nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒07‒10
seventeen papers chosen by
Russell Pittman
United States Department of Justice

  1. Licensing a product innovation from an external innovator to a Stackelberg duopoly By Antelo, Manel; Bru, Lluís
  2. Information provision in hybrid platforms By Marco Magnani; Federico Navarra
  3. Robust Data Regulation By Jose Higueras
  4. Essays on Innovation, Cooperation, and Competition Under Standardization By Bonani, Michela
  5. Uniform Pricing vs Pay as Bid in 100%-Renewables Electricity Markets: A Game-theoretical Analysis By Dongwei Zhao; Audun Botterud; Marija Ilic
  6. Screening for Collusion in Wholesale Electricity Markets: A Review of the Literature By Brown, David P.; Eckert, Andrew; Silveira, Douglas
  7. Striking Evidence: The Impact of Railway Strikes on Competition from Intercity Bus Services in Germany By Matthias Beestermöller; Levke Jessen-Thiesen; Alexander Sandkamp; Alexander-Nikolai Sandkamp
  8. Privacy Regulation and Quality-Enhancing Innovation By Yassine Lefouili; Leonardo Madio
  9. Economies of scope and relational contracts: Exploring global value chains in the automotive industry By Susan Helper; Abdul Munasib
  10. A Game of Competition for Risk By Louis Abraham
  11. Evaluation and Learning in R&D Investment By Alexander P. Frankel; Joshua L. Krieger; Danielle Li; Dimitris Papanikolaou
  12. Pharmaceutical Pricing and R&D as a Global Public Good By H. E. Frech, III; Mark V. Pauly; William S. Comanor; Joseph R. Martinez
  13. Theories of Market Selection: A Survey By Luca Fontanelli
  14. Les politiques publiques européennes en faveur d'un cloud souverain : fondements, modalités de mise en oeuvre et évaluation critique By Frédéric Marty
  15. Monetary Policy Transmission, Bank Market Power, and Wholesale Funding Reliance By Amina Enkhbold
  16. ENTraNCE for Judges 2021: Selected Case Notes By Marco Botta; Pier Luigi Parcu; Giorgio Monti
  17. Chinese Insurance Markets: Developments and Prospects By Hanming Fang; Xian Xu

  1. By: Antelo, Manel; Bru, Lluís
    Abstract: We study the licensing of a product innovation from an external innovator in a duopoly of firms that compete sequentially with each other through quantities or prices. We find that the innovation is only licensed to a single firm, regardless of market competition. However, both the licensee and contractual terms under quantity competition differ from those under price competition. In the first case, the innovation is licensed to the market-leading firm through a non-distorting contract, and in the second case, to the market-following firm by means of a two-part tariff (distorting) contract involving a per-unit royalty.
    Keywords: Product innovation, licensing, Stackelberg duopoly, quantity competition, price competition
    JEL: D43 D45
    Date: 2023
  2. By: Marco Magnani (University of Padova and ARERA); Federico Navarra (University of Padova)
    Abstract: We study the incentives of a monopolistic hybrid platform in sharing its superior market information with the third-party seller hosted on its marketplace. After observing platform information-sharing policy, the seller competes in prices with the platform over a horizontally differentiated good. Despite platform duality, an equilibrium in which the platform shares information with the seller occurs. We highlight how the platform has incentives to share information either for relaxing price-competition or for increasing the volume of transactions. Platform incentives to share information are strongest for intermediate degrees of product differentiation. Information provision results in consumer surplus extraction such that the total welfare is reduced. Although entering as a seller and providing market information is profitable, when analysing platform entry as the acquisition of one of the sellers we may observe equilibria in which the platform either sticks to agency or does not provide information since this would increase the entry cost.
    Keywords: hybrid platforms, information provision, data sharing, vertical integration.
    Date: 2023–05
  3. By: Jose Higueras
    Abstract: I study how to regulate firms' access to consumer data when it is used for price discrimination and the regulator possesses non-Bayesian uncertainty about the correlation structure between data and willingness to pay. Therefore, it is unclear how the monopolist will segment the market. I characterize all policies that maximize worst-case consumer surplus: the regulator allows the monopolist to access data, if the database does not reveal a minority group of consumers.
