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on Industrial Competition |
| By: | Alexandre de Cornière; Andrea Mantovani; Shiva Shekhar; Alexandre de Cornière |
| Abstract: | We investigate the welfare effects of third-degree price discrimination by a two-sided platform that enables interaction between buyers and sellers. Sellers are heterogenous with respect to their per-interaction benefit, and, under price discrimination, the platform can condition its fee on sellers’ type. In a model with linear demand on each side, we show that price discrimination: (i) increases participation on both sides; (ii) enhances total welfare; (iii) may result in a strict Pareto improvement, with both seller types being better-off than under uniform pricing. These results, which are in stark contrast to the traditional analysis of price discrimination, are driven by the existence of cross-group network effects. By improving the firm’s ability to monetize seller participation, price discrimination induces the platform to attract more buyers, which then increases seller participation. The Pareto improvement result means that even those sellers who pay a higher price under discrimination can be better-off, due to the increased buyer participation. |
| Keywords: | two-sided markets, price discrimination, network effects |
| JEL: | D42 D62 L11 L12 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10618&r=com |
| By: | Alessandro De Chiara; Juan José Ganuza; Fernando Gómez; Ester Manna; Adrián Segura |
| Abstract: | This paper presents a framework where sellers, an online platform with monopoly power, and consumers transact. We aim to study the interaction between the imposition of liability on the platform, the reputational sanctions exerted by consumers, and the internal measures adopted by the platform to keep in check the sellers, whenever a product generates losses to consumers. We show that introducing direct legal liability of the platform may have both positive and negative effects for safety investments. Additionally, when sellers are heterogeneous (with respect to their sensitivity to the sanctions from consumers or from the platform), legal liability on the platform will have an impact on the selection of participating sellers, although the sign and size of the effect largely depend on paremeter values. |
| Keywords: | platform liability, third-party sellers, reputation |
| JEL: | K13 L15 L51 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1868&r=com |
| By: | Jean-Michel Benkert; Igor Letina; Shuo Liu |
| Abstract: | We present a model of startup acquisitions, which may give rise to inefficient "talent hoarding." We develop a model with two competing firms that can acquire and integrate (or "acquihire") a startup operating in an orthogonal market. Such an acquihire improves the competitiveness of the acquiring firm. We show that even absent the classical competition effects, acquihires need not be benign but can be the result of oligopolistic behavior, leading to an inefficient allocation of talent. Further, we show that such talent hoarding may reduce consumer surplus and lead to more job volatility for acquihired employees. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.10046&r=com |
| By: | Leonardo Madio (University of Padova); Aldo Pignataro (Italian Regulatory Authority for Energy, Networks and Environment) |
| Abstract: | We study an infinitely repeated oligopoly game in which firms compete on quantity and one of them is capacity constrained. We show that collusion sustainability is non-monotonic in the size of the capacity constrained firm, which has little incentive to deviate from a cartel. We also present conditions for the emergence of a partial cartel, with the capacity constrained firm being excluded by the large firms or self-excluded. In the latter case, we show under which circumstances the small firm induces a partial conspiracy that is Pareto-dominant. Implications for cartel identification and enforcement are finally discussed. |
| Keywords: | Antitrust, capacity constraints, collusion, partial cartel. |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0295&r=com |
| By: | Vesa Pursiainen (University of St. Gallen; Swiss Finance Institute); Hanwen Sun (University of Bath); Yue Xiang (University of Bath) |
| Abstract: | A firm’s exposure to competition is negatively associated with its ESG performance. We measure exposure to domestic product market competition by product market fluidity, based on product text descriptions, and find that higher fluidity - indicating higher product market threats - is associated with lower ESG scores. Fluidity matters more for financially constrained firms, in capital-intensive industries, and for costly activities. Increasing exposure to Chinese import competition is associated with reduction in ESG scores. This effect of import competition is stronger for firms less exposed to domestic competition. Local climate attitudes and social norms moderate the effect of competitive pressure. |
| Keywords: | competition, product market threats, ESG, sustainability, international trade |
| JEL: | D40 F18 F64 G30 M14 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2369&r=com |
| By: | Garrod, Luke; Li, Ruochen; Wilson, Christopher |
| Abstract: | Automated switching services have recently emerged as online intermediaries that use algorithms to facilitate consumer switching. Unlike price comparison websites, these services i) act on behalf of consumers by actively switching them to the cheapest deals, ii) typically charge consumers directly, rather than charging suppliers commission, and iii) often survey across the entire market. We offer the first theoretical analysis of such services. In an oligopoly model with imperfect price information, we characterize an equilibrium with an auto-switching service, and analyze its impact on market outcomes and welfare. |
| Keywords: | Consumer Switching; Consumer Search; Price Information; Intermediary; Automated; Competition. |
| JEL: | D43 D83 L13 |
| Date: | 2023–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118492&r=com |
