effectiveness of their tools to unravel cartels, and finally how they can be used to augment this oversight. |
| Keywords: | algorithms, blockchains, cartels, collusive agreements, leniency programs, facilitating practices |
| JEL: | K21 L41 L42 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2022-32&r=com |
| By: | Schmitz, Patrick W. |
| Abstract: | In the property rights approach to the theory of the firm, ownership matters if parties have to make partly relationship-specific investments, but ownership would be irrelevant if the investments were completely relationship-specific. We show that if negotiations after the investment stage require transaction costs to be paid, then ownership matters even when investments are completely relationship-specific. While in the standard model without transaction costs there are underinvestments compared to the first-best benchmark, in our setting a party may overinvest in order to induce the other party to incur the transaction costs that are necessary to enter the negotiation stage. |
| Keywords: | incomplete contracts; investment incentives; ownership rights; relationship specificity; transaction costs |
| JEL: | D23 D86 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117065&r=com |
| By: | Merino Troncoso, Carlos |
| Abstract: | The book is intended to be a reference book of Competition Economics for economists, consultants and/or practitioners. It is a modern review of demand and supply estimation, market structure, merger analysis, damage estimation, welfare loss, abuse of dominance, network effects, and a math and statistics review. Faced with potential multibillion fines, and thousands of damage claims firms are hiring and paying high fees to comply, defend or claim in antitrust cases. Complex economic and statistical issues appear in most cases and all the parties involved in cases are expected to have a good knowledge of them. This book tries to cover a demand of practitioners for a compact introductory level book on this field. |
| Keywords: | antitrust, competition policy, merger simulation, demand estimation |
| JEL: | L10 L11 L13 L16 L4 L40 |
| Date: | 2023–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115999&r=com |
| By: | Vivek Bhattacharya; Gastón Illanes; David Stillerman |
| Abstract: | We document the effects of a comprehensive set of US retail mergers. On average, prices increase by 1.5% and quantities decrease by 2.3%, with significant heterogeneity in outcomes across mergers. Price changes correlate with the screens codified in the Horizontal Merger Guidelines. Through a model of enforcement, we find that agencies challenge mergers they expect would increase average prices more than 8–9%. Modest increases in stringency reduce prices and the prevalence of approved anti-competitive mergers, with minimal impacts on blocked pro-competitive mergers, at a significantly greater agency burden. Our findings inform the debate over whether antitrust enforcement has been lax. |
| JEL: | D43 K21 L13 L41 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31123&r=com |
| By: | Thierry Blayac (CEE-M, Univ Montpellier, CNRS, INRAE, Institut Agro, Montpellier, France); Patrice Bougette (Université Côte d'Azur; GREDEG, CNRS, France) |
| Abstract: | This study estimates the competitive effects of horizontal mergers in the French long-distance bus industry. We examine the two mergers that followed the 2015 Deregulation Act (the Macron Law); we use an exclusive and exhaustive dataset that covers eight consecutive quarters. We analyze the merger effects by comparing bus links that were affected by mergers with those that were unaffected; we use difference-in-differences estimations. We find that the two mergers are associated with price increases of about 13.5% immediately that then moderate to 5.3%; and with the frequency decreases from -21.5% to -25.7%; we observe no effects on load factors. These findings show evidence of short-run anticompetitive effects, while the mergers under study were not scrutinized by the French competition agency, as they were below the notification thresholds. |
| Keywords: | Long-distance bus industry, Mergers and acquisitions, Deregulated industry, Consolidation, Intramodal competition, Difference-in-differences estimation |
| JEL: | K21 L12 L40 L42 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2022-34&r=com |
| By: | Arkhipova Kate (Department of Economics, Lomonosov Moscow State University); Besedovskaya Maria (Department of Economics, Lomonosov Moscow State University) |
| Abstract: | The Russian banking sector is strictly regulated by the Central Bank of Russia to ensure the stability of the financial system. Launched in 2013, the revocation of licenses from banks for too risky lending policies, money laundering and suspicious transactions led to a sharp reduction in market participants. On the one hand, this has led to an increase in the stability of the Russian banking system, and on the other hand, to an increase in the monopolization of the industry, which may lead to a drop in the efficiency of the sector. The work evaluates the current concentration of the Russian banking sector and determines the market structure of this market. To do this, a systematic approach to the analysis of the sector was applied, the dynamics of key concentration indices was 2 analyzed, and the Panzar-Ross industry monopolization indicator was calculated. The results obtained (high concentration indexes and low Panzar-Ross market power) indicate the presence of a "tough oligopoly in a competitive environment" in the sector. |
| Keywords: | Banking sector, market power, competition, oligopoly, concentration |
| JEL: | G18 G21 L13 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:upa:wpaper:0044&r=com |
| By: | Giuseppe Attanasi (Université Côte d'Azur, France; GREDEG CNRS); Michela Chessa (Université Côte d'Azur, France; GREDEG CNRS); Sara Gil Gallen (Università degli studi di Bari "Aldo Moro", Italy); Elena Manzoni (University of Bergamo) |