    Date: 2023–05
  4. By: Bonani, Michela (Tilburg University, School of Economics and Management)
    Date: 2023
  5. By: Dongwei Zhao; Audun Botterud; Marija Ilic
    Abstract: This paper evaluates market equilibrium under different pricing mechanisms in a two-settlement 100%-renewables electricity market. Given general probability distributions of renewable energy, we establish game-theoretical models to analyze equilibrium bidding strategies, market prices, and profits under uniform pricing (UP) and pay-as-bid pricing (PAB). We prove that UP can incentivize suppliers to withhold bidding quantities and lead to price spikes. PAB can reduce the market price, but it may lead to a mixed-strategy price equilibrium. Then, we present a regulated uniform pricing scheme (RUP) based on suppliers' marginal costs that include penalty costs for real-time deviations. We show that RUP can achieve lower yet positive prices and profits compared with PAB in a duopoly market, which approximates the least-cost system outcome. Simulations with synthetic and real data find that under PAB and RUP, higher uncertainty of renewables and real-time shortage penalty prices can increase the market price by encouraging lower bidding quantities, thereby increasing suppliers' profits.
    Date: 2023–05
  6. By: Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics); Silveira, Douglas (University of Alberta, Department of Economics)
    Abstract: Wholesale electricity markets have several features that increase the likelihood of collusion, including frequent interaction, multimarket contact, and a high degree of information transparency. As a result, screening techniques for detecting collusive agreements are desired. In this paper, we survey the existing literature on collusive screens and collusion in electricity markets. We discuss key features of non-competitive behaviour to be reflected in screens and suggest directions for improved screening in this industry. In particular, there is considerable potential to include machine learning and data mining techniques in screens in the electricity sector due to recent improvements in these methods.
    Keywords: Screening Methods; Collusion; Electricity Markets
    JEL: L13 L40 L94 Q40
    Date: 2023–06–13
  7. By: Matthias Beestermöller; Levke Jessen-Thiesen; Alexander Sandkamp; Alexander-Nikolai Sandkamp
    Abstract: This paper investigates the impact of the largest rail strikes in German history on intercity buses – a then newly liberalised market. Using unique booking data of bus services, we exploit variation in rail service cancellations across routes to show that the disruption in rail transport increases bus ticket sales. Crucially, the effect persists beyond the strike, indicating that travellers do not return to their originally preferred mode of transport. It is particularly pronounced for passengers travelling on weekends. The findings suggest that customers were previously under-experimenting. Beyond transportation, our results highlight the importance of service reliability, as temporary disruptions can cause customers to permanently switch to competitors.
    Keywords: experimentation, inter-modal substitution, learning, optimisation, strike, switching costs, transport
    JEL: C81 D83 L92 R41
    Date: 2023
  8. By: Yassine Lefouili (Toulouse School of Economics); Leonardo Madio (University of Padova Author-Name: Ying Lei Toh; Federal Reserve Bank of Kansas City)
    Abstract: We analyze how a privacy regulation setting a cap on information disclosure affects quality-enhancing innovation incentives by a monopolist — who derives revenues solely from disclosing user data to third parties — and consumer surplus. If the share of privacy-concerned users is sufficiently small, privacy regulation has a negative effect on innovation and may harm users. However, if the share of privacy-concerned users is sufficiently large, privacy regulation has a positive effect on innovation. In this case, there is no trade-off between privacy and innovation and users always benefit from privacy regulation.
    Keywords: Privacy Regulation; Data Disclosure; Innovation.
    Date: 2023–04
  9. By: Susan Helper; Abdul Munasib (Bureau of Economic Analysis)
    Abstract: Most economic theories of value-chain governance examine one transaction at a time and focus on transaction type as the key determinant of governance. We instead consider several transactions jointly, suggesting that lead firms experience economies of scope in developing relational contracts with suppliers. A key determinant of governance is thus organization strategy (e.g., Toyota collaborates with all suppliers, including commodity-suppliers). Using U.S. Customs data on every component imported by vehicle manufacturers, we find that Japanese vehicle manufacturers have half as many suppliers per part as U.S. vehicle manufacturers and 70 percent longer relationships, even after controlling for product attributes.
