nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒09‒11
nine papers chosen by
Russell Pittman, United States Department of Justice

  1. Flagship Entry in Online Marketplaces By Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Lu Fang
  2. Buyer Power and Exclusion: A Progress Report By Claire Chambolle; Clémence Christin; Hugo Molina
  3. Competition for Exclusivity and Customer Lock-in: Evidence from Copyright Enforcement in China By Youming Liu
  4. Cursed Consumers and the Effectiveness of Consumer Protection Policies By Alessandro Ispano; Peter Schwardmann
  5. Interlocking Directorates in Europe: An Enforcement Gap? By Florence Thepot
  6. Trade with Search Frictions: Identifying New Gains from Trade By ARA Tomohiro
  7. Bidding Behaviour in Interdependent Markets for Electricity and Green Certificates By Ganhammar, Kajsa
  8. Port competition in contestable hinterlands: The case of preferential relationships and barrier effects in Central Europe By David Guerrero; Jean-Claude Thill
  9. Deposit market concentration and monetary transmission: evidence from the euro area By Stephen Kho

  1. By: Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Lu Fang
    Abstract: In this paper, we empirically study how flagship entry in an online marketplace affects consumers, the platform, and various sellers on the platform. We find flagship entry may benefit consumers by expanding the choice set, by intensifying price competition within the entry brand, and by improving consumer perception for parts of the platform. In the meantime, flagship entry cannibalizes the sales of same-brand sellers, while other brands may gain as the buyer base expands on the platform. Counterfactual simulation suggests that flagship entry improves the gross merchandise value of the platform and overall consumer welfare in most cases.
    Keywords: Market structure and pricing; Economic models
    JEL: D4 L1 L8
    Date: 2023–08
  2. By: Claire Chambolle (UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Clémence Christin (UNICAEN - Université de Caen Normandie - NU - Normandie Université); Hugo Molina (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This article presents recent advances in the analysis of buyer-seller networks, with a particular focus on the role of buyer power on exclusion. We first examine simple vertical structures and highlight that either upstream or downstream firms may have incentives to engage in exclusionary practices to either counteract or leverage buyer power. We then review current work attempting to revisit this issue in "interlocking relationships". Based on an ongoing research project, we show that the same exclusion mechanism arises when retail substitution is soft.
    Keywords: Vertical relationships, Buyer power, Distribution network, Exclusion
    Date: 2023
  3. By: Youming Liu
    Abstract: Copyright law grants copyright owners exclusive rights so that they have adequate financial incentives to create and innovate. However, when firms are copyright owners, they can leverage their right to sell or distribute products exclusively and thus obtain excessive financial gains. This paper studies the music streaming industry, where streaming services compete for exclusive licenses from music labels. Service providers use unique content to attract users, tailoring their services to individual preferences to create switching costs that lead to user lock-in. Using theoretical analysis and descriptive empirics, I show that exclusivity confers advantages in competition for a service that can generate larger lock-in effects. I then construct a dynamic structural model in which consumers face switching costs when making subscription decisions. I estimate the model using monthly data from China’s music streaming market over 2014–17. Finally, I simulate market outcomes under two alternative policies: a compulsory licensing provision and a mandatory data portability policy. The policy simulation shows that compulsory licensing that enforces non-exclusive distribution would not improve market competition by “leveling the field” between dominant and small services as intended. On the contrary, this policy increases market concentration, enlarging the gap in market share between dominant and small services. In contrast, mandatory data portability that reduces switching costs would decrease market concentration, bringing more users to smaller services.
    Keywords: Econometric and statistical methods; Firm dynamics; Market structure and pricing
    JEL: L13 L42 L51
    Date: 2023–08
  4. By: Alessandro Ispano (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Peter Schwardmann (LMU - Ludwig-Maximilians-Universität München)
    Abstract: We model firms' quality disclosure and pricing in the presence of cursed consumers, who fail to be sufficiently skeptical about undisclosed quality. We show that cursed consumers are exploited in duopoly if firms are vertically differentiated, if there are few cursed consumers, and if average product quality is high. Three common consumer protection policies that work under monopoly, that is, mandatory disclosure, third party disclosure and consumer education, may all increase exploitation and decrease welfare. Even where these policies improve welfare, they often lead to a reduction in consumer surplus. Our conclusions hold in extensions with endogenous quality and horizontal differentiation.
    Keywords: naive, cursed, disclosure, consumer protection, labeling
    Date: 2023
