nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒10‒30
fourteen papers chosen by
Russell Pittman, United States Department of Justice

  1. Assessment of market power in digital markets: Conceptual framework and empirical strategy By Sousa Prado, Tiago
  2. You Can Lead a Horse to Water: Spatial Learning and Path Dependence in Consumer Search By Charles Hodgson; Gregory Lewis
  3. Mergers and acquisitions in telecommunications market: a simultaneous equations approach to study Structure, Conduct and Performance By Kargas, Antonios; Argyroulis, Vasileios; Varoutas, Dimitrios
  4. Virtualised and open RAN role in overhaul of mobile network sharing regulation in Europe for 5G rollout By Földes, Gábor
  5. A review of recent merger and acquisitions in mobile telecommunications service industry: Substantial issues and implications for policy makers By Srinuan, Chalita; Srinuan, Pratompong
  6. To share or not to share? The impact of mobile network sharing for consumers and operators By Koutroumpis, Pantelis; Castells, Pau; Bahia, Kalvin
  7. Making Their Own Weather? Estimating Employer Labour-Market Power and Its Wage Effects By Martins, Pedro S.; Melo, António
  8. They Are Among Us: Pricing Behavior of Algorithms in the Field By Fourberg, Niklas; Marques Magalhaes, Katrin; Wiewiorra, Lukas
  9. Two Experiments on Trading Information Goods in a Network By Nobuyuki Hanaki; Yutaka Kayaba; Jun Maekawa; Hitoshi Matsushima
  10. Airbnb, Hotels, and Localized Competition By Maximilian Schaefer; Kevin Ducbao Tran
  11. Hedonic price comparison of fixed broadband services: a Hungarian case study By Papai, Zoltan; McLean, Aliz; Bukur, Tamas
  12. Do Consumers Acquire Information Optimally? Experimental Evidence from Energy Efficiency By Andrea La Nauze; Erica Myers
  13. Resilience in Vertical Supply Chains By Gene M. Grossman; Elhanan Helpman; Alejandro Sabal
  14. Regulation of Big Tech in the EU By Windekilde, Iwona; Henten, Anders

  1. By: Sousa Prado, Tiago
    Abstract: The rise of digital platforms as a business model and a critical infrastructure for the digital economy is causing increasing trepidation among scholars and competition policy enforcers. In response to concerns about platform dominance, policies that were in place since the 1990s to keep the digital economy free from traditional regulation are being reconsidered. In these discussions, competition is considered an essential mechanism to harness the social and economic benefits of digital platforms, as it serves to attenuate potential risks to innovation, democracy, and to the media industry. This paper contributes to these discussions theoretically and empirically. It addresses some of the challenges of designing comprehensive responses to safeguard and promote competition in digital markets. The focus of the investigation is the assessment of market power in digital markets. First, a conceptual framework is developed, and it is shown that there is a need for new tests in addition to the traditional evaluation of the competitive structure of platform markets. The analysis concludes that to have significant impact in promoting competition in digital markets policy remedies should be enforced jointly on both the user- and supplier sides of the platforms. Second, the article reports results of an online survey experiment with 550 participants. The results suggest that an analysis of user responses to digital ads and data collection procedures would greatly improve the assessments of market power. Overall, this paper develops theoretically and empirically grounded contributions that will help policymakers and regulatory agencies in the design of workable approaches to assess market power in digital markets.
    Date: 2023
  2. By: Charles Hodgson; Gregory Lewis
    Abstract: We develop and estimate a model of consumer search with spatial learning. Consumers make inferences from previously searched objects to unsearched objects that are nearby in attribute space, generating path dependence in search sequences. The estimated model rationalizes patterns in data on online consumer search paths: search tends to converge to the chosen product in attribute space, and consumers take larger steps away from rarely purchased products. Eliminating spatial learning reduces consumer welfare by 13%: cross-product inferences allow consumers to locate better products in a shorter time. Spatial learning has important implications for product recommendations on retail platforms. We show that consumer welfare can be reduced by unrepresentative product recommendations and that consumer-optimal product recommendations depend both on consumer learning and competition between platforms.
