nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒09‒04
fifteen papers chosen by
Russell Pittman, United States Department of Justice

  1. Ad Blocking, Whitelisting, and Advertiser Competition By Martin Peitz; Anton Sobolev; Paul Wegener
  2. Can data openness unlock competition when an incumbent has exclusive data access for personalized pricing? By Rosa-Branca Esteves; Francisco Carballo-Cruz
  3. Denial of Interoperability and Future First-Party Entry By Massimo Motta; Martin Peitz
  4. Bertrand-Edgeworth game under oligopoly. General results and comparisons with duopoly By De Francesco, Massimo A.; Salvadori, Neri
  5. Comparison of competition authorities’ approaches to entry barriers definition and analysis By Sluzhevskaya, Valeria (Служевская, Валерия); Morosanova, Anastasia (Моросанова, Анастасия)
  6. Antitrust Law Enforcement in Primary And Aftermarkets By Stavniychuk, Anna (Ставнийчук, Анна); Meleshkina, Anna (Мелешкина, Анна)
  7. Merger control in Ireland after the Uniphar/NaviCorp transaction: state of play meetings and market testing remedies By Gorecki, Paul
  8. Mergers, Foreign Competition, and Jobs: Evidence from the U.S. Appliance Industry By Felix Montag
  9. Behavior-based price discrimination with a general demand By Rosa-Branca Esteves; Jie Shuai
  10. Cost Based Nonlinear Pricing By Dirk Bergemann; Tibor Heumann; Stephen Morris
  11. Whom to Inform about Prices? Evidence from the German Fuel Market By Felix Montag; Alina Sagimuldina; Christoph Winter
  12. Price equilibrium with selling constraints By Makoto WATANABE; José L. Moraga-González
  13. An anatomy of monopsony : Search frictions, amenities and bargaining in concentrated markets By David Berger; Kyle Herkenhoff; Andreas R. Kostol; Simon Mongey
  14. Imperfect Price Information, Market Power, and Tax Pass-Through By Felix Montag; Robin Mamrak; Alina Sagimuldina; Monika Schnitzer
  15. Consumer Responses to Favorite Product Removal: Evidence from Beverage Vending Machines By Ching, Andrew; Kawaguchi, Kohei; Liu, Jia; Yi, Zhang

  1. By: Martin Peitz; Anton Sobolev; Paul Wegener
    Abstract: Advertisers post ads on publishers’ websites to attract the attention of consumers (who visit both available publishers). Since advertisers are competing in the product market, an advertiser may have an incentive to foreclose its competitor through excessive advertising. An ad blocker may be present and charge publishers for whitelisting. We fully characterize the equilibrium in which ad blocker, publishers, and advertisers make strategic pricing decisions. Under some conditions, the ad blocker sells whitelisting to one publisher and both publishers are strictly better off than without the ad blocker. Under other conditions, not only publishers but also advertisers or consumers are worse off.
    Keywords: advertising, advertiser competition, ad blocker, whitelisting, imperfect competition
    JEL: L12 L13 L15 M37
    Date: 2023–08
  2. By: Rosa-Branca Esteves (NIPE/Center for Research in Economics and Management, University of Minho, Portugal); Francisco Carballo-Cruz (NIPE/Center for Research in Economics and Management, University of Minho, Portugal)
    Abstract: This paper examines how an incumbent firm´s data investment decisions can impact market structure and competition. In markets with sufficiently low entry costs, using exclusive data for personalized pricing (PP) does not raise any barrier to entry. However, in markets with intermediate entry costs, the risk of competition and harm to consumers is signifi cant. Policy intervention is needed to foster competition. The effectiveness of an information-sharing policy depends on whether the incumbent anticipates it. Mandatory information sharing can only promote entry in markets with intermediate to high entry costs if the incumbent does not foresee its imposition. If the incumbent foresees this policy, it will strategically reduce its data acquisition to deter entry, by serving fewer consumers in the early period. This will cause signi ficant harm to consumers and overall welfare. Only in markets with low enough intermediate entry costs, information-sharing obligations can foster competition and bene fit consumers, regardless of the incumbent´s anticipation. A ban on price personalization practices could be a better policy option to promote competition, especially in markets with high entry costs or where mandatory information sharing is not effective due to the incumbent strategic behavior.
