nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒05‒22
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Data Tracking under Competition By Bimpikis, Kostas; Morgenstern, Ilan; Saban, Daniela
  2. A Unified Theory of Value: Oligopolistic Competition and Optimum Product Diversity By Cordoba, Juan Carlos; Liu, Xiying
  3. Price Setting with Customer Capital: Sales, Teasers, and Rigidity By Leena Rudanko
  4. Price Discrimination with Redistributive Concerns By Daniel M A Barreto; Alexis Ghersengorin; Victor Augias
  5. Documento de Trabalho 03/2021 - Ex post mergers evaluation: Evidence from the Brazilian airline industry By Lílian Santos Severino; Guilherme Mendes Resende; Ricardo Carvalho de Andrade Lima
  6. Thinking the green transition: evidence from the automotive industry By Andrea Orame; Daniele Pianeselli
  7. Mobile payments and interoperability: Insights from the academic literature By Milo Bianchi; Matthieu Bouvard; Renato Gomes; Andrew Rhodes; Vatsala Shreeti
  8. Bank accounts, bank concentration and mobile money innovations By Asongu, Simplice A; Odhiambo, Nicholas M
  9. Regulation and Competition in Public Procurement By Drake, Samielle; Xu, Fei
  10. Price Markups and Wage Setting Behavior of Japanese Firms By Kosuke Aoki; Yoshihiko Hogen; Kosuke Takatomi
  11. Imperfect Banking Competition and the Propagation of Uncertainty Shocks By Tommaso Gasparini
  12. Intra-industry trade: Revisiting theory and Literature Survey By Aggarwal, Sakshi
  13. Where Have All the "Creative Talents" Gone? Employment Dynamics of US Inventors By Ufuk Akcigit; Nathan Goldschlag
  14. Quelle articulation entre la législation européenne sur les marchés numériques (Digital Markets Act) et le droit de la concurrence ? Réflexions à partir de l’histoire des Sherman Act et FTC Act By Frédéric Marty
  15. Welfare Economics and Neoliberalism: Interpreting the ideal type of perfect competition general equilibrium By Clément Carbonnier
  16. On suspicious tracks: machine-learning based approaches to detect cartels in railway-infrastructure procurement By Hannes Wallimann; Silvio Sticher

  1. By: Bimpikis, Kostas (Stanford U); Morgenstern, Ilan (Stanford U); Saban, Daniela (Stanford U)
    Abstract: We explore the welfare implications of data-tracking technologies that enable firms to collect consumer data and use it for price discrimination. The model we develop centers around two features: competition between firms and consumers' level of sophistication. Our baseline environment features a firm that can collect information about the consumers it transacts with in a duopoly market, which it can then use in a second, monopoly market. We characterize and compare the equilibrium outcomes in three settings: (i) an economy with myopic consumers, who, when making purchase decisions, do not internalize the fact that firms track their behavior and use this information in future transactions, (ii) an economy with forward-looking consumers, who take into account the implications of data tracking when determining their actions, and (iii) an economy where no data-tracking technologies are used due to technological or regulatory constraints. We find that the absence of data tracking may lead to a decrease in consumer surplus, even when consumers are myopic. Importantly, this result relies critically on competition: consumer surplus may be higher when data-tracking technologies are used only when multiple firms offer substitutable products.
    Date: 2022–11
  2. By: Cordoba, Juan Carlos; Liu, Xiying
    Abstract: We develop a tractable general equilibrium model of oligopolistic competition that allows for endogenous product differentiation and exhibits various forms of competition, ranging from perfect to monopolistic competition, simultaneously. Our unified framework provides a novel way to integrate industrial organization with other fields, such as macroeconomics and trade. Our key contribution is the introduction of ex-ante heterogeneity, in contrast to the ex-post heterogeneity typically assumed in the literature (Metlitz, 2003). As a result, most firms in our model prefer to engage in face-to-face competition rather than creating their own variety, in contrast to monopolistic models. We characterize the free entry Cournot equilibrium, as well as the efficient and constrained efficient allocations. Our unified approach enables us to generalize existing results, challenge others, andshed new light on several long-standing economic issues, such as the Kaldor-Chamberlin controversy, the competitive effects of trade, and the strengths and weaknesses of monopolistically competitive models.
