nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒08‒28
nineteen papers chosen by
Russell Pittman, United States Department of Justice

  1. Concentration and Competition in U.S. Agribusiness By MacDonald, James M.; Dong, Xiao; Fuglie, Keith O.
  2. Winners and losers of gatekeeper-induced consumer preference distortion in promoting personalized pricing by asymmetric firms By Rosa-Branca Esteves; Nicolas Pasquier
  3. Targeted product design By Bar-Isaac, Heski; Caruana, Guillermo; Cuñat, Vicente
  4. The Perils of Antitrust Econometrics: Unrealistic Engel Curves, Inadequate Data, and Aggregation Bias By Gabriel A. Lozada
  5. Price Equilibrium with Selling Constraints By José L. Moraga-González; Makoto Watanabe; José Luis Moraga Gonzalez
  6. Do hospital mergers reduce waiting times? Theory and evidence from the english NHS By Vanessa Cirulli; Giorgia Marini; Marco A. Marini; Odd Rune Straume
  7. The Heterogeneous Effects of Entry on Prices By Kai Fischer; Simon Martin; Philipp Schmidt-Dengler
  8. A Model of Competitive Assortment Planning Algorithm By Dipankar Das
  9. Measuring Value Added in Gross Trade: Endogenous Approach of Vertical Differentiation By Sourish Dutta
  10. How big is the “lemons” problem? Historical evidence from French wines By Pierre Mérel; Ariel Ortiz-Bobea; Emmanuel Paroissien
  11. The Expansionary and Contractionary Supply-Side Effects of Health Insurance By Eilidh Geddes; Molly Schnell
  12. Natural Gas Vehicles: Consequences to Fuel Markets and the Environment By Amaral-Santos, Roberto; Chimeli, Ariaster; Pessoa, João Paulo
  13. The contribution of firm profits to the recent rise in inflation By Panagiotis Bouras; Christian Bustamante; Xing Guo; Jacob Short
  14. Innovation, industry equilibrium, and discount rates By Bustamante, Maria Cecilia; Zucchi, Francesca
  15. The Effect of Franchise No-Poaching Restrictions on Worker Earnings By Callaci, Brian; Gibson, Matthew; Pinto, Sergio; Steinbaum, Marshall; Walsh, Matt
  16. Are Acquirer Shareholders Happier when Their Industries Are Unhappy? By Jana P. Fidrmuc; Tereza Tykvova
  17. Effects of E-commerce on Local Labor Markets By Bauer, Anahid; Fernández Guerrico, Sofía
  18. Detecting Collusion on Highway Procurement By Maria Florencia Gabrielli
  19. Research and/or Development? Financial Frictions and Innovation Investment By Filippo Mezzanotti; Timothy Simcoe

  1. By: MacDonald, James M.; Dong, Xiao; Fuglie, Keith O.
    Abstract: Market concentration, and its impact on competition, has attracted growing public scrutiny as well as several Federal policy initiatives. Critics argue that increased concentration has led to higher consumer prices, lower prices paid for farm commodities, increased corporate profits, reduced wages, less innovation, and waning productivity growth. The issues surrounding concentration extend to agribusiness, particularly to three agribusiness sectors where concentration has increased over time: seeds, meatpacking, and food retailing. This report details how consolidation proceeded in each sector—with attention to the important driving forces—and the effects on prices and innovation. Because mergers among firms have played a role in each sector’s consolidation, the report also describes Federal antitrust policy regarding mergers and its implementation in these sectors.
    Keywords: Agribusiness, Agricultural and Food Policy, Crop Production/Industries, Demand and Price Analysis, Industrial Organization, Livestock Production/Industries, Marketing, Research and Development/Tech Change/Emerging Technologies
    Date: 2023–06
  2. By: Rosa-Branca Esteves (NIPE/Center for Research in Economics and Management, University of Minho, Portugal); Nicolas Pasquier (Bordeaux School of Economics (BSE) and Grenoble Applied Economics Lab (GAEL))
    Abstract: We present a model of duopoly competition in a marketplace with a Hotelling segment of consumers, where two business users (firms) have access to raw consumer data. The firms can choose between personalized prices (PP), using a costly personalized program device provided by the marketplace, or uniform prices at no additional cost. One firm has a higher level of experience in utilizing consumer data, resulting in a lower cost of price personalization (PP device cost). In order to promote its personalized program device, the marketplace may have an incentive to distort consumer preferences from a uniform to a triangular distribution. Our findings indicate that the marketplace is more likely to distort consumer preferences under specific conditions. This occurs when there is moderate asymmetry in experience between the firms and a high tariff for the program, or when there is weak asymmetry and a moderate program tariff. In these parameter regions, the distortion of consumer preferences negatively impact the profits of the sellers while benefiting the consumers. These insights contribute to a better understanding of the dynamics of digital marketplaces and have implications for policymakers and competition authorities.