    Date: 2023
  3. By: Massimo Motta; Martin Peitz
    Abstract: Motivated by a recent antitrust case involving Google, we develop a rationale for foreclosure when the owner of an essential input is not yet integrated downstream. Our theory rests on data-enabled network effects across periods. If a platform considers offering a first-party app in the future, by not allowing a third-party app to be hosted on its platform, it ensures that the third-party app would be a weaker competitor to its own app in the future. This makes denial of access attractive as a full or partial foreclosure strategy, which is costly in the short term but may be beneficial in the long term. We also study the effects of policies such as compulsory access or data-sharing, showing under which conditions they might be beneficial to consumers or backfire.
    Keywords: Exclusionary practices, vertical interoperability, refusal to deal, digital platforms, vertical foreclosure, data-enabled networks effects, compulsory access, data-sharing policies
    JEL: L10 L40 K21
    Date: 2023–08
  4. By: De Francesco, Massimo A.; Salvadori, Neri
    Abstract: This paper studies price competition among a given number of capacity-constrained producers of a homogeneous commodity under the efficient rationing rule and constant (and identical) marginal cost until full capacity, when demand is a continuous, non-increasing, and non-negative function defined on the set of non-negative prices and is positive, strictly decreasing, twice differentiable and (weakly) concave when positive. The focus is on general properties of equilibria in the region of the capacity space in which no pure strategy equilibria exist. We study how the properties that are known to hold for the duopoly are generalized to the oligopoly and, on the contrary, what properties do not need to hold in oligopoly. Our inquiry reveals, among other properties, the possibility of an atom in the support of a firm smaller than the largest one and the properties that such an atom entails. Although the characterization of equilibria is far from being complete, this paper provides substantial elements in this direction.
    Keywords: Bertrand-Edgeworth; Price game; Oligopoly; Duopoly; Mixed strategy equilibrium.
    JEL: C72 D43 L13
    Date: 2023–08–08
  5. By: Sluzhevskaya, Valeria (Служевская, Валерия) (The Russian Presidential Academy of National Economy and Public Administration); Morosanova, Anastasia (Моросанова, Анастасия) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: Studying the existence and type of barriers to entry is an integral part of competition analysis conducted by antitrust authorities in different countries. As a result, competition authorities in different countries have accumulated a lot of knowledge on this matter, which can be shared between regulators to define best practices and identify the weaknesses of the approaches used. This preprint compares the approaches to defining and measuring barriers to entry used by the antitrust authorities in Russia, USA, EU, Germany, Spain and Australia, which makes it possible to identify the shortcomings of the approach used by FAS of Russia and foreign antitrust regulators. Among the shortcomings of the studied approaches, the author highlights lack of consistency in identifying entry barriers, which is exceptionally noticeable in terms of barrier level analysis. Also, the cases reviewed by competition authorities lack quantitative assessment of entry barriers, which shows the gap between the ongoing academic research and law enforcement practice. The Federal Antimonopoly Service of Russia stands out in comparison to foreign competition authorities, because it often conducts only a formal definition of the entry barriers, limiting the description to a simple enumeration of market barriers or even completely skipping this part of the analysis. As a result, the Russian antitrust authority often draws unsubstantiated conclusions when assessing market entry barriers.
    Keywords: entry barriers, antitrust regulation, competition analysis, relevant product market, relevant geographic market, competition law, market power, market entry
    JEL: D40 L40 L50
    Date: 2022–08
  6. By: Stavniychuk, Anna (Ставнийчук, Анна) (The Russian Presidential Academy of National Economy and Public Administration); Meleshkina, Anna (Мелешкина, Анна) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The aftermarkets occupy a dependent position in relation to the primary product market. The textbook examples of this kind of dependence are the car market and the service market, the printer market and the cartridge market, the shaving stick market and razor cartridge market, the markets for software products and their updates. In such cases, manufacturers in so-called primary markets may restrict competition in the aftermarkets through dealer licensing or through consumer contract terms related to warranty service. The study is relevant due to the emergence of new scenarios of anti-competitive behaviors and agreements (for example, restricting access to personal data of primary product owners – to the Big Data of a car engine’s control sensors – limits the possibility to enter the aftersales service market for new players). In this context, the Internet of Things and the digitalization of production chains give primary market participants the opportunity to control data flows and access conditions, which determines exclusive access to aftermarkets associated with the risk of monopolization. The purpose of the study is to identify the sources of anti-competitive behavior in the markets for the primary product and after-sales service (including consumables and components). The objectives of the study include: identifying the sources of antitrust law violations in the markets for the primary product and after-sales service; analyzing international and Russian antitrust practice in relation to the markets for the primary product and aftermarkets. The research methodology includes models of market analysis for various industries, quantitative methods of antitrust analysis, tools of the new institutional economic theory. The conclusions of the study describe the properties of the markets for the primary product and aftermarkets, which are significant for the antitrust regulation of such markets, and provide a theoretical justification of the need to use refined methods of quantitative analysis for the purposes of antitrust law enforcement, taking into account the specifics of the primary markets and aftermarkets.
