nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒08‒21
nineteen papers chosen by
Russell Pittman, United States Department of Justice

  1. Product market competition, creative destruction and innovation By Griffith, Rachel; Van Reenen, John
  2. Asymmetric Platform Oligopoly By Martin Peitz; Susumu Sato
  3. The Impact of Compatibility on Incentives to Innovate in a Network Goods Market: A Duopoly Case By Tsuyoshi Toshimitsu
  4. Pass-through of subsidies to prices under limited competition: Evidence from Canada’s Nutrition North program By Nicholas Li; Tracey Galloway
  5. Price and quality decision of a monopoly platform for transaction with shipping By Tetsuya Shinkai; Naoshi Doi
  6. Opposing firm-level responses to the China shock : Output competition versus input supply By P. AGHION; A. BERGEAUD; M. LEQUIEN; M. MELITZ; T. ZUBER
  7. Non-price effects of mergers and acquisitions By Haucap, Justus; Stiebale, Joel
  8. Endogenous Horizontal and Vertical Differentiation: Measuring Value Added in Intra-industry Trade By Dutta, Sourish
  9. The heterogeneous effects of entry on prices By Fischer, Kai; Martin, Simon; Schmidt-Dengler, Philipp
  10. Strategic Incentives and the Optimal Sale of Information By Rosina Rodríguez Olivera
  11. Intended and unintended knowledge spillovers in innovation By Kraft, Kornelius; Rammer, Christian
  12. A Stackelberg viral marketing design for two competing players By Olivier Lindamulage de Silva; Vineeth Varma; Ming Cao; Irinel-Constantin Morarescu; Samson Lasaulce
  13. Consumption Zones By Andrea Batch; Benjamin R. Bridgman; Abe C. Dunn; Mahsa Gholizadeh
  14. Bank Competition and Household Privacy in a Digital Payment Monopoly By Mr. Itai Agur; Mr. Anil Ari; Mr. Giovanni Dell'Ariccia
  15. Estimating Recruitment Elasticity in the Multi-stage and Bilateral Job Matching Process By KAMBAYASHI, Ryo; KAWAGUCHI, Kohei; OTANI, Suguru
  16. Price Parallelism in the Greek Steel Market: Evidence of a False Cartel Accusation By Ivaldi, Marc; Katsoulacos, Yannis
  17. Institutional shareholding, common ownership and productivity: A cross-country analysis By Maria Bas; Lilas Demmou; Guido Franco; Javier Garcia-Bernardo
  18. Smart contracts and the Coase conjecture By Brzustowski, Thomas; Georgiadis Harris, Alkis; Szentes, Balázs
  19. Easing Renegotiation Rules in Public Procurement: Evidence from a Policy Reform By Kris De Jaegher; Michal Soltes; Vitezslav Titl

  1. By: Griffith, Rachel; Van Reenen, John
    Abstract: We examine the economic analysis of the relationship between innovation and product market competition. First, we give a brief tour of the intellectual history of the area. Second, we examine how the Aghion-Howitt framework has influenced the development of the literature theoretically and (especially) empirically, with an emphasis on the “inverted U”: the idea that innovation rises and then eventually falls as the intensity of competition increases. Thirdly, we look at recent applications and development of the framework in the areas of competition policy, international trade and structural Industrial Organization.
    Keywords: competition; innovation; creative destruction
    JEL: O31 L13 O32 B20 L40
    Date: 2021–11–29
  2. By: Martin Peitz; Susumu Sato
    Abstract: We propose a tractable model of asymmetric platform oligopoly in which users from two distinct groups are subject to within-group and cross-group network effects and decide which platform to join. We characterize the equilibrium when platforms manage user access by setting participation fees. We explore the effects of platform entry, change of incumbent platforms’ quality under free entry, and partial compatibility on market outcomes. We show how the analysis can be extended to partial user participation and zero fees for one of the user groups.