    Date: 2023–03–23
  3. By: Leena Rudanko
    Abstract: This paper studies price setting in an equilibrium search model of frictional product markets with long-term customer relationships. The theory gives rise to temporary sales when pricing is constrained to be anonymous across a firm’s customer base. Equilibrium prices are inefficiently high, giving rise to overselling and excess trade, and the emergence of sale pricing can improve allocations by limiting this overselling. Pricing is also characterized by an asymmetry involving a stable regular price and variable sale price when firms face idiosyncratic shocks. Absent anonymous pricing, the theory gives rise to teaser pricing, which attains efficient allocations. Teaser pricing is also characterized by a stable regular price and variable teaser price, but in this case the seeming rigidity is not allocative
    Keywords: Product Market Search; Customer Base; Sales; Teasers; Price Rigidity
    JEL: E30 D83 L11 L81
    Date: 2022–09–09
  4. By: Daniel M A Barreto (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Alexis Ghersengorin (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Victor Augias (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Consumer data can be used to sort consumers into different market segments, allowing a monopolist to charge different prices at each segment. We study consumer-optimal segmentations with redistributive concerns, i.e., that prioritize poorer consumers. Such segmentations are efficient but may grant additional profits to the monopolist, compared to consumer-optimal segmentations with no redistributive concerns. We characterize the markets for which this is the case and provide a procedure for constructing optimal segmentations given a strong redistributive motive. For the remaining markets, we show that the optimal segmentation is surprisingly simple: it generates one segment with a discount price and one segment with the same price that would be charged if there were no segmentation.
    Keywords: Third-degree price discrimination, Information design, Redistribution, Inequality, Welfare
    Date: 2022–11–11
  5. By: Lílian Santos Severino (Conselho Administrativo de Defesa Econômica (Cade), Departamento de Estudos Econômicos); Guilherme Mendes Resende (Conselho Administrativo de Defesa Econômica (Cade), Departamento de Estudos Econômicos); Ricardo Carvalho de Andrade Lima (Ministério Público Federal)
    Abstract: Competition policy aims to preserve market competition by, for example, preventingmergers that harm consumers. Mergers can diminish competition by facilitating either tacit orexplicit collusion or may creating a unilateral incentive to increase price. While thesepossibilities provide an economic rationale for merger enforcement, mergers might be relatedto improving how markets function. Maldonado and Severino (2019) show that moreproductive firms acquire target firms that are more productive, which indicates the synergythat M&A can bring. Generally, Antitrust Authorities (AAs) analyze cases of M&A and potentialanticompetitive conducts, such as collusion. In this study, we will focus on the decisionscarried out by the Brazilian Antitrust Authority, the Administrative Council for EconomicDefense (CADE), regarding M&A's in the Brazilian airline sector in recent years. The Brazilianairline sector has a fundamental role in the economic development. In 2019, it representedapproximately 1% of the global GDP and faced a growth of 3.3% in air transport expensesregarding to the previous year (IATA, 2019b). In Brazil, Section 88 of the Law 12529/2011 regulates the M&A cases which must bereviewed by Cade. During reviews, the Antitrust Authority studies the impacts that theoperation can have on the market. Some well-known international methodologies, such asthe Upward Pricing Pressure (UPP) and mergersimulations, are commonly used to identify thelikelihood of a merging firm raising prices after the operation – which can be widespread tothe entire market. If prices are expected to rise, consumers will be adversely affected by themerger; thus, to prevent it, CADE can clear a transaction subject to remedies, or block it. Onthe other hand, if the deal does not pose any competition issues, Cade may clear thetransaction unconditionally. Nowadays, many studies indicate the importance of evaluating mergers outcome, especially within the Antitrust Authorities, since "ex-post evaluations can help to determine ifan intervention (or non-intervention) has achieved its objectives and, if not, the reasons itfailed to do so" (OECD, 2016). In response to this demand, the Competition Division of theOECD published a Guide for ex post evaluation to advise authorities on the importance ofmonitoring the