    Keywords: aftermarket, competition, antitrust regulation, market monopolization, secondary product, switching costs, relevant product market, relevant geographic market
    JEL: K21 L22
    Date: 2022–08
  7. By: Gorecki, Paul
    Abstract: On 15 December 2022 the Competition and Consumer Protection Commission (CCPC), Ireland’s national competition authority, prohibited the acquisition by Uniphar plc of NaviCorp Limited. In the two decades in which the CCPC has been responsible for merger control this was the first instance in which the agency had prohibited a notifiable transaction in which there had been remedy proposals. The paper argues that the CCPC did not follow international best practice with respect to state of play meetings with the parties and the market testing of remedies. Timelines were compressed. Options – withdrawing the merger notification and offering remedy proposals – were narrowed, biasing the outcome of the CCPC’s merger investigation towards prohibition. The CCPC should reform its state of play/market testing procedures such that they are consistent with the timely and transparent processes employed in international best practice.
    Keywords: Merger control; state of play meetings; remedies; Competition & Consumer Protection Commission; administrative procedures; market testing remedies; and Competition Act 2002.
    JEL: G34 K21
    Date: 2023–08–04
  8. By: Felix Montag (Tuck School at Dartmouth)
    Abstract: Policy choices often entail trade-offs between workers and consumers. I assess how foreign competition changes the consumer welfare and domestic employment effects of a merger. I construct a model accounting for demand responses, endogenous product portfolios, and employment. I apply this model to the acquisition of Maytag by Whirlpool in the household appliance industry. I compare the observed acquisition to one with a foreign buyer. While a Whirlpool acquisition decreased consumer welfare by $250 million, it led to 1, 300 fewer domestic jobs lost. Jobs need to be worth above $220, 000 annually for domestic employment effects to offset consumer harm.
    JEL: F61 L13 L40
    Date: 2023–08–09
  9. By: Rosa-Branca Esteves (NIPE/Center for Research in Economics and Management, University of Minho, Portugal); Jie Shuai (Wenlan School of Business, Zhongnan University of Economics and Law)
    Abstract: This paper offers a complete picture of the impact of behavior-based price discrimination on profits, consumer surplus, and welfare in markets with a general demand function, where consumers and firms can discount the future at different discount factors. Regardless of the demand function considered, in comparison to uniform pricing, BBPD reduces firms´ second-period prices and profits. In contrast, we show that new results arise regarding the impact of BBPD on first-period prices. Under perfectly inelastic and CES demand, the firm-side effect is null and the consumer-side e¤ect fully explains the increase in first-period prices. This is no longer the case when the price elasticity of demand varies with price level. Specifically, we show that the firm-side effect can lead firms to raise first-period prices, even when consumers are myopic. We also show that, depending on the demand function considered, the consumer side effect can act to reduce or increase first-period prices. The overall impact of BBPD on first-period prices depends on the interplay between these two effects. Our analysis reveals that the output effect and consumer switching plays an important role in explaining the impact of BBPD on welfare. When discount factors are equal, BBPD may have a positive or negative impact on consumer surplus and social welfare, which contrasts with the result that BBPD is beneficial for consumers under a unit and CES demand. For a linear demand function, we identify the regions for firms and consumers discount factors where BBPD can simultaneously enhance or reduce total discounted profits, consumer surplus, and social welfare.
