nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒09‒18
ten papers chosen by
Russell Pittman, United States Department of Justice

  1. Manufacturer Collusion and Resale Price Maintenance By Matthias Hunold; Johannes Muthers
  2. Using a Soft Deadline to Counter Monopoly By Masahiro Yoshida
  3. Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market By Charles Gray; Abby E. Alpert; Neeraj Sood
  4. Time Use and the Efficiency of Heterogeneous Markups By Albrecht, Brian C.; Phelan, Thomas; Pretnar, Nick
  5. Scalable Demand and Markups By Enghin Atalay; Erika Frost; Alan Sorensen; Christopher Sullivan; Wanjia Zhu
  6. Information Uncertainty By Maarten C.W. Janssen; Santanu Roy
  7. Antitrust enforcement increases economic activity By Babina, Tania; Barkai, Simcha; Jeffers, Jessica; Karger, Ezra; Volkova, Ekaterina
  8. Staatliches Verbot des Einkaufs von Lebensmitteln und Agrarerzeugnissen unterhalb der Produktionskosten : Erfahrungen in Spanien, Frankreich und Italien sowie Einschätzungen zu einer möglichen Umsetzung in Deutschland By Forstner, Bernhard
  9. California Beer Price Posting: An exploratory analysis of pricing along the supply chain By Matthew T. Cole; Michael McCullough
  10. Strategic Money and Credit Ledgers By Markus K. Brunnermeier; Jonathan Payne