    JEL: D23 L2
    Date: 2022–04
  10. By: Louis Abraham
    Abstract: In this study, we present models where participants strategically select their risk levels and earn corresponding rewards, mirroring real-world competition across various sectors. Our analysis starts with a normal form game involving two players in a continuous action space, confirming the existence and uniqueness of a Nash equilibrium and providing an analytical solution. We then extend this analysis to multi-player scenarios, introducing a new numerical algorithm for its calculation. A key novelty of our work lies in using regret minimization algorithms to solve continuous games through discretization. This groundbreaking approach enables us to incorporate additional real-world factors like market frictions and risk correlations among firms. We also experimentally validate that the Nash equilibrium in our model also serves as a correlated equilibrium. Our findings illuminate how market frictions and risk correlations affect strategic risk-taking. We also explore how policy measures can impact risk-taking and its associated rewards, with our model providing broader applicability than the Diamond-Dybvig framework. We make our methodology and open-source code available at Finally, we contribute methodologically by advocating the use of algorithms in economics, shifting focus from finite games to games with continuous action sets. Our study provides a solid framework for analyzing strategic interactions in continuous action games, emphasizing the importance of market frictions, risk correlations, and policy measures in strategic risk-taking dynamics.
    Date: 2023–05
  11. By: Alexander P. Frankel; Joshua L. Krieger; Danielle Li; Dimitris Papanikolaou
    Abstract: We examine the role of spillover learning in shaping the value of exploratory versus incremental R&D. Using data from drug development, we show that novel drug candidates generate more knowledge spillovers than incremental ones. Despite being less likely to reach regulatory approval, they are more likely to inspire subsequent successful drugs. We introduce a model where firms are better able to evaluate the viability of incremental drugs, but where investing in novel drugs helps firms learn about future projects. Firms appear to put more value on evaluation versus learning, and those patterns are in-part driven by the appropriability of spillovers.
    JEL: G11 L65 O31 O32 O34
    Date: 2023–05
  12. By: H. E. Frech, III; Mark V. Pauly; William S. Comanor; Joseph R. Martinez
    Abstract: In his Labor Day address, President Biden stated that the U.S. “has the highest drug prices in the world, and there is no reason for it.” For new branded drugs, the first part of that statement is supported by a recent RAND Report (Mulcahy et. al. 2021) which found U.S. average prices are 2.3 times those present in both the 32 OECD countries overall and in the UK separately. In this research, we consider the second part of that statement, and identify the economic factors that suggest some “reasons for it.” Viewing pharmaceutical markets through the lens of the theories of global public goods and alliances, as developed by Olson and Zeckhauser (1966), we explain the observed pricing differences along with their implications the for the global supply of innovative new drugs. Similar views were advanced in two U.S. government reports (CEA 2018, 2020), and also by Goldman and Lakdawala (2018). We develop these ideas further and implement them empirically. A commonly held theory presumes that drug companies in the U.S set prices for patented drugs at profit- maximizing levels that fund and incentivize substantial research and development efforts. In contrast, in the rest of the world (ROW), national authorities set prices minimally above marginal costs of production, allowing few revenues remaining to support R&D (CEA Report 2018; Blumenthal 2018; Hooper and Henderson 2022). The ROW countries are then considered to be fully free riding on U.S. research efforts. We examine this argument both theoretically and empirically, and find it wanting. We apply global public good theory to examine the pricing of branded drugs. To this end, we describe the optimal global contribution, as supported by the Lindahl pricing model, and show theoretically that existing independently determined contributions and thereby aggregate R&D levels are likely sub-optimal. Then we implement the model by calculating the contribution to the global public good as represented by short-term profits or quasi-rents received from sales of all branded drugs. These calculations are derived from pricing data contained in the RAND Report along with two market-based estimates of marginal costs. We find that, while ROW contributions are less than those found in the United States, they are more than minimal, and do not approach zero for most countries. When we regress these positive contributions on a country’s size of GDP along with various controls, we find that GDP size alone is a powerful determinant of national contributions. It remains economically and statistically significant without regard to the controls introduced. In addition, we estimate how large are the contributions of ROW countries to the global public good. We offer reasons why US pharmaceutical prices and contributions per capita are nevertheless higher than those found in all ROW countries. We also suggest actions aimed to promote R&D efforts that are closer to the global optimum.