  5. By: Florence Thepot (DRES - Droit, religion, entreprise et société - UNISTRA - Université de Strasbourg - L'europe en mutation : histoire, droit, économie et identités culturelles - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This chapter highlights the potential anti-competitive risks raised by interlocking directorates between competitors (companies having common board members). Although in the US, Section 8 of the Clayton Act specifically prohibits interlocks among competitors, there is no such prohibition in Europe. The main claim of this chapter is that there may be an enforcement gap around anti-competitive effects of interlocking directorates in Europe. A review of relevant provisions shows that interlocking directorates are likely to fall short of EU competition law. In addition, national corporate laws, as well as tools of corporate governance may be of limited use to remedy competitive concerns. This chapter concludes with a discussion of research avenues that would inform suggestions for reforms.
    Keywords: Interlocking directorates, corporate law, corporate governance, competition
    Date: 2023–05
  6. By: ARA Tomohiro
    Abstract: This paper develops a dynamic industry model to study the effect of search frictions on industry structure and aggregate welfare. We consider a search-theoretic setting with two types of agents, firms and suppliers. To customize inputs, each firm needs to find a supplier but search is costly and does not always end in success. Matched firms use customized inputs obtained from matched suppliers to enhance production efficiency, while unmatched firms use generic inputs obtained from a competitive input market. In equilibrium the number of unmatched and matched firms is endogenous. We use this model to contrast the implications of two forms of economic integration: integration of final-good markets allowing firms to export varieties to another market, and integration of matching markets allowing firms to seek suppliers from another market. We show that the former form of integration can amplify the welfare gains from trade by improving firms’ matching frequency associated with resource reallocations from unmatched firms to matched firms. In contrast, the latter might cause welfare losses by hindering the resource-reallocation process of firms.
    Date: 2023–08
  7. By: Ganhammar, Kajsa (Department of Economics, Lund University)
    Abstract: Market-based climate policies have received increased attention, making it important to understand how such politically created markets affect competition in the electricity market. This paper focuses on the green certificate policy which financially supports producers of renewably sourced electricity by means of tradable certificates, and develops a simple duopoly model that incorporates both the electricity and the green certificate markets in an auction-based setting. The results suggest that, in case the subsidised technology has a higher expected marginal cost than the conventional technology, the policy can improve competition and efficiency in the electricity market. Conversely, if producers are ex-ante symmetric in their marginal costs, the advantage the policy creates enables the subsidised producer to bid higher at given cost as the probability of winning the electricity auction increases. This is harmful for competition and results in high consumer prices of electricity.
    Keywords: asymmetric procurement auctions; electricity markets; green certificates; renewable energy
    JEL: D43 D44 Q48
    Date: 2023–08–22
  8. By: David Guerrero (AME-SPLOTT - Systèmes Productifs, Logistique, Organisation des Transports et Travail - Université Gustave Eiffel); Jean-Claude Thill (UNC - University of North Carolina [Charlotte] - UNC - University of North Carolina System)
    Abstract: This chapter analyses port competition from a hinterland perspective. It focuses on a set of countries of Central Europe for which there is not a clear geographical advantage of one port over another. Such contestable hinterlands seem particularly relevant for an appreciation of factors that can tip the balance in favor of certain port alternatives, minimizing the statistical noise induced by distance effects. With the expansion of the European Union towards the East and the subsequent development of East-West transport links, such as the Rhein-Main-Danube canal, increased competition between ports can be expected. This paper tests this idea for different industries, by using a spatial interaction model on data on container shipments to the United States. Sailing frequency is used as a measure of port attractiveness and truck drive time as geographical separation. We also identify preferential ties between source countries and ports and barrier effects in the organization of hinterlands. Against expectations, the results highlight the path dependence in the North-South organization of hinterlands, with a persistent split between Switzerland, mostly oriented towards Rotterdam and Antwerp, and the other countries of Central Europe, historically tied to German ports, while Mediterranean ports are largely disregarded.
    Date: 2023
  9. By: Stephen Kho
    Abstract: I study the transmission of monetary policy to deposit rates in the euro area with a focus on the role of banking sector concentration. Using a local projections framework with 2003-2022 country-level and bank-level data for thirteen euro area member states, I find that deposit rates respond symmetrically to unexpected changes in monetary policy. However, more concentrated domestic banking sectors do pass on unexpected monetary tightening (easing) more slowly (quickly) than less concentrated banking sectors, which contributes to a temporary divergence of deposit rates across the euro area. These results suggest that heterogeneity in the degree of banking sector concentration matters for the transmission of monetary policy, which in turn may affect banking sector profitability as well as the macro-economic response to monetary policy.
    Keywords: Monetary transmission; deposit rates; market concentration
    JEL: E43 E52 D40
    Date: 2023–08

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