    Keywords: Competitive price discrimination; Uniform and triangular distribution of consumer preferences; Digital markets, Platform cloud services, European Digital Market Act.
    JEL: D43 D80 L13 L40
    Date: 2023
  3. By: Bar-Isaac, Heski; Caruana, Guillermo; Cuñat, Vicente
    Abstract: We propose an intuitive representation of product design in which firms locate inside a circle and consumers in its outer circumference. Designs trade off horizontal and vertical transport costs. Our setting encompasses all linear demand rotations. Firms with lower quality or higher marginal costs choose niche designs that cater to specific consumers at the expense of alienating the rest. Firms choose intermediate designs or more polarized ones, instead, depending on the convexity of the vertical transport cost. We examine such design choices in monopoly, duopoly, and monopolistic competition settings.
    JEL: D24 D21 D42 D43
    Date: 2023–05–01
  4. By: Gabriel A. Lozada (University of Utah)
    Abstract: Some economists argue antitrust policy should be based on empirical methods used by the Industrial Organization subdiscipline of economics, but non-economists must understand that those methods contain certain highly restrictive assumptions. Those assumptions involve econometric "identification, " and treating aggregate demand as if it were generated by a representative consumer (Muellbauer's "generalized linear" preferences). We derive new results illustrating how restrictive the representative consumer assumption is; we explain aggregation bias in Almost Ideal Demand System models; and we show that data limitations make it even harder to justify economists' restricting aggregate demands as one would the demand of a single individual.
    Keywords: Antitrust econometrics; Almost Ideal Demand System (AIDS); New Brandeis School
    JEL: D12 C43 L4 C54
    Date: 2023–03–29
  5. By: José L. Moraga-González; Makoto Watanabe; José Luis Moraga Gonzalez
    Abstract: This paper studies how selling constraints, which refer to the inability of firms to attend to all the buyers who want to inspect their products, affect the equilibrium price and social welfare. We show that the price that maximizes social welfare is greater than the marginal cost. This is because with selling constraints, a higher price, despite reducing the probability of trade (fewer buyers are willing to pay a higher price) increases the value of trade (only trades generating positive surplus are consummated). We show that the equilibrium price is inefficiently high except in the limit when firms’ selling constraints vanish and consumers observe prices before they visit firms. Thus, selling constraints constitute a source of market power.
    Keywords: price competition, market power, capacity- and selling-constrained firms
    JEL: D40 J60 L10 L80 R30
    Date: 2023
  6. By: Vanessa Cirulli (Italian Agency for Development Cooperation, Italy); Giorgia Marini (Department of Juridical and Economic Studies (DSGE), Sapienza University of Rome); Marco A. Marini (Department of Social Sciences and Economics, Sapienza University of Rome); Odd Rune Straume (NIPE/Center for Research in Economics and Management, University of Minho, Portugal; and Department of Economics, University of Bergen, Norway)
    Abstract: We analyse - theoretically and empirically- the effect of hospital mergers on waiting times in healthcare markets where prices are fixed. Using a spatial modelling framework where patients choose provider based on travelling distance and waiting times, we show that the effect is theoretically ambiguous. In the presence of cost synergies, the scope for lower waiting times as a result of the merger is larger if the hospitals are more profit- oriented. This result is arguably confirmed by our empirical analysis, which is based on a conditional flexible difference-in-differences methodology applied to a long panel of data on hospital merger in the English NHS, where we find that the effects of a merger on waiting times crucially rely on a legal status that can reasonably be linked to the degree of profit-orientation. Whereas hospital mergers involving Foundation Trusts tend to reduce waiting times, the corresponding effect of mergers involving hospitals without this legal status tends to go in the opposite direction.