| Abstract: | We investigate theoretically and experimentally the performance of a bargaining-overstrategies protocol with confirmed proposals, with either symmetric (i.e., alternating among the two players) or asymmetric power of confirmation (i.e., assigned to one of the two players alone). We apply it both to a Bertrand duopoly market, in which competition is on prices, and to a Cournot duopoly market, in which players compete on the amount of output they produce. We characterize the set of subgame perfect equilibrium outcomes of the bargaining game with confirmed proposals for each of the four combinations of confirmation power and market game, and formulate theory-driven hypotheses based on these different characterizations. Our experimental results show that bargaining over strategies of price- or quantity-setting (i) acts as a communication device in competitive environments, (ii) increases the level of collusion, and (iii) reduces the bargaining length. In particular, we report experimental evidence of overall better performance of a Bertrand duopoly market in reaching an equitable, welfare-maximizing, and Pareto-efficient agreement. However, competing in price rather than in quantity setting reduces the bargaining length only under asymmetric power of confirmation, while under symmetric power price-setting only has a second-order effect on reducing the bargaining length. We complement the data analysis with a qualitative analysis of the sequence of players' declared strategies as communication devices. |
| Keywords: | Bargaining, Tacit collusion, Experiments, Bertrand duopoly, Cournot duopoly |
| JEL: | C72 C91 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2022-18&r=com |
| By: | Dirk Bergemann; Alessandro Bonatti; Nicholas Wu |
| 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:arx:papers:2304.08432&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 at concentration trends. |
| Keywords: | national and local employment concentration, local geographic concentration, sales, U.S. |
| Date: | 2023–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1916&r=com |
| By: | Joseph Hickey |
| Abstract: | Service-providing firms compete for clients, creating market structures ranging from domination by a few giant companies to markets in which there are many small firms. These market structures evolve in time, and may remain stable for many years before experiencing a disruption in which a new firm emerges and rapidly obtains a large market share. We seek the simplest realistic model giving rise to such diverse market structures and dynamics. We focus on markets in which every client adopts a single firm, and can, from time to time, switch to a different firm. The markets of cell phone and Internet service providers are examples. In the model, the size of a particular firm, labelled i, is equal to its current number of clients, ni. In every step of the simulation, a client is chosen at random, and then selects a firm from among the full set of firms with probability pi = (beta + ni^alpha)/K, where K is the normalization factor. Our model thus has two parameters: alpha represents the degree to which firm size is an advantage (alpha > 1) or disadvantage (alpha |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.08727&r=com |
| By: | Markus K. Brunnermeier; Nicola Limodio; Lorenzo Spadavecchia |
| Abstract: | This paper explores the tradeoff between competition and financial inclusion given by the vertical integration between mobile network and money operators. Joining novel data on mobile money fees built through the WayBack machine, with sources on network coverage and financials, we examine the staggering across African operators and countries of platform interoperability – a policy that promotes transactions and competition across mobile money operators. Our findings show that interoperability lowers mobile money fees and reduces network coverage and mobile towers, especially in rural and poor districts. Interoperability also results in a decline in various survey metrics of financial inclusion. Keywords: Mobile Money, Interoperability, Financial inclusion JEL Codes: E42, L14, O10 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:696&r=com |
| By: | Alexandre De Cornière (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); Miklos Sarvary (Columbia Business School - Columbia University [New York]) |
| Abstract: | The growing influence of internet platforms acting as content aggregators is one of the most important challenges facing the media industry. We develop a simple model to understand the impact of third-party content bundling by a social platform that has a monopoly on showing user-generated content to consumers. In our model consumers can access news either directly through a newspaper's website, or indirectly through a platform, which also offers social content. We show that content bundling, when unilaterally implemented by the platform, tends to harm publishers and to increase the dispersion of quality across outlets, with initially high-quality outlets investing more and low-quality ones investing less. With many heterogenous newspapers, the result is robust even if each newspaper can prevent the platform from using its content. When content bundling follows an agreement between the platform and publisher, its effects are reversed, as publishers' profits go up while quality dispersion goes down. In a setup with heterogeneous consumers, we also show that the platform's ability to personalize the mix of content it shows to users induces publishers to invest more in the quality of their content. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04067655&r=com |
| By: | Ginger Zhe Jin; Mario Leccese; Liad Wagman |
| Abstract: | We examine how public firms listed in North American stock exchanges acquire technology companies during 2010-2020. Combining data from S&P, Refinitiv, Compustat, and CRSP, and utilizing a unique S&P taxonomy that classifies tech M&As by tech categories and business verticals, we show that 13.1% of public firms engage in any tech M&A in the S&P data, while only 6.75% of public firms make any (tech or non-tech) M&A in Refinitiv. In both datasets, the acquisitions are widespread across sectors of the economy, but tech acquirers in the S&P data are on average younger, more investment efficient, and more likely to engage in international acquisitions than general acquirers in Refinitiv. Within the S&P data, deals in each M&A-active tech category tend to be led by acquirers from a specific sector; the majority of target companies in tech M&As fall outside the acquirer’s core area of business; and firms are, in part, driven to acquire tech companies because they face increased competition in their core areas. |
| JEL: | D04 D22 L1 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31126&r=com |