  1. By: Matthias Hunold; Johannes Muthers
    Keywords: resale price maintenance, collusion, retailing
    JEL: D43 K21 K42 L41 L42 L81
    Date: 2023
  2. By: Masahiro Yoshida (Faculty of Political Science and Economics, Waseda University)
    Abstract: A monopolist often exploits a hard deadline to raise their commitment power. I explore whether a group of buyers can employ a soft deadline to counter the monopoly. Using a simple durable goods monopolist model under a deadline, I show that the buyers’ imperfect commitment to an earlier exit may elicit a compromise from the monopolist and generate the buyers’ premium. The soft deadline partially restores the self-competition dynamics of Coase conjecture, which is previously constrained by the hard deadline. Only one soft deadline breaks the conventional link between the time horizon (or durability of goods) and monopoly power.
    Keywords: bargaining; durable goods monopoly; commitment; Coase conjecture; dead-line effect
    JEL: C78 C91
    Date: 2023–09
  3. By: Charles Gray; Abby E. Alpert; Neeraj Sood
    Abstract: The pharmaceutical market has experienced a massive wave of vertical integration between pharmacy benefit managers (PBMs) and health insurers in recent years. Using a unique dataset on insurer-PBM contracts, we document increasing vertical integration in Medicare Part D–vertically integrated insurers' market share increased from about 30% to 80% between 2010 and 2018. Next, we evaluate a large insurer-PBM merger in 2015 to assess the trade-offs of vertical integration–harms to competition due to input and customer foreclosure on the one hand and improved efficiency on the other. We find premium increases after the merger for insurers who bought PBM services from rivals, which is consistent with vertically integrated PBMs raising costs through input foreclosure.
    JEL: I1 I11 I13
    Date: 2023–08
  4. By: Albrecht, Brian C.; Phelan, Thomas; Pretnar, Nick
    Abstract: A recent literature has provided empirical evidence that markups are increasing and are heterogeneous across firms. In standard monopolistic competition models, such heterogeneity implies inefficiency even in the presence of free entry. We enrich the standard model of monopolistic competition with heterogeneous firms to incorporate off-market time use that is non-separable with market consumption into the consumer problem. Within this framework the constancy of equilibrium markups is neither sufficient nor necessary for efficiency. Whether or not the competitive level of production and market concentration of firms are efficient depends on the degree to which consumption time and market goods are complements or substitutes. Such inefficiencies are the result of time use being misallocated toward home production at the expense of market production.
    Keywords: monopolistic competition, markups, efficiency, time use, home production, elasticity of substitution, concentration, selection, love for variety, heterogeneous firms
    JEL: D1 D4 D6 L1
    Date: 2023–08–02
  5. By: Enghin Atalay; Erika Frost; Alan Sorensen; Christopher Sullivan; Wanjia Zhu
    Abstract: We study changes in markups across 72 product markets from 2006 to 2018. A growing literature has documented a rise in markups over time using a production function approach; we instead employ the standard microeconomic method, which is to estimate demand and then invert firms’ first-order pricing conditions to infer their markups. To make the method scalable, we propose estimating nested logit demand models, using household panel data to automate the assignment of products to nests. Our results indicate an overall upward trend in markups between 2006 and 2018, with considerable heterogeneity across and within product markets. We find that changes in firms’ marginal costs and households’ price sensitivity are the primary drivers of markup increases with changes in firm ownership playing a much smaller role.
    Keywords: markups; demand estimation
    JEL: D12 D43 L11
    Date: 2023–08–07
  6. By: Maarten C.W. Janssen (University of Vienna); Santanu Roy (Southern Methodist University)
    Abstract: In a market where buyers and sellers are uncertain about whether others are informed about the quality of an asset, inefficiency in trading arises due to incomplete learning. An uninformed seller will want to learn the asset's quality from the buyers' bids and may be willing to sell at low, but not at intermediate bids. Buyers may have incentives to pool their bids to prevent this type of learning. We outline conditions under which potential gains from trade cannot be realized in states where all traders are symmetrically informed or symmetrically uninformed.
    Keywords: Information Uncertainty, Asymmetric Information; Product Quality; Market Breakdown.
    JEL: L13 L15 D82 D43
    Date: 2023–08
  7. By: Babina, Tania; Barkai, Simcha; Jeffers, Jessica; Karger, Ezra; Volkova, Ekaterina
    Abstract: We hand-collect and standardize information describing all 3, 055 antitrust lawsuits brought by the Department of Justice (DOJ) between 1971 and 2018. Using restricted establishment-level microdata from the U.S. Census, we compare the economic outcomes of a non-tradable industry in states targeted by DOJ antitrust lawsuits to outcomes of the same industry in other states that were not targeted. We document that DOJ antitrust enforcement actions permanently increase employment by 5.4% and business formation by 4.1%. Using an event-study design, we find (1) a sharp increase in payroll that exceeds the increase in employment, meaning that DOJ antitrust enforcement increases average wages, (2) an economically smaller increase in sales that is statistically insignificant, and (3) a precise increase in the labor share. While we cannot separately measure the quantity and price of output, the increase in production inputs (employment), together with a proportionally smaller increase in sales, strongly suggests that these DOJ antitrust enforcement actions increase the quantity of output and simultaneously decrease the price of output. Our results show that government antitrust enforcement leads to persistently higher levels of economic activity in targeted industries.
    Keywords: antitrust enforcement, economic activity, employment, business formation
    JEL: L4 E24 K21 J21
    Date: 2023
  8. By: Forstner, Bernhard
    Abstract: The core of this working paper is the examination of a government-imposed ban on the purchase of agricultural and food products below their production costs. In Germany, there has been an important political discussion on this topic for several years, which finally found its way into the coalition agreement of the German government in the form of a study mandate. In the discussion, it is often pointed out that such a ban already exists in several European countries and that Germany should follow suit. Indeed, in recent years, the EU member states Spain, France, and Italy have adopted legal regulations to determine producer prices based on production costs. The aim of these regulations is to strengthen the position of the production sector vis-à-vis the processing industry and trade and to improve farmers' incomes. The study begins with an overview of the existing regulations in Spain, France and Italy, and the experience gained so far in terms of implementation and impact in these countries. Both legally and in terms of content, the respective regulations are quite different. While Spain and Italy impose an outright ban on purchasing below production costs, the regulations in France only require that production costs be taken into account when setting prices. One aspect common to all three countries is the general obligation to conclude a contract prior to the delivery of goods. It's also worth noting that important product categories and distribution channels are already exempted from these regulations by law or decree. As the regulations specifically focusing on cost-based pricing will only enter into force in the three countries at the end of 2021, there is no clear impact on markets and producer prices yet. The experts' assessments of the potential impact vary widely, with the primary level generally viewing the regulations as expectedly positive, while the processing and trade levels are more critical. The second part of the study summarizes the assessments of relevant actors regarding a possible implementation of a "purchase ban below production costs" and its consequences in Germany. These assessments are based on numerous expert interviews and three industry-specific workshops with actors from the value chains. Depending on the group of actors and the product category, market control interventions were evaluated quite differently. Particularly among primary producers in the cattle and pig sectors, there are influential groups advocating stronger market regulation, mandatory contracts and cost-covering prices. On the other hand, the food industry, especially the export-oriented segment, and the large trading companies are interested in international competitiveness and therefore reject intervention in free price formation. From the point of view of the majority of the scientific participants in the study, a government-mandated cost orientation of prices is not an appropriate measure to improve farmers' incomes. Intra-sectoral competition would persist due to significant individual cost differences, and without volume control and EU-wide regulation, significant distortions of competition and production shifts would result. Desirable production methods to achieve sustainability, climate, animal welfare, etc. objectives should be supported by specific measures. Recently, a number of associations have put forward proposals to sustainably increase farmers' incomes, particularly in the beef and pig sectors. In various cooperation and discussion formats, including large trading companies, solutions are being developed to improve cooperation between stakeholders at different levels of the value chain. Some proposals are listed in this working paper, but not analyzed in depth.
    Keywords: Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Production Economics
    Date: 2023
  9. By: Matthew T. Cole (Department of Economics, California Polytechnic State University); Michael McCullough (Agribusiness Department, California Polytechnic State University)
    Abstract: Using newly released public data on beer prices in the state of California, we construct a large dataset (approximately 2 million observations) that includes beer price and packaging configurations. We merge this dataset with brewery attributes and county demographics to explore pricing differentials across California, the US’s largest brewing state. We provide evidence of potential pricing-to-market conducted by macro breweries across the three-tier distribution system where craft breweries do not. In addition, we describe package attributes that exhibit price differentials across brewery types. We make the cleaned data available to the public and provide avenues for future research that may addressed with this new data.
    Date: 2023
  10. By: Markus K. Brunnermeier; Jonathan Payne
    Abstract: This paper studies strategic decision making by a private currency ledger operator, which faces competition from public money and/or other ledgers. A monopoly ledger operator can incentivize contract enforcement across the financial sector by threatening exclusion, but it can also impose markups through its pricing power. Currency competition limits rent extraction, but also makes coordinated contract enforcement more fragile. The emergent market structure bundles the provision of ledger and platform trading technologies. Regulation to ensure platform cooperation on contract enforcement and competition on markup setting is effective so long as agents can easily switch between platforms.
    JEL: E4 E42 E5 E50 E59 F39 G21 G23 L10 L13
    Date: 2023–08

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