    JEL: I1
    Date: 2023–05
  13. By: Luca Fontanelli (Université Côte d'Azur; GREDEG CNRS)
    Abstract: We provide a survey of the main mechanisms of market selection used in economics. We gather them in three theoretical paradigms (rational equilibrium, Simonesque and evolutionary), that we try to reconcile in terms of underlying laws of selection. We show that the three paradigms have been converging in their focus on firm heterogeneity and increasing returns. These selection mechanisms are however fostered by theories which differ in terms of sources of increasing returns, generating mechanisms of firm heterogeneity, firm rationality and emphasis on equilibrium states vis-Ã -vis out-of-equilibrium dynamics. Our discussion suggests that the convergence between the three theoretical paradigms is taking place in the direction of research, which is aimed at the replication of empirical patterns related to firm heterogeneity, rather than in the theory underlying selection mechanisms.
    Keywords: Selection, competition, monopolistic competition, quasi-replicator, Gibrat’s Law
    JEL: L10 D20 D40
    Date: 2023–05
  14. By: Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: Le recours à l'informatique en nuage est appelé à une très forte croissance en Europe dans les prochaines années et les grands opérateurs numériques (les hyperscalers) semblent être les mieux placés pour capter une part déterminante de cette croissance. Les enjeux liés au contrôle sur les données et au développement des applications dépassent les seules dimensions concurrentielles pour déborder sur des problématiques d'économie industrielle mais aussi de souveraineté tant en matière politique que stratégique. Des notions de contrôle, de résilience et de préservation d'une capacité de décision et d'action autonome des acteurs, tant les entreprises que les pouvoirs publics, doivent être interrogées dans cette perspective. Ce document de travail vise à identifier les risques de souveraineté liés au cloud et à présenter les initiatives prises par les Etats Membres et l'Union européenne dans ce domaine.
    Keywords: infonuagique, souveraineté, écosystèmes numériques, politique de concurrence, politique industrielle
    JEL: L13 L24 L41 L86
    Date: 2023–03
  15. By: Amina Enkhbold
    Abstract: I study the impact of banking market concentration and wholesale funding reliance on the transmission of monetary policy shocks to mortgage rates. I empirically demonstrate that in the United States, banks with higher reliance on wholesale funding in concentrated (competitive) deposit markets transmit monetary policy shocks less (more) to mortgage rates. I study this imperfect transmission through the lens of a New Keynesian model with monopolistically competitive banks and costly access to wholesale funding. I find that high market power banks with greater wholesale funding transmit monetary policy less to deposit rates, generating lower liability. This leads to lower mortgage lending, house prices, and borrower consumption. If monetary policy shocks become persistent, this negative effect is amplified with banks shifting away from deposits more towards wholesale funding.
    Keywords: Financial institutions; Inflation targets; Monetary policy transmission; Wholesale funding
    JEL: E44 E52 G21
    Date: 2023–06
  16. By: Marco Botta; Pier Luigi Parcu; Giorgio Monti
    Abstract: This working paper includes a collection of case notes written by those national judges who attended the European Networking and Training for National Competition Enforcers (ENTraNCE Judges2021). The training programme was organised by RSCAS between November 2020 and October 2021, with the financial contribution of the DG Competition of the European Commission. The case notes included in the working paper summarise judgments from different EU Member States that relate to diverse aspects of competition law enforcement. This working paper thus aims to increase the understanding of the challenges that are faced by the national judiciaries in enforcing national and EU competition in the context of the decentralised regime of competition law enforcement that was introduced by Reg. 1/2003.
    Keywords: Competition law, Article 101 TFEU, Article 102 TFEU, Reg. 1/2003, judicial training, national judges
    Date: 2022–09
  17. By: Hanming Fang; Xian Xu
    Abstract: In this chapter, we review the development of the insurance industry in China. We provide a comprehensive discussion of its regulatory framework, major insurance segments, market structure, InsurTech, social insurance and the prospects for the future development.
    JEL: G22 G28 H55 L11 O16
    Date: 2023–05

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