| By: | Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | While the use of artificial intelligence for pricing, search or matching algorithms generates efficiency gains that primarily benefit consumers, firms must be aware that these algorithms can generate situations of non-compliance with competition and consumer protection rules, and that they can expose them to significant reputational risks if their results are perceived as restricting or manipulating consumer choices or even as leading to discriminatory practices. This contribution aims to characterize these risks and insists on the need for companies to implement compliance policies to prevent these damages or to put an end to them quickly and efficiently through algorithmic audits. |
| Keywords: | algorithms, artificial intelligence, consumer manipulation, anticompetitive practices, compliance programmes, algorithmic audits |
| JEL: | K21 K13 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2022-23&r=com |
| By: | Jos Jansen (Department of Economics and Business Economics, Aarhus University) |
| Abstract: | I study the incentives of Cournot duopolists to share their technologies with their competitor in markets where intellectual property rights are absent and imitation is costless. The trade-off between a signaling effect and an expropriation effect determines the technology-sharing incentives. In equilibrium, there tends to be at most one firm that shares technologies. For similar technology distributions, there exists an equilibrium in which nobody shares. If the technology distributions are skewed towards efficient technologies, then there may exist equilibria in which one firm shares all technologies, only the best technologies, or only intermediate technologies. Further, I consider several extensions. |
| Keywords: | Cournot duopoly, strategic disclosure, indivisibility, innovation, trade secret, open source, skewed distribution |
| JEL: | D82 L13 L17 O32 O34 |
| Date: | 2023–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2023-04&r=com |
| By: | Roya Taherifar (University of Waikato); Mark J. Holmes (University of Waikato); Gazi M. Hassan (University of Waikato) |
| Abstract: | Income inequality and labour share have followed divergent trends in Australia. Empirical studies have attempted to explain their movement and their relationship using macro data. However, what is lacking is a firm-level study to capture the determinants of labour share specific to the firm’s production technology and market structures with an investigation into the impact on pay inequality inside firms. Hence, we conduct the first Australian firm-level study using a sample of Australian listed firms over the period 2004-2019. First, we examine the impact of technological progress, product market power and labour market power on the labour share. The results show that the decline in Australian labour share is mainly driven by technological progress and increasing product market power. However, labour market power does not have a significant impact on labour share. These findings are robust to an array of sensitivity tests. Second, we examine the impact of labour share on pay inequality within firms. We find robust evidence that declining labour share is a significant driving force in the evolution of pay inequality. Moreover, a 10 per cent decline in labour share rises pay inequality by 4.19 per cent. Additional tests show that technological progress and product market power can moderate the negative impact of labour share on pay inequality. |
| Keywords: | Income Distribution;Mark-up;Labour Share;Pay Inequality;Total Factor Productivity |
| JEL: | D33 J31 D42 |
| Date: | 2023–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:23/03&r=com |
| By: | Isabel Gödl-Hanisch |
| Abstract: | This paper analyzes the implications of the gradual rise in bank concentration since the 1990s for the transmission of monetary policy. I use branch-level data on deposit and loan rates to evaluate the monetary policy pass-through conditional on the level of local bank concentration and bank capitalization. I find that banks operating in high-concentration markets and under-capitalized banks adjust short-term lending rates more. I then build a theoretical model with heterogeneous banks that rationalizes the empirical findings and explains the underlying mechanism. In the model, monopolistic competition in local deposit and loan markets, along with bank capital requirements, lead to frictions on the pass-through to the real economy. Counterfactual analyses highlight that the rise in bank concentration alters monetary policy pass-through by two channels: the market power and capital allocation channels. Both channels further strengthen monetary policy transmission to output and investment, amplify the credit cycle, and flatten the Phillips curve. |
| Keywords: | monetary transmission, bank heterogeneity, monopolistic competition, bank regulation |
| JEL: | E44 E51 E52 G21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10378&r=com |
| By: | Cortes, Guido Matias (York University, Canada); Lerche, Adrian (LMU Munich); Schönberg, Uta (University College London); Tschopp, Jeanne (University of Bern) |
| Abstract: | We argue that skill-biased technological change not only affects wage gaps between skill groups, but also increases wage inequality within skill groups, across workers in different workplaces. Building on a heterogeneous firm framework with labor market frictions, we show that an industry-wide skill-biased technological change shock will increase between-firm wage inequality within the industry through four main channels: changes in the skill wage premium (as in traditional models of technological change); increased employment concentration in more productive firms; increased wage dispersion between firms for workers of the same skill type; and increased dispersion in the skill mix that firms employ, due to more sorting of skilled workers to more productive firms. Using rich administrative matched employer-employee data from Germany, we provide empirical evidence of establishment-level patterns that are in line with the predictions of the model. We further document that industries with more technological adoption exhibit particularly pronounced patterns along the dimensions highlighted by the model. |
| Keywords: | skill-biased technological change, heterogeneous firms, between-firm inequality |
| JEL: | J31 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16070&r=com |
| By: | Tito Boeri; Andrea Garnero; Lorenzo G. Luisetto |
| 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, employment, wages |
| Date: | 2023–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1912&r=com |