    Keywords: oligopoly theory, aggregative games, network effects, two-sided markets, two-sided single-homing, free entry, compatibility
    JEL: L13 L41 D43
    Date: 2023–05
  3. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Based on a horizontal product differentiation model associated with network externalities, we consider the impact of compatibility (interconnectivity) on incentives to innovate in a network goods industry in the cases of Cournot quantity and Bertrand price duopoly. We demonstrate that the effect of compatibility on incentives to innovate depends on network externalities and product substitutability. In particular, an increase in the degree of compatibility increases the incentives to innovate if the degree of network externalities is relatively large and if the degree of product differentiation is sufficiently large, irrespective of the mode of competition. Then, we then examine the same problem in a Hotelling-type unit-linear market and show that an increase in the degree of compatibility reduces the incentives to innovate.
    Keywords: innovation; network externality; compatibility; a fulfilled expectation; cost-reducing
    JEL: D43 L13 L15 O31
    Date: 2023–07
  4. By: Nicholas Li (Department of Economics, Toronto Metropolitan University, Toronto, Canada); Tracey Galloway (Department of Anthropoly, University of Toronto, Mississauga, Canada)
    Abstract: We study the pass-through of Canada’s Nutrition North food subsidy in remote, mainly Indigenous communities with limited competition. Reforms to the program in 2016 and 2019 provide exogenous changes in retailer marginal costs and we show that on average, retail prices were lowered by 67 cents for every additional dollar of subsidy, well below the full pass-through expected under perfect competition. We can precisely characterize the competitive environment for each community, which is typically a retail monopoly or duopoly, and find that the low average pass-through is mostly driven by monopoly communities. Our findings show that resources intended for marginalized communities can be partly captured by local firms with market power.
    Keywords: pass-through; Subsidies; retail; Competition; monopoly; prices; Canada; Nutrition; North;
    JEL: H20 H22 L11 L12 L13 L81 F14
    Date: 2023–08
  5. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Naoshi Doi (Otaru University of Commerce- Economics)
    Abstract: This paper theoretically examines pricing and quality decisions of a monopoly platform facilitating transactions that involve physical shipping. In our model, the platform provides two types of transaction services (a standard service and a "premium" service with high-quality delivery of a transacted item) and decides a membership fee, transaction fees, and the quality of the premium service. We conduct comparative statics with respect to shipping costs. It is shown that when shipping costs are increased, the directions of changes in the platform's decision variables are ambiguous, depending on the nature of the increased shipping costs. For example, an increase in shipping costs may increase the quality and decrease the membership fee.
    Keywords: Platform monopoly; Menu-pricing; Quality decisions; Two-sided market.
    JEL: D21 D43 L13 L15
    Date: 2023–06
  6. By: P. AGHION (Collège de France, LSE and INSEAD); A. BERGEAUD (Banque de France and CEP); M. LEQUIEN (Insee); M. MELITZ (Harvard and NBER); T. ZUBER (Banque de France)
    Abstract: We decompose the “China shock” into two components that induce different adjustments for firms exposed to Chinese exports: an output shock affecting firms selling goods that compete with similar imported Chinese goods, and an input supply shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the output shock is detrimental to firms’ sales, employment, and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the input supply shock on firms’ sales, employment and innovation.
    Keywords: Competition shock, patent, firms, import
    JEL: F14 O19 O31 O33 O34
    Date: 2023
  7. By: Haucap, Justus; Stiebale, Joel
    Abstract: In this paper, we summarize the economic literature on non-price effects of mergers and acquisitions (M&As). Specifically, we discuss the effects of M&As on innovation, product variety, and sustainability. Although the relationship is theoretically ambiguous, the vast majority of ex-post evaluations of horizontal M&As finds large negative effects on innovation inputs and outputs. Results are mixed for outcomes related to variety and product quality. Literature on merger effects on sustainability is still scarce and not conclusive so far. Overall, the existing literature indicates that non-price effects of horizontal mergers seem to amplify negative consequences for consumers from price increases through reduced competition. We derive a number of ideas and options for merger policy.