    Keywords: Hospital merger; waiting times; profit-orientation
    JEL: I11 I18 L21 L41
    Date: 2023
  7. By: Kai Fischer; Simon Martin; Philipp Schmidt-Dengler
    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
  8. By: Dipankar Das
    Abstract: With a novel search algorithm or assortment planning or assortment optimization algorithm that takes into account a Bayesian approach to information updating and two-stage assortment optimization techniques, the current research provides a novel concept of competitiveness in the digital marketplace. Via the search algorithm, there is competition between the platform, vendors, and private brands of the platform. The current paper suggests a model and discusses how competition and collusion arise in the digital marketplace through assortment planning or assortment optimization algorithm. Furthermore, it suggests a model of an assortment algorithm free from collusion between the platform and the large vendors. The paper's major conclusions are that collusive assortment may raise a product's purchase likelihood but fail to maximize expected revenue. The proposed assortment planning, on the other hand, maintains competitiveness while maximizing expected revenue.
    Date: 2023–07
  9. By: Sourish Dutta
    Abstract: 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. The discussion below will lead us to think about an alternative method for separating and measuring intra-industry trade into horizontal and vertical differentiation.
    Date: 2023–07
  10. By: Pierre Mérel (UC Davis - University of California [Davis] - UC - University of California); Ariel Ortiz-Bobea (Cornell University [New York]); Emmanuel Paroissien (Université Paris-Saclay, INRAE, UR ALISS)
    Abstract: This paper provides empirical evidence on the welfare losses associated with asymmetric information about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses amount to more than 7% of total market value, suggesting an important role for credible certification schemes.
    Keywords: Asymmetric information, Adverse selection, Quality uncertainty, Welfare, Wine appellation
    Date: 2021–09
  11. By: Eilidh Geddes; Molly Schnell
    Abstract: We examine how health insurance expansions affect the entry and location decisions of health care clinics. Exploiting county-level changes in insurance coverage following the Affordable Care Act and 1, 721 retail clinic entries and exits, we find that local increases in insurance coverage do not lead to growth in the concentration of clinics on average using two-way fixed effects and instrumental variable designs. However, this null effect masks important heterogeneity by insurance type: growth in private insurance leads to large growth in clinic entry, whereas clinic penetration is dampened by increases in Medicaid coverage. Consistent with a model in which firms face demand from markets with both administered and market-based pricing, we find that the positive (negative) supply-side effects of private insurance (Medicaid) coverage are concentrated in states with low provider reimbursements under Medicaid. We further show that similar location patterns are observed among other types of health care clinics, including urgent care centers. While it has long been accepted that reductions in the prices paid by consumers following insurance expansions should lead the supply side to expand to meet increased demand (Arrow, 1963), our results demonstrate that whether health insurance expansions cause the supply side to expand or contract further depends on how the prices received by providers are affected.
    JEL: H44 I11 I13 I14 L11
    Date: 2023–07
  12. By: Amaral-Santos, Roberto (University of California at Santa Barbara); Chimeli, Ariaster (Departamento de Economia, Universidade de São Paulo); Pessoa, João Paulo (FGV-Sao Paulo School of Economics and Centre for Economic Performance)
    Abstract: Policies to adopt cleaner fuels have become increasingly important, but their impacts on incumbent fuel prices and resulting greenhouse gas emissions are unclear. We use a panel dataset on weekly prices at the gas station level in a large Brazilian state to study how the growth of natural gas, a cheaper and less carbon-intensive alternative to traditional fuels, affected retail prices and profit margins of gasoline and ethanol. Applying an IV strategy, we estimate that prices and margins have fallen. The intensified competition in the fuel market boosted fuel demand, leading to higher emissions of GHGs and other pollutants.
    Keywords: Gasoline; Ethanol; Price Competition; Emissions; Brazil
    JEL: L11 L13 Q31 Q41 Q42 Q48 Q53 Q55 Q58
    Date: 2023–08–05
  13. By: Panagiotis Bouras; Christian Bustamante; Xing Guo; Jacob Short
    Abstract: We measure the contribution to inflation from the growth in markups of Canadian firms. The dynamics of inflation and markups suggest that changes in markups could account for less than one-tenth of inflation in 2021. Further, they suggest that peak inflation was driven primarily by changes in the costs of firms.