    JEL: D80 D83 L0
    Date: 2023–09
  3. By: Kargas, Antonios; Argyroulis, Vasileios; Varoutas, Dimitrios
    Abstract: Paper aims to enrich readers understanding on Greek Telecommunication Industry, and more specifically on strategic decisions related with mergers and acquisitions. Even though mergers and acquisitions have long been studied in international level, the effects on market structure, on firms' conduct and, on their performance, remains an interesting topic. Current research contributes to the analysis of Greek telecommunication market, considering its current form, after a series of mergers and acquisitions that took place in previous years. An Industrial Organization's approach was adopted, namely the Structure - Conduct - Performance (SCP) framework. A SCP model, based on quantitative data, is developed for the major three telecom operators, while a two-stages least square regression analysis is conducted. By using a simultaneous equations model with lagged-dependent variables, the relationship between structure, conduct and performance is discussed. Results indicate that entry barriers exist in the market, as part of firms' conduct, shaping market's existing structure and affecting performance. Mergers and acquisitions is expected to keep playing a significant role in Greek telecommunications market since it acts as a reliable strategic option that ensures viability.
    Keywords: Structure – Conduct – Performance, Simultaneous equations approach, Mergers and Acquisitions, Strategic Management, Greek Telecommunications Industry
    Date: 2023
  4. By: Földes, Gábor
    Abstract: There is an investment gap to reach EU Digital Decade 2030 connectivity targets, requires from operators to provide full broadband fixed and mobile coverage. The reason is the lack of economies of scale, therefore return on investment often lags behind cost of capital in fragmented European national markets. Operators argue for market consolidation in form of horizontal merger, or at least market cooperation, like mobile network sharing. Operators accept horizontal production agreement network sharing as a second best solution, however the bottleneck is the regulatory approval of urban full (active and passive) radio access network (RAN) sharing. Regulators still insist on parallel infrastructure-based competition instead of service-based competition on the same infrastructure. Virtualisation and open RAN technology enablers of mobile 5G transform the industry from closed to open market organisations, where multivendor upstream market competition also strengthen operator downstream and end-user retail market competitions. The research question focused on how virtualized and open RAN with open market multivendor concept could mitigate regulatory anticompetitive concerns of network sharing in high density urban areas in end-user mobile services downstream market competition. The research methodology built on qualitative techniques due to new technology development and limited available data. Exploratory analysis covers relevant academic, research institutes and consultancy papers. Secondary market insight data used for market development analysis. The main finding is that, virtualised and open RAN intensifies competition, differentiation and innovation at vendor upstream market that has similar spillover effect to operator downstream and end-user retail markets. Due to network function virtualisation, software-based competition would permit higher economies of scale via network sharing at least in the physical hardware infrastructure segment, not only in passive, but also for active assets. The novelty of the paper to focus on the bottleneck of mobile network sharing approval in case of urban active RAN sharing and connects with open RAN as a potential mitigation opportunity to resolve regulatory uncertainty and promote an issue of new regulatory guidance on mobile network sharing, helping both operators and customers, resulting a social welfare increase.
    Keywords: network sharing, competition regulation, virtualisation, open RAN, 5G, cost efficiency, economies of scale
    Date: 2023
  5. By: Srinuan, Chalita; Srinuan, Pratompong
    Abstract: Mobile telecommunications service industry has oligopolistic market structure. Four or three mobile network operators (MNOs) seem to be a magic number for telecom regulators as their competition safeguard. The merger and acquisition (M&A) process of MNOs has been a debate for several decades, both within industry and in academia. There are two forms of mergers which include mergers giving rise to market dominance (anti-merger) and mergers that provide for integration bringing efficiency and innovation (pro-merger). Therefore, this paper aims to explore the patterns, impacts, and specific measures regulatory agencies apply to mobile network providers who are doing through a merger process. From an extensive review of the articles published from 2012 2022, this paper reveals that most MNOs choose to use their stock as the primary acquisition tool. Also, most mergers resulted in a drop in the number of service providers from four to three, with all regulatory bodies ruling in favor of the merger except one (which was soon overturned by the court). Merger approval criteria by regulators have been wide-ranging. However, there has been much focus on the promotion of MVNOs (mobile virtual network operators) and assuring they have bandwidth access to the larger and well-established MNOs. Moreover, infrastructure sharing (such as towers) is another common merger condition as well as roaming agreements and spectrum returns to the government. As in the case of the United States mega-merger of Sprint and T-Mobile, assuring rural access to advanced, expensive, and high-speed technology like 5G becomes the operator's approval bargaining chip. This paper contributes to the international and regulatory discussions concerning the highly charged and complex subject of telecommunications M&A activity.