    Keywords: Merger, Competition Policy, Innovation, R&D, Product Variety, Sustainability
    JEL: L10 L11 L13 L19
    Date: 2023
  8. By: Dutta, Sourish
    Abstract: The development of research studies concerning the emergence of intra-industry trade is fruitful interaction between theoretical explanations and empirical methods to measure this phenomenon. The foundation of indicators to measure the intensity of intra-industry trading caused the rise of theoretical models explaining the determinants of these trade flows. It also contributed to the debate on the need to distinguish, in empirical analyses, intra-industry trade in horizontal differentiation from that in vertical differentiation. From the beginning of the 1980s, the first theoretical analysis of intra-industry trade showed that the determinants and consequences of this type of trade are different, depending on whether the traded products differ in quality. When the products are subject to intra-industry trade between two countries with distinct qualities, this trade is vertically differentiated. Otherwise, it is called horizontal differentiation. There is a method for distinguishing intra-industry trade between two countries in vertical differentiation from those in horizontal differentiation. This method compares exports' unit value to imports for each industry's intra-industry trade. It considers the intra-industry trading carried out in this industry as vertical differentiation when the unit value of exports differs significantly from that of imports. This approach has limitations. This discussion will lead us to think about an alternative method for separating and measuring intra-industry trade into horizontal and vertical differentiation.
    Date: 2023–07–21
  9. By: Fischer, Kai; Martin, Simon; Schmidt-Dengler, Philipp
    Abstract: We study the effect of entry on the price distribution in the German retail gasoline market. Exploiting more than 700 entries over five years in an event study design, we find that entry causes a persistent first-order stochastic shift in the price distribution. Prices at the top of the distribution change moderately only, but prices at the left tail decrease by up to 12% of stations' gross margins. Consumers with easy access to information on prices gain the most from entry. The reduction in transaction prices is 32-44% stronger for fully informed consumers than for uninformed consumers.
    Keywords: Entry, information frictions, price distribution, (unconditional) quantile treatment effects
    JEL: D22 L11 D83 L81 R32
    Date: 2023
  10. By: Rosina Rodríguez Olivera
    Abstract: I consider a model in which a monopolist data-seller offers information to privately informed data-buyers who play a game of incomplete information. I characterize the data-seller's optimal menu, which screens between two types of data-buyers. Data-buyers' preferences for information cannot generally be ordered across types. I show that the nature of data-buyers' preferences for information allows the data-seller to extract all surplus. In particular, the data-seller offers a perfectly informative experiment , which makes the data-buyer with the highest willingness to pay and a partially informative experiment, which makes the data-buyer with the highest willingness to pay for perfect information indifferent between both experiments. I also show that the features of the optimal menu are determined by the interaction between data-buyers' strategic incentives and the correlation of their private information. Namely, the data-seller offers two informative experiments even when data-buyers would choose the same action without supplemental information if data-buyers: i) have coordination incentives and their private information is negatively correlated or ii) have anti-coordination incentives and their private information is positively correlated.
    Keywords: Screening, Information, Strategic incentives
    JEL: D80 D82
    Date: 2023–07
  11. By: Kraft, Kornelius; Rammer, Christian
    Abstract: Firms can use different sources of external knowledge for developing and implementing innovations. Some knowledge is provided deliberately by the source and constitutes intended knowledge spillovers, e.g., knowledge disclosed in publications or patent files. Other sources represent unintended knowledge spillovers, such as reverse engineering of technologies or hiring workers from other firms. Based on data from the Community Innovation Survey, this paper analyses the role of different types of intended and unintended knowledge spillovers for innovation output at the firm level. Among intended knowledge spillovers, using knowledge from patents shows the strongest link to innovation output, particularly in case of product innovations with a high degree of novelty (world-first innovations). Knowledge from publications is not associated with a significantly higher innovation output. Among unintended spillovers, both reverse engineering and hiring of workers positively contribute to innovation output of firms, with stronger effects for reverse engineering. Interestingly, there is a strong link between reverse engineering and process innovation output (unit cost reduction), which reflects the fact that firms using this knowledge source operate in a market environment characterized by high price competition, which incentivizes an innovation strategy based on cost efficiency.
