nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒10‒09
ten papers chosen by
Russell Pittman, United States Department of Justice

  1. Merger Analysis with IIA Demand and Type Aggregation By Volker Nocke; Nicolas Schutz
  2. Data Linkage Between Markets: Does Emergence of an Informed Insurer Cause Consumer Harm? By Claudia Herresthal; Tatiana Mayskaya; Arina Nikandrova
  3. Startup Acquisitions: Acquihires and Talent Hoarding By Jean-Michel Benkert, Igor Letina, Shuo Liu
  4. Start-up Acquisitions and the Entrant’s and Incumbent’s Innovation Portfolios By Esmée Dijk; José Luis Moraga-González; Evgenia Motchenkova
  5. Screening with Persuasion By Dirk Bergemann; Tibor Heumann; Stephen Morris
  6. Ecosystems and Complementary Platforms By Jeon, Doh-Shin; Lefouili, Yassine; Li, Yaxin; Simcoe, Timothy
  7. Corporate leniency programs for antitrust: Past, present, and future By Jeroen Hinloopen; Sander Onderstal; Adriaan Soetevent
  8. Label to match - Firms’ signaling decisions when not everyone cares By Fritz, Qi Gao
  9. Does corporate environmentalism affect corporate insolvency risk? The role of market power and competitive intensity By Saqib Aziz; Mahabubur Rahman; Dildar Hussain; Duc Nguyen
  10. Declining business dynamism in Europe: The role of shocks, market power, and technology By Biondi, Filippo; Inferrera, Sergio; Mertens, Matthias; Miranda, Javier