| By: | Casey B. Mulligan |
| Abstract: | Proposed “delinking” legislation would prohibit Pharmacy Benefit Managers (PBMs) from being remunerated based on the rebates and discounts they negotiate for drug insurance plans serving Medicare beneficiaries. This policy would significantly change drug pricing and utilization and shift billions of dollars annually from patients and taxpayers to drug manufacturers and retail pharmacy companies. Annual federal spending on Medicare Part D premiums would increase $3 billion to $10 billion plus any concomitant increase in Medicare subsidies for out-of-pocket expenses. All of these consequences stem from the fact that PBMs are hired to obtain rebates and discounts but would no longer be compensated based on their results. The quantitative estimates utilize a large body of economic research showing how much “pay for performance” matters for economic outcomes. The price-theoretic models also account for various market frictions and imperfections including market power, coordination costs, tax distortions, and incomplete innovation incentives. |
| JEL: | D43 D71 I13 J24 L14 L51 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31667&r=com |
| By: | Xu, Lili; Matsumura, Toshihiro |
| Abstract: | This study investigates the relationship between market transparency and economic welfare in a mixed duopoly in which a welfare-maximizing public firm competes with a profit-maximizing private firm. We find that the private firm’s market share, consumer surplus, and welfare increase with market transparency. Further, the relationship between the private firm’s profit and market transparency has an inverted U shape. This result suggests that profit-maximizing firms may have incentives to improve market transparency, especially when the degree of market transparency is low, which is in sharp contrast to the results under a private duopoly. |
| Keywords: | market transparency, mixed oligopoly, product differentiation, unconstrained Hotelling model, profit-enhancing market transparency, crowding out |
| JEL: | L13 L15 L32 L33 |
| Date: | 2023–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118415&r=com |
| By: | Victor Aguirregabiria; Alessandro Iaria; Senay Sokullu |
| Abstract: | This paper deals with the endogeneity of firms' entry and exit decisions in demand estimation. Product entry decisions lack a single crossing property in terms of demand unobservables, which causes the inconsistency of conventional methods dealing with selection. We present a novel and straightforward two-step approach to estimate demand while addressing endogenous product entry. In the first step, our method estimates a finite mixture model of product entry accommodating latent market types. In the second step, it estimates demand controlling for the propensity scores of all latent market types. We apply this approach to data from the airline industry. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.14196&r=com |
| By: | Christopher Conlon; Jeff Gortmaker |
| Abstract: | We provide a general framework for incorporating many types of micro data from summary statistics to full surveys of selected consumers into Berry, Levinsohn, and Pakes (1995)-style estimates of differentiated products demand systems. We extend best practices for BLP estimation in Conlon and Gortmaker (2020) to the case with micro data and implement them in our open-source package PyBLP. Monte Carlo experiments and empirical examples suggest that incorporating micro data can substantially improve the finite sample performance of the BLP estimator, particularly when using well-targeted summary statistics or "optimal micro moments" that we derive and show how to compute. |
| JEL: | C13 C18 C30 D12 L0 L66 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31605&r=com |
| By: | Crescioli, Tommaso (European Institute, London School of Economics and Political Science); Martelli, Angelo (European Institute, London School of Economics and Political Science) |
| Abstract: | Has the Euro created a more competitive market? Using a staggered difference-in-differences design we find that the Euro has increased firm-level market power between 23% and 30% after its adoption. This happens because deepening economic integration creates a stronger competitive environment where superstar firms acquire a dominant position. Consistently with this explanation, the Euro effect on market power is between 8% and 9% larger for tradable industries and between 10% and 17% larger for firms in the top 1% of the Eurozone pre-Euro productivity distribution. This rise in market power is mainly driven by changes in labor market competition that more than compensates for the increase in product market competition. Again counterintuitively, we also find that unions under certain conditions can increase the market power of superstar firms. This happens in the presence of cooperation-enhancing institutions that favor agreements between labor and capital and raise firms’ competitiveness by diminishing markdowns. |
| Keywords: | Competition, Single Currency, Superstar Firms, Market power, Labor Market Institutions |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:bda:wpsmep:wp2022/8&r=com |
| By: | Bahamazava, Katsiaryna; Marchese, Carla; Privileggi, Fabio (University of Turin) |
| Abstract: | This article contributes to the economic analysis of the illegal drug trade on either the Street or the Dark Net Market (DNM). For the sake of sim- plicity, it is assumed that there is a continuum of consumers with unitary demand for one drug. Their demand price varies from one market to the other according to the risks they bear in accessing it. The lower risk of vi- olence in the DNM implies that, ceteris paribus, the good delivered there is deemed higher quality. Vendors compete à la Cournot in quantity in their “home†market, selling homogeneous goods. However, the other market ex- erts a vertical competitive threat. The two markets are intertwined, and we model the case in which both are simultaneously in equilibrium. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:202302&r=com |