    Keywords: Firm dynamics; Inflation and prices; Market structure and pricing
    JEL: D22 D4 E31 L11
    Date: 2023–08
  14. By: Bustamante, Maria Cecilia; Zucchi, Francesca
    Abstract: We develop a model to examine how discount rates affect the nature and composition of innovation within an industry. Challenging conventional wisdom, we show that higher discount rates do not discourage firm innovation when accounting for the industry equilibrium. Higher discount rates deter fresh entry—effectively acting as entry barriers—but encourage innovation through the intensive margin, which can lead to a higher industry innovation rate on net. Simultaneously, high discount rates foster explorative over exploitative innovation. The model rationalizes observed patterns of innovation cyclicality, and predicts that lower entry in downturns hedges innovating incumbents against higher discount rates. JEL Classification: G31, G12, O31
    Keywords: creative destruction, risk premia, time-varying discount rates, Vertical and horizontal innovation
    Date: 2023–08
  15. By: Callaci, Brian (Open Markets Institute); Gibson, Matthew (Williams College); Pinto, Sergio (University of Maryland); Steinbaum, Marshall (University of Utah); Walsh, Matt (Burning Glass Technologies)
    Abstract: We evaluate the impact of the Washington State Attorney General's enforcement campaign against employee no-poaching clauses in franchising contracts, which unfolded from 2018 through early 2020. Implementing a staggered difference-in-differences research design using Burning Glass Technologies job vacancies and Glassdoor salary reports, we document the nationwide effect of the enforcement campaign on pay at franchising chains across numerous industries. Our preferred specification estimates a 6.6% increase in posted annual earnings from the job vacancy data and an approximate 4% increase in worker-reported earnings.
    Keywords: employer market power, franchising, antitrust, oligopsony
    JEL: J42 K21 L40 J31
    Date: 2023–07
  16. By: Jana P. Fidrmuc (University of Warwick); Tereza Tykvova (University of St. Gallen; Swiss Finance Institute)
    Abstract: Many mergers destroy shareholder value because managers intentionally waste corporate resources to pursue private benefits. Using textual analysis, we link industry conditions as reflected in acquirer peers' 10-K statements to acquirer announcement abnormal returns. We find that more negative industry conditions are associated with higher acquirer abnormal returns. Our results suggest that difficult times impose discipline on managers who then tend to focus on deals that create value for acquirer shareholders.
    Keywords: mergers and acquisitions, corporate investment decisions, industry situation, acquirer abnormal returns
    JEL: G34 G41
    Date: 2023–06
  17. By: Bauer, Anahid (MINES ParisTech); Fernández Guerrico, Sofía (Université Libre de Bruxelles)
    Abstract: This paper studies the effect of e-commerce on local labor markets. We exploit cross-market variation in e-commerce price advantage stemming from the enactment of the Amazon Tax-state-level legislation that mandates state sales taxes collection to out-of-state online retailers. Introducing out-of-state sales taxes lowered employment and reduced wages in transportation and warehousing, industries complementary to e-commerce. Within the in-state retail sector, the decline in brick-and-mortar employment is somewhat offset by an increase in employment in warehouse clubs and supercenters. Our results are consistent with a general equilibrium model in which consumers substitute e-commerce for big-box purchases, crowding out brick-and-mortar retail.
    Keywords: e-commerce, retail, employment, Amazon Tax
    JEL: H71 J2 L81 O33
    Date: 2023–07
  18. By: Maria Florencia Gabrielli (Universidad del Desarrollo)
    Abstract: Este trabajo se focaliza en el estudio de comportamientos cooperativos en mercados de subastas. Este artículo tiene dos objetivos principales. En primer lugar, desarrollar una metodología para detectar la presencia de cárteles usando el enfoque estructural. En segundo lugar, aplicar esta metodología a una base de datos de licitaciones para la construcción de carreteras en California. A través de la comparación de un modelo de competencia y un modelo de colusión se encuentra evidencia que sugiere que un subgrupo de firmas podríahaber estado involucrado en un esquema colusivo
    Keywords: Subastas, Cartel, Enfoque Estructural, Colusión, Competencia.
    JEL: C14 C72 D44
    Date: 2023–08
  19. By: Filippo Mezzanotti; Timothy Simcoe
    Abstract: U.S. firms have reduced their investment in scientific research (“R”) compared to product development (“D”), raising questions about the returns to each type of investment, and about the reasons for this shift. We use Census data that disaggregates “R” from “D” to study how US firms adjust their innovation investments in response to an external increase in funding cost. Companies with greater demand for refinancing during the 2008 financial crisis, made larger cuts to R&D investment. This reduction in R&D is achieved almost entirely by reducing investment in research. Development remains essentially unchanged. If other firms patenting similar technologies must refinance, however, then Development investment declines. We interpret the latter result as evidence of technological competition: firms are reluctant to cut Development expenditures when that could place them at a disadvantage compared to potential rivals.
    Keywords: Research and Development, Financial Crisis, Technology Competition.
    JEL: O32 O31 G30 L20
    Date: 2023–08

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