  1. By: Volker Nocke; Nicolas Schutz
    Abstract: We propose a framework for merger analysis with multiproduct firms under generalized CES (GCES) and generalized multinomial logit (GMNL) demand. Despite allowing for arbitrary firm and product heterogeneity, we obtain the type aggregation property: All relevant information about a firm's product portfolio can be summarized in a uni-dimensional sufficient statistic, the firm's type. Indeed, GCES and GMNL are shown to be the only IIA demand systems giving rise to that property. Relative to standard CES and MNL demand, our generalization implies that prices, locally, can be strategic complements or substitutes, depending on the local behavior of the curvature of indirect utility. In turn, this distinction is shown to determine whether competition authorities should be more or less strict on mergers in more competitive industries. We obtain further results on the static and dynamic consumer surplus effects of mergers, the aggregate surplus and external effects of mergers, and on the relationship between the market power effect of a merger and the merger-induced change in the Herfindahl index.
    Keywords: multiproduct firms, aggregative game, oligopoly pricing, IIA demand, type aggregation, horizontal merger, Herfindahl index, generalized CES demand, generalized multinomial logit demand
    JEL: L13 L40 D43
    Date: 2023–09
  2. By: Claudia Herresthal; Tatiana Mayskaya; Arina Nikandrova
    Abstract: A merger of two companies active in seemingly unrelated markets creates data linkage: by operating in a product market, the merged company acquires an informational advantage in an insurance market where companies compete in menus of contracts. In the insurance market, the informed insurer earns rent through cream-skimming. Some of this rent is passed on to consumers in the product market. Overall, the data linkage makes consumers better off when the insurance market is competitive and, under some conditions, even when the insurance market is monopolistic. The role of competitiveness of the product market and the data-sharing requirement are discussed.
    Keywords: insurance market, asymmetric information, data linkage, digital market
    JEL: D4 D82 G22 L22 L41 L86
    Date: 2023–09
  3. 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.
    Keywords: acquihire, talent hoarding, startup acquisition, competition
    JEL: L41 G34 M13
    Date: 2023–08
  4. By: Esmée Dijk (Vrije Universiteit Amsterdam); José Luis Moraga-González (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam)
    Abstract: An entrant and an incumbent engage in an investment portfolio problem where each chooses how to allocate its research funds across a rival market, where they compete with one another, and a non-rival market, where they do not interact. Allowing for acquisitions distorts both players’ incentives to allocate funding across their rival and non-rival projects. We show conditions under which the incumbent, anticipating the rents that accrue from the monopolization of the rival market, moves R&D resources from other markets to the rival market. This “incumbency for buyout effect” lowers the expected rents the entrant obtains from the contestable market, which gives it incentives to move its investment portfolio away from the rival market. We show that this strategic effect dominates the usual “innovation for buyout effect” when the entrant’s bargaining power is below a threshold. Allowing for acquisitions may improve the direction of innovation of each of the players as well as consumer surplus. Because precisely the shift of resources towards and away from non-rival projects causes the welfare gains and losses, using the traditional definition-of-the-market approach to assess the impact of acquisitions should be reconsidered.
    Keywords: start-up acquisitions, innovation portfolios, direction of innovation, incumbency for buyout, innovation for buyout
    JEL: O31 L13 L41
    Date: 2023–08–03
  5. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Stephen Morris (Dept. of Economics, MIT)
    Abstract: We consider a general nonlinear pricing environment with private information. The seller can control both the signal that the buyers receive about their value and the selling mechanism. We characterize the optimal menu and information structure that jointly maximize the seller's profit. The optimal screening mechanism has finitely many items even with a continuum of values. We identify sufficient conditions under which the optimal mechanism has a single item. Thus the seller decreases the variety of items below the efficient level in order to reduce the information rents of the buyers.
    Keywords: Nonlinear Pricing, Screening, Bayesian Persuasion, Finite Menu, Second-Degree Price Discrimination, Recommender System
    JEL: D44 D47 D83 D84
    Date: 2023–09
  6. By: Jeon, Doh-Shin; Lefouili, Yassine; Li, Yaxin; Simcoe, Timothy
    Abstract: Motivated by several examples, including Internet of Things patent licensing, we develop a tractable model of multi-product ecosystems, where one or more plat- forms provide inputs to a set of devices linked through demand-side externalities. Prices depend on each device's Katz-Bonacich centrality in a network dened by the externalities, and we show how the relevant network diers for an ecosystem monop- olist, a social planner, or a group of complementary platforms. We use the model to revisit Cournot's analysis of complementary monopolies in a platform setting, and to analyze a partial (one-sided) merger of complementary platforms.
    Keywords: Multi-sided Market, Complementary Platforms, Network, Centrality, ; IoT, Licensing
    Date: 2023–09–13
  7. By: Jeroen Hinloopen (CPB Netherlands); Sander Onderstal (University of Amsterdam); Adriaan Soetevent (University of Groningen)
    Abstract: This special issue marks the 25th anniversary of the introduction of a leniency program for antitrust in the EU and contains five original papers: Each paper examines the effects of design parameters of leniency programs on their performance. Before introducing each contribution separately, we put them in perspective by introducing readers to the existing theoretical, empirical, and experimental literature on corporate leniency programs for antitrust.
    Keywords: Leniency programs, antitrust, competition policy, cartel.
    JEL: L41 L44
    Date: 2023–07–29
  8. By: Fritz, Qi Gao
    Abstract: In this paper, I propose a model to investigate firms’ signaling decisions on the product level. By seeking (imperfect) third-party certification, firms can label their products with good quality for which only some consumers care. Combining the signaling game with a matching problem, I am able to investigate the impact of the size of conscious consumers and asymmetric firm size on firms’ signaling decisions. In general, the level of certification costs determines the occurrence of different equilibria. While more conscious buyers unambiguously increase the probability of separating and semi-separating equilibria, the effect on the pooling equilibrium is not that straightforward. Asymmetric firm size negatively influences the occurrences of all equilibria. However, product allocation schemes play an important role in such negative effects.
    Date: 2023–09–04
  9. By: Saqib Aziz (ESC [Rennes] - ESC Rennes School of Business); Mahabubur Rahman (ESC [Rennes] - ESC Rennes School of Business); Dildar Hussain (ESC [Rennes] - ESC Rennes School of Business); Duc Nguyen (IPAG Business School, VNU - Vietnam National University [Hanoï])
    Abstract: Little is known about the effects of green performance on corporate insolvency risk. This study examines the relationship between green performance and firm insolvency risk from both theoretical and empirical perspectives. Using a panel of 179 US firms included in the Newsweek Green Rankings and a system generalised method of moments estimation which generates endogeneity-robust regression coefficients, we found that firms with higher green performance are at lower risk of insolvency. We further postulate and provide theory-based empirical evidence that the nexus between green performance and insolvency risk is contingent upon other internal and external boundary conditions. Specifically, this research documents that the nexus between green performance and firm insolvency risk is moderated by market power as well as industry competitive intensity. The results of this study are robust across several sensitivity analyses.
    Keywords: Green performance, Insolvency risk, Market share, Industry competitiveness, Z-score
    Date: 2021–11
  10. By: Biondi, Filippo; Inferrera, Sergio; Mertens, Matthias; Miranda, Javier
    Abstract: We study the changing patterns of business dynamism in Europe after 2000 using novel micro-aggregated data that we collect for 19 European countries. In all of them, we document a decline in job reallocation rates that concerns most economic sectors. This is mainly driven by dynamics within sectors, size classes, and age classes rather than by compositional changes. Large and mature firms show the strongest decline in job reallocation rates. Simultaneously, the shares of employment and sales of young firms decline. Consistent with US evidence, firms' employment changes have become less responsive to productivity. However, the dispersion of firms' productivity shocks has decreased too. To enhance our understanding of these patterns, we derive a firm-level framework that relates changes in firms' productivity, market power, and technology to job reallocation and firms' responsiveness.
    Keywords: business dynamism, European cross-country data, market power, productivity, responsiveness of labor demand
    JEL: D24 J21 J23 J42 L11 L25
    Date: 2023

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