    Date: 2023
  10. By: Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Stephen Morris (Massachusetts Institute of Technology)
    Abstract: How should a seller offer quantity or quality differentiated products if they have no information about the distribution of demand? We consider a seller who cares about the "profit guarantee" of a pricing rule, that is, the minimum ratio of expected profits to expected social surplus for any distribution of demand. We show that the profit guarantee is maximized by setting the price markup over cost equal to the elasticity of the cost function. We provide profit guarantees (and associated mechanisms) that the seller can achieve across all possible demand distributions. With a constant elasticity cost function, constant markup pricing provides the optimal revenue guarantee across all possible demand distributions and the lower bound is attained under a Pareto distribution. We characterize how profits and consumer surplus vary with the distribution of values and show that Pareto distributions are extremal. We also provide a revenue guarantee for general cost functions. We establish equivalent results for optimal procurement policies that support maximal surplus guarantees for the buyer given all possible cost distributions of the sellers.
    Date: 2023–08
  11. By: Felix Montag (Tuck School at Dartmouth College); Alina Sagimuldina (LMU Munich); Christoph Winter (EY-Parthenon)
    Abstract: Combining a theoretical model of imperfect information with empirical evidence, we show how the effect of providing price information to consumers depends on how well informed they are beforehand. Theoretically, an increase in consumer information decreases prices more, the fewer ex ante informed consumers there are. Empirically, we study mandatory price disclosure in the German fuel market for two fuel types that differ in ex ante consumer information. The decline in prices is stronger when there are fewer ex ante informed consumers. The magnitude of the treatment effect declines over time but is intensified by local follow-on information campaigns.
    Keywords: mandatory price disclosure; consumer information; retail fuel market;
    JEL: D83 L41
    Date: 2023–08–09
  12. By: Makoto WATANABE; José L. Moraga-González
    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.
    Date: 2023–08
  13. By: David Berger; Kyle Herkenhoff; Andreas R. Kostol; Simon Mongey
    Abstract: We contribute a theory in which three channels interact to determine the degree of monopsony power and therefore the markdown of a worker’s spot wage relative to her marginal product: (1) heterogeneity in worker-firm-specific preferences (non-wage amenities), (2) firm granularity, and (3) off- and on-the-job search frictions. We use Norwegian data to discipline each channel and then reproduce new reduced-form empirical relationships between market concentration, job flows, wages and wage inequality. In doing so we provide a novel method for clustering occupations into local labor markets. Our main exercise quantifies the contribution of each channel to income inequality and wage markdowns. The average markdown is 21 percent in our baseline estimation. Removing nonwage amenity dispersion narrows them by a third. Giving the next-lowest-ranked competitor a seat at the bargaining table narrows them by half, suggesting that granularity and strategic interactions in the bargaining process is an important source of markdowns. Removing search frictions narrows them by two-thirds. Each counterfactual reduces wage inequality and increases welfare.
    Keywords: Monopsony, Inequality.
    JEL: E2 J2 J42
    Date: 2023–06–15
  14. By: Felix Montag (Tuck School at Dartmouth College); Robin Mamrak (LMU Munich); Alina Sagimuldina (LMU Munich); Monika Schnitzer (LMU Munich)
    Abstract: Pass-through determines how consumers respond to taxes. We investigate the impact of imperfect price information on pass-through of commodity taxes. Our theoretical model predicts that the pass-through rate increases with the share of well-informed consumers. Pass-through is higher for the minimum price, paid by well-informed consumers, than for the average price, paid by uninformed consumers. Moreover, pass-through to the average price is non-monotonic with respect to the number of sellers. An empirical analysis of multiple recent tax changes in the German and French retail fuel markets confirms our theoretical predictions. Our results have implications for tax policy and shed light on the relative effectiveness of Pigouvian taxes versus regulation.
    Keywords: pass-through ; taxes; imperfect information; competition;
    Date: 2023–08–09
  15. By: Ching, Andrew; Kawaguchi, Kohei; Liu, Jia; Yi, Zhang
    Abstract: How do consumers react when their favorite product is removed? This paper sheds light on this question by using a novel dataset of vending machine purchases in Japanese train stations and a synthetic difference-in-differences approach. We find that for regular consumers, the removal of their favorite product would lead them to reduce their purchases in their favorite vending machine; however, we also find that it has no impact on their overall purchases at their favorite station. Our micro-level data show that some consumers stay with their favorite machine and buy something else; among those who leave their favorite machine, a large proportion of them are willing to visit other machines. We hypothesize that variety-seeking tendency may explain such heterogeneous consumer responses. Using four different measures of variety-seeking, we show that high variety-seeking consumers tend to stay with their favorite machine, and low variety-seeking consumers are more likely to visit other machines to try to find their favorite product.
    Date: 2023–07–31

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