    Keywords: Business integration, Case studies, Merger and acquisitions, Mobile phones, wireless communications carriers
    Date: 2023
  6. By: Koutroumpis, Pantelis; Castells, Pau; Bahia, Kalvin
    Abstract: This paper assesses the impact of mobile network sharing in Europe during the 2000-2019 period, looking at 140 mobile operators in 29 countries. We find that - consistent with economic theory - network sharing generated significant benefits for operators and consumers, including lower prices and improved network coverage and quality. This was driven by cost reductions, higher returns on investment and increased competition. These effects materialised heterogeneously, with the impact of network sharing depending on the type of sharing, the technology cycle in which it is entered into as well as the market position and size of the operators entering the agreement. This has important implications going forward as it shows that network sharing can play a vital role in the deployment of new 5G networks and that the technological and market specificity of each type of sharing agreement can significantly affect its outcomes.
    Keywords: Network sharing, infrastructure sharing, mobile communications, network competition
    JEL: D22 L10 L20 L96
    Date: 2023
  7. By: Martins, Pedro S. (Nova School of Business and Economics); Melo, António (University of Turin)
    Abstract: The subdued wage growth observed in many countries has spurred interest in monopsony views of regional labour markets. This study measures the extent and robustness of employer power and its wage implications exploiting comprehensive matched employer-employee data. We find average (employment-weighted) Herfindhal indices of 800 to 1, 100, stable over the 1986-2019 period covered, and that typically less than 9% of workers are exposed to concentration levels thought to raise market power concerns. When controlling for both worker and firm heterogeneity and instrumenting for concentration, we find that wages are negatively affected by employer concentration, with elasticities of around -1.4%. We also find that several methodological choices can change significantly both the measurement of concentration and its wage effects.
    Keywords: oligopsony, wages, regional labour markets, worker mobility, Portugal
    JEL: J42 J31 J63
    Date: 2023–09
  8. By: Fourberg, Niklas; Marques Magalhaes, Katrin; Wiewiorra, Lukas
    Abstract: We analyze pricing patterns and price level effects of algorithms in the market segments for OTC-antiallergics and -painkillers in Germany. Based on a novel hourly dataset which spans over four months and contains over 10 million single observations, we produce the following results. First, price levels are substantially higher for antiallergics compared to the segment of painkillers, which seems to be reflective of a lower price elasticity for antiallergics. Second, we find evidence that this exploitation of demand characteristics is heterogeneous with respect to the pricing technology. Retailers with a more advanced pricing technology establish even higher price premiums for antiallergics than retailers with a less advanced technology. Third, retailers with more advanced pricing technology post lower prices which contradicts previous findings from simulations but are in line with empirical findings if many firms compete in a market. Lastly, our data suggests that pricing algorithms takeweb-traffic of retailers' online-shops as demand side feedback into account when choosing prices. Our results stress the importance of a careful policy approach towards pricing algorithms and highlights new areas of risks when multiple players employ the same pricing technology.
    Keywords: Algorithmic pricing, Collusion, Artificial intelligence
    JEL: C13 D83 L13 L41
    Date: 2023
  9. By: Nobuyuki Hanaki; Yutaka Kayaba; Jun Maekawa; Hitoshi Matsushima
    Abstract: We examine the impact of a cycle path on the trading of a copyable information good in a network experimentally. A cycle path in a network allows a buyer to become a reseller who can compete against existing sellers by replicating the good. A theoretical prediction considers that the price of the information good, even with the first transaction where there is not yet a reseller competing with the original seller, will be lower in networks with a cycle path than otherwise. However, our experiment reveals that the observed price for the first transaction is significantly higher in networks with a cycle path. An additional experiment that enhances competition also does not support the theoretical prediction.
    Date: 2021–12
  10. By: Maximilian Schaefer (Institut Mines-Télécom Business School, Department of Law, Economics and Finance, 9 rue Charles Fourrier, 91000 Evry, France); Kevin Ducbao Tran (University of Bristol, School of Economics, 12 Priory Road, Bristol BS8 1TU, United Kingdom)
    Abstract: We analyze competition between hotels and Airbnb listings as well as the effect of Airbnb on consumer welfare, hotel profits, and Airbnb host surplus. For this purpose, we use granular daily-level data from Paris for the year 2017. We estimate a random coefficient logit model of demand. We extend prior research by accounting for the localized nature of competition within districts of the city. Our results suggest that demand is segmented by district as well as accommodation type. Based on these demand estimates, we estimate separate supply-side models for hotels and Airbnb, to account for differences in price setting we observe in the data. Using the estimated models, we assess how Airbnb affects hotel profits and consumer welfare and how much Airbnb hosts value the platform. Our simulations imply that Airbnb increases average consumer surplus and decreases hotel profits substantially. Airbnb hosts seem to value the platform moderately.