    Keywords: Knowledge sources, innovation output, intended knowledge spillovers, unintended knowledge spillovers, reverse engineering
    JEL: O31 O33 D83
    Date: 2023
  12. By: Olivier Lindamulage de Silva (CRAN - Centre de Recherche en Automatique de Nancy - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Vineeth Varma (CRAN - Centre de Recherche en Automatique de Nancy - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Ming Cao (University of Groningen [Groningen]); Irinel-Constantin Morarescu (CRAN - Centre de Recherche en Automatique de Nancy - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Samson Lasaulce (CRAN - Centre de Recherche en Automatique de Nancy - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Stackelberg duopoly model in which two firms compete to maximize their market share is considered. The firms offer a service/product to customers that are spread over several geographical regions (e.g., countries, provinces, or states). Each region has its own characteristics (spreading and recovery rates) of each service propagation. We consider that the spreading rate can be controlled by each firm and is subject to some investment that the firm does in each region. One of the main objectives of this work is to characterize the advertising budget allocation strategy for each firm across regions to maximize its market share when competing. To achieve this goal we propose a Stackelberg game model that is relatively simple while capturing the main effects of the competition for market share. By characterizing the strong/weak Stackelberg equilibria of the game, we provide the associated budget allocation strategy. In this setting, it is established under which conditions the solution of the game is the so-called "winner takes all". Numerical results expand upon our theoretical findings and we provide the equilibrium characterization for an example.
    Keywords: Winner takes all, viral marketing, resource allocation, Stackelberg solution
    Date: 2023
  13. By: Andrea Batch; Benjamin R. Bridgman; Abe C. Dunn; Mahsa Gholizadeh (Bureau of Economic Analysis)
    Abstract: Local area data are important to many economic questions, but most local area data are reported using political units, such as counties, which often do not match economic units, such as product markets. Commuting zones (CZs) group counties into local labor markets. However, CZs are not the most appropriate grouping for other economic activities. We introduce consumption zones (ConZs), groupings of counties appropriate for the analysis of household consumption. We apply the CZ methodology to payment card data, which report spending flows across U.S. counties for 15 retail and service industries. We find that different industries have different market sizes. Grocery stores have more than five times the number of ConZs as live entertainment. Industries with more frequent purchases are more local than those with infrequent purchases. We apply ConZs to measuring industry concentration. ConZs give lower concentration levels than counties, with the largest gap for infrequent purchase industries. The difference is economically important. Some industries are below the antitrust enforcement thresholds with ConZs but above them for counties. We further demonstrate the importance of ConZs by analyzing the proposed merger of Albertsons and Kroger.
    JEL: R12
    Date: 2023–05
  14. By: Mr. Itai Agur; Mr. Anil Ari; Mr. Giovanni Dell'Ariccia
    Abstract: Lenders can exploit households' payment data to infer their creditworthiness. When households value privacy, they then face a tradeoff between protecting such privacy and credit conditions. We study how the introduction of an informationally more intrusive digital payment vehicle affects households' cash use, credit access, and welfare. A tech monopolist controls the intrusiveness of the new payment method and manipulates information asymmetries among households and oligopolistic banks to extract data contracts that are more lucrative than lending on its own. The laissez-faire equilibrium entails a digital payment vehicle that is more intrusive than socially optimal, providing a rationale for regulation.