outcome of their decisions, which can help to better design futureinterventions. Furthermore, it is worth noting that by carrying out and disclosing ex postmerger evaluations, the antitrust authorities present more transparency towards society and highlight the importance of competition enforcement. In 2019, for instance, Cade publishedits first ex post merger evaluation, which analyzed the impact on products prices of a mergerbetween two firms of the food industry – namely the Sadia-Perdigão case (Severino, Resende, Bispo, 2019). The present study aims to analyze the effects on the average airfare on domestic routesby two mergers cleared by Cade in this sector (GOL and Webjet; and Azul and Trip). This studycontributes to monitoring the competition policy in Brazil in the airline industry, a key sectorfor the country's economic development, by estimating difference in differences (DID) modelsconsidering as dependent variables fare prices and seats sold from July 2010 to December2019. The results indicate a reduction of about 8% in GOL's fare on routes in which GOL andWebjet operated before the merger (overlap routes) and an increase of approximately 38% inthe number of seats sold by GOL in those same routes after the merger. On the other hand, in the merger case of Azul and Trip, we did not find a statistically significant effect on the fare, but we found an increase of nearly 27% in the number of seats sold by Azul on overlap routesafter the transaction. These results present relevant implications. First, we cannot find anticompetitive effectsresulting from these mergers in the Brazilian airline sector; at the international field, similarresults were found by Carlton et al. (2019) during the analysis of three legacy mergers in theUnited States (namely Delta-Northwest, The United-Continental, and The American-USAirways). Secondly, these two mergers were cleared by the Brazilian authority subject toconditions related to the efficiency of the Santos Dumont airport; thus, it is possible to statethat Cade achieved its purpose of protecting competition for the benefit of consumers. Finally, we must take into consideration that these were e specific mergers in a particular period, whichdoes not indicate that these results should be found in every transaction in the airline sector.
    Keywords: Fusões e Aquisições, Política de defesa da concorrência, Avaliações ex post
    Date: 2021–09
  6. By: Andrea Orame (Bank of Italy); Daniele Pianeselli (Bank of Italy)
    Abstract: We study the European automotive industry in the 2013-2018 period. Volkswagen's Dieselgate scandal and the Paris Agreement, both in 2015, substantially caused a technological shock prompting firms to produce low-emissions cars. By using patent and mergers and acquisitions (M&A) data, we test how firms reacted to that shock. We provide evidence that Italian firms intensified their internal R&D activity but, unlike the rest of Europe, they did not increase their M&A activity. This can potentially reduce the speed of the green transition of Italian firms to the advantage of their competitors.
    Keywords: automotive, green transition, technical change, mergers and acquisitions, innovation, patents, electric car
    JEL: G34 L62 O14 O3
    Date: 2023–04
  7. By: Milo Bianchi; Matthieu Bouvard; Renato Gomes; Andrew Rhodes; Vatsala Shreeti
    Abstract: We connect various streams of academic literature to analyze how alternative competition and regulatory policies may affect the development of digital financial services, and particularly of mobile payments. Our main objective is to highlight the extent to which existing models, often coming from related industries (such as telecom, payments, and banking) can be applied to study the effects of mobile money interoperability. We focus on four dimensions of interoperability. First, we consider mobile network interoperability (whether clients of one telecom can access another telecom's payment services) in connection with the IO literature on tying. Second, we discuss platform level interoperability (the ability to send money off-network) in light of the literature on compatibility. We also build on the behavioral IO literature to suggest how the effects of interoperability may be very heterogeneous across various types of firms and consumers, or even backfire. Third, we consider interoperability in the cash-in-cash-out agent network, in light of the literature on co-investment in network industries, and of more specific studies on ATMs' interoperability. Fourth, we discuss how the literature in banking and on data ownership can be used to understand interoperability of data. We conclude with some broader remarks on policy implications and on possible directions for future research.