    Keywords: hotel industry; short-term rentals; localized competition; consumer welfare; sharing economy; peer-to-peer markets; Airbnb
    JEL: D4 D6 L1 Z38
    Date: 2023–09
  11. By: Papai, Zoltan; McLean, Aliz; Bukur, Tamas
    Abstract: This study examines the changes in consumer prices within the fixed broadband market in Hungary between 2020 and 2022, a period marked by unprecedented market consolidation. Leveraging a hedonic price regression methodology, we inspect price changes in the context of internet service provider (ISP) differences, inflation, and various service features offered in broadband plans. The hedonic method allows for quality-adjusted price tracking over time, in addition to offering insights into the intrinsic value placed on various plan characteristics by consumers. The overall hedonic price index calculated in this study shows a 9.9% decrease in quality-adjusted prices over two years, suggesting enhanced value-for-money for customers. This is striking next to over 20% inflation, as shown by the consumer price index. Moreover, our results show that there are no significant price differences between the wellestablished ISPs, while the challenger third player has continued to exert strong competitive pressure by applying significantly lower quality-adjusted prices. However, given this player's involvement in the recent market consolidation, we anticipate that their pricing will align more closely with other ISPs' in the future. The estimated intrinsic prices of the various fixed broadband plan characteristics are consistent with previous literature. The study underlines the utility of the hedonic methodology in providing nuanced insights into ISP pricing behaviour and fixed retail telecom market dynamics. The study opens up potential areas for future research, such as extending the analysis to television and voice telephony and monitoring future trends in light of the recent changes in market structure.
    Keywords: hedonic regression, telecommunications, fixed broadband, pricing, Hungary
    Date: 2023
  12. By: Andrea La Nauze; Erica Myers
    Abstract: We use an experiment to test whether consumers optimally acquire information on energy costs in appliance markets where, like many contexts, consumers are poorly informed and make mistakes despite freely-available information. We find consumers acquire information suboptimally; there is little correlation between the revealed utility gain from improved decision making due to information and willingness to pay for information. We compare two behavioral interventions to address consumer mistakes: a conventional subsidy for energy-efficient products and a non-traditional subsidy paying consumers to view information on energy costs. We show that paying for attention can target welfare improvements more effectively.
    JEL: D12 D83 D91 Q41
    Date: 2023–09
  13. By: Gene M. Grossman; Elhanan Helpman; Alejandro Sabal
    Abstract: Forward-looking investments determine the resilience of firms' supply chains. Such investments confer externalities on other firms in the production network. We compare the equilibrium and optimal allocations in a general equilibrium model with an arbitrary number of vertical production tiers. Our model features endogenous investments in resilience, endogenous formation of supply links, and sequential bargaining over quantities and payments between firms in successive tiers. We derive policies that implement the first-best allocation, allowing for subsidies to input purchases, network formation, and investments in resilience. The first-best policies depend only on production function parameters of the pertinent tier. When subsidies to transactions are infeasible, the second-best subsidies for resilience and network formation depend on production function parameters throughout the network, and subsidies are larger upstream than downstream whenever the bargaining weights of buyers are non-increasing along the chain.
    JEL: D21 D62
    Date: 2023–09
  14. By: Windekilde, Iwona; Henten, Anders
    Abstract: During the past few years, there has been a steeply increasing political interest in regulating Big Tech companies and digital platforms in general. For many years, from the establishment of the first Internet-based IT companies and onwards, the dominant political view has been that policymaking should, to a large extent, stay away from regulating or only lightly regulate the Internet-based industries. The risk of doing more harm than good would be too high - not having sufficient knowledge on how these industries would develop and risking constraining the innovativeness of the Internet-based industries. This has clearly changed today. In Europe as well as the US and elsewhere around the world, policy initiatives are taken to regulate Big Tech and the Internet-based industries in general. This applies to the protection of individuals/users/consumers as well as regulating competition. The reason is that a consensus has been gaining ground that we now have sufficient experience not only with the benefits to the economy, to users, and society as such of the developments of Internet and Internet-based industries but also with the downsides in terms of harm to individuals/users/consumers and social and political relations and institutions and to small and upcoming innovative companies. This has led to an increasing surge in rules and regulations for the protection of individuals as well as the competitive conditions on markets. The aim of this paper is to provide an overview of the ongoing and upcoming trends in Big Tech regulation with a focus on EU. Emphasis is on the Digital Markets Act (DMA) and the Digital Services Act (DSA) though it is well understood that there are other kinds of regulation that also affect digital platforms including Big Tech companies. (...)
    Date: 2023

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