    Keywords: Privacy; Financial intermediation; Big Tech; Data regulation; data contract; payment vehicle; DC issuer; tech monopolist; bank competition; monopolist digital currency issuer; Credit; Digital financial services; Loans; Consumer credit; Data collection
    Date: 2023–06–09
  15. By: KAMBAYASHI, Ryo; KAWAGUCHI, Kohei; OTANI, Suguru
    Abstract: Estimating recruitment elasticity is complex due to the multi-stage, bilateral decisionmaking process involving workers and employers in job matching. To measure it, this study uses novel data from a major job-matching intermediary in Japan and investigates the selectivity of vacancies and worker wage elasticities at each stage of the job-matching process from applications to offer acceptances. Our findings reveal that vacancies exhibit greater selectivity for job offers compared to interview invitations. Worker application elasticities range between 0.05 and 0.21, contingent upon previous wage and employment status. However, interview attendance elasticities are statistically insignificant and offer acceptance elasticities of approximately 0.05. These results suggest that workers exhibit reduced sensitivity to wages during interview attendance decisions, anticipating competition from fellow applicants. The elasticities are higher for above-median wage workers compared to their below-median counterparts, supporting this interpretation. Implied recruitment elasticities do not exceed 1, even for the estimated upper bound, reflecting the strong market power of employers.
    Keywords: Market power of employers, Monopsony, Job matching intermediary, Recruitment elasticity, Application, Interview, Offer, Control function approach
    JEL: J20 J30 J42 J64 L13 L40
    Date: 2023–07
  16. By: Ivaldi, Marc; Katsoulacos, Yannis
    Date: 2023–06
  17. By: Maria Bas; Lilas Demmou; Guido Franco; Javier Garcia-Bernardo
    Abstract: The increase in institutional ownership, the shift towards passive portfolio management and the rise of common ownership have transformed OECD countries financial markets in the last decades. The paper investigates the potential consequences of these transformations on firm’s productivity, using granular data on firms financial and ownership structure as well as a variety of econometric methods. The analysis suggests that the rise of institutional investors is overall not a major concern from a productivity standpoint: firms displaying higher institutional ownership tend to have higher productivity levels and growth rates compared to their peers, though the positive relationship tends to vanish when institutional investors’ time horizon is short. Moreover, inter-industry common ownership is related to higher firm-level productivity and this positive relation is stronger for firms operating in intangible-intensive and digital sectors, potentially hinting to an easing of vertical relationships and/or technological spillovers when firms operating in different sectors are owned by the same equity holders. On the contrary, the correlation with intra-industry common ownership appears negative, though not always significantly, potentially due to lower competition.
    Keywords: common ownership, institutional ownership, productivity
    JEL: D22 D24 G32
    Date: 2023–08–04
  18. By: Brzustowski, Thomas; Georgiadis Harris, Alkis; Szentes, Balázs
    Abstract: This paper reconsiders the problem of a durable-good monopolist who cannot make intertemporal commitments. The buyer’s valuation is binary and his private information. The seller has access to dynamic contracts and, in each period, decides whether to deploy the previous period’s contract or to replace it with a new one. The main result of the paper is that the Coase Conjecture fails: the monopolist’s payoff is bounded away from the low valuation irrespective of the discount factor
    JEL: D42 D82 D86 L12
    Date: 2023–05–01
  19. By: Kris De Jaegher; Michal Soltes; Vitezslav Titl
    Abstract: Public procurement contracts are necessarily incomplete and require frequent ex-post renegotiation. In this paper we first develop a stylized theoretical model of the effects of renegotiation policies on firms’ bidding strategies and, consequently, on the winning bids and final prices of contracts. We then use a Czech policy reform to empirically test the model’s predictions. Our findings show that (i) eased renegotiation rules lead to a decrease in the average winning bids; however, (ii) average final prices of contracts remain at the pre-reform level as the extra renegotiated price compensates for the drop in winning bids. We do not find convincing evidence of a decrease in productivity of the winning firms, but we do provide suggestive evidence of a change of contract allocation towards firms with higher bargaining power.
    Date: 2023–07

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