    Keywords: mobile payments, interoperability, financial inclusion, competition policy
    JEL: L51 L96 G23 G28 O16
    Date: 2023–04
  8. By: Asongu, Simplice A; Odhiambo, Nicholas M
    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 accounts and 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
    Date: 2023–04
  9. By: Drake, Samielle (Department of Economics, Umeå University); Xu, Fei (Department of Economics, Umeå University)
    Abstract: We examine, theoretically and empirically, the impacts of regulation on optimal bids and competition in public procurement depending on whom the regulation is imposed on. We show that regulation imposed solely on the winner of a procurement contract increases competition whereas regulation imposed on all potential bidders reduces competition. Both types of regulation raise bids in equilibrium. Furthermore, the expected outcomes of regulation depend on its enforceability as bidders adjust their optimal bids and the delivery of the contracts accordingly. Finally, the model’s theoretical implications are supported by behaviours observed in public procurement of cleaning services in Sweden.
    Keywords: Public Procurement; Regulation; Competition; Optimal Bids
    JEL: D44 H57 L51
    Date: 2023–05–02
  10. By: Kosuke Aoki (University of Tokyo); Yoshihiko Hogen (Bank of Japan); Kosuke Takatomi (Bank of Japan)
    Abstract: We estimate price markups and wage markdowns of Japanese firms using a newly constructed dataset of individual firms' financial statements -- which covers about 80 percent of the Economic Census in terms of sales size. We find that Japanese firms have secured profits by increasing markdowns amid a declining trend in markups, which has ultimately led to the stabilization of the labor share in the long run. We also find that this trend has been more pronounced among small firms in the non-manufacturing sector. Comparing our results with the U.S., (1) markdowns have increased in both Japan and the U.S., however, (2) the decline in markups in Japan is in stark contrast to the U.S., where the rise of the so-called superstar firms with strong market power has led to expansions of markups for the whole corporate sector.
    Keywords: Price markup; Wage markdown; Monopsony; Labor share
    JEL: E24 E31 J30 J42 L12
    Date: 2023–04–21
  11. By: Tommaso Gasparini
    Abstract: Uncertainty shocks play a crucial role in driving business cycle fluctuations. This paper investigates the impact of changes in banking competition on the propagation of uncertainty shocks. Using a panel dataset of 44 countries, I show that lower banking competition amplifies the negative impact of uncertainty on output growth. I further explore this relationship through a dynamic stochastic general equilibrium model featuring imperfect banking competition and financial frictions. The model shows that lower banking competition leads to higher borrowing rates and increased risk-taking by entrepreneurs. As a result, when the number of competitors is lower, uncertainty shocks have a stronger negative impact on defaults, investment and output due to increased risk-taking.
    Keywords: Financial Frictions, Financial Intermediaries, Heterogeneous Agents, Market Power, Uncertainty
    JEL: E32 E44 G21 L13
    Date: 2023–04
  12. By: Aggarwal, Sakshi
    Abstract: Early references to intra-industry trade were mostly ignored for many years. It was only in the past two decades that intra-industry trade has received significant attention and has become a leading area for international economists. It has become increasingly common in recent decades due to the growth of international trade, globalization, and the integration of economies. Intra-industry trade can benefit countries by allowing them to specialize in their areas of comparative advantage and to access a wider range of products and services at lower prices. However, it can also pose challenges for some industries and workers who may face increased competition from foreign producers. The purpose of this paper is to review the extensive literature on intra-industry trade, assess the accomplishments of researchers in this area and predict future research directions. The paper evaluates intra-industry trade as a research program and assesses whether it can continue to advance in the future. To organize the paper, the authors evaluate current perspectives in four distinct areas: theory, measurement, empirical evidence, and policy aspects.
    Keywords: Intra-industry trade, imperfect competition, classical theories of trade
    JEL: F11 F12 F14 F16
    Date: 2023–04–27
  13. By: Ufuk Akcigit; Nathan Goldschlag
    Abstract: How are inventors allocated in the US economy and does that allocation affect innovative capacity? To answer these questions, we first build a model where an inventor with a new idea has the possibility to work for an entrant or incumbent firm. Strategic considerations encourage the incumbent to hire the inventor, offering higher wages, and then not implement her idea. We then combine data on 760 thousand U.S. inventors with the LEHD data. We find that when an inventor is hired by an incumbent, their earnings increases by 12.6 percent and their innovative output declines by 6 to 11 percent.
    Keywords: Inventors, innovation, R&D, firms, dynamism, reallocation
    JEL: O3 O4
    Date: 2023–04
  14. By: Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: Même si la Loi sur les Marchés Numériques est construite sur la base de la pratique décisionnelle en matière de droit de la concurrence, son objet et ses règles de fonctionnement diffèrent très sensiblement du droit antitrust. Il ne s’agit pas de sanctionner des pratiques après démonstration d’un effet net négatif sur le bien-être du consommateur mais d’imposer des règles ex ante à certains opérateurs économiques pour garantir la contestabilité des positions acquises par les grands écosystèmes numériques et garantir une concurrence loyale au sein de ces derniers. Cette contribution propose de mettre en perspective la genèse de cette loi avec le FTC Act américain de 1914 et d’envisager à cette aune l’articulation entre les règles qu’elle introduit avec l’application des règles de concurrence.
    Keywords: Loi sur les marchés numériques, droit de la concurrence, critère du bien-être du consommateur, régulation, contestabilité, loyauté de la concurrence
    Date: 2022–06
  15. By: Clément Carbonnier (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: Both institutional economists preparing public policies and academic economists evaluating them keep the premise of perfect competition markets as reference, despite market failures are broadly acknowledged. Actually, a large bunch of economic research has explored deviations from the ideal-type (imperfect competition or information, positive or negative exter- nalities, poverty traps, bounded rationality...). Yet, this large literature keeps the ideal-type of perfect competition general equilibrium as the reference to which are compared more realistic models and toward which are supposed to tend actual economic organizations, thanks to the proposed public policies. Mainly, the virtual reference of perfect competition markets is considered as efficient, but not attained because of market failures: the aim of public policies is then to intervene to close the gap between actual market allocation and this supposed efficiency. The present article aims at understanding the characteristics of this dominant ideal-type, and specifically what is called efficiency. It analyzes: i. the way the concept of Pareto optimum is interpreted as an efficiency criterium; ii. the mechanisms through which the market process is supposed to lead to a Pareto optimal situation; iii. which one is selected amid the multiple potentially Pareto optimal situations. It allows to conclude to a false interpretation of efficiency of perfect competition, which is essentially a mechanism of gathering information by weighting individual preferences in proportion to their purchasing power. The use of perfect competition as reference and the limit of the concept of efficiency are illustrated through examples of public policies, notably green taxes.
    Keywords: economic methodology, Government policy, Provision and effects of Welfare programs, Comparative analysis of economic systems
    Date: 2023–04–06
  16. By: Hannes Wallimann; Silvio Sticher
    Abstract: In railway infrastructure, construction and maintenance is typically procured using competitive procedures such as auctions. However, these procedures only fulfill their purpose - using (taxpayers') money efficiently - if bidders do not collude. Employing a unique dataset of the Swiss Federal Railways, we present two methods in order to detect potential collusion: First, we apply machine learning to screen tender databases for suspicious patterns. Second, we establish a novel category-managers' tool, which allows for sequential and decentralized screening. To the best of our knowledge, we pioneer illustrating the adaption and application of machine-learning based price screens to a railway-infrastructure market.
    Date: 2023–04

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