nep-com New Economics Papers
on Industrial Competition
Issue of 2024‒01‒01
sixteen papers chosen by
Russell Pittman, United States Department of Justice

  1. Multibrand Price Dispersion By Mark Armstrong; John Vickers
  2. Search, Data, and Market Power By Groh, Carl-Christian
  3. Standard-essential patents, innovation, and competition By Wipusanawan, Chayanin
  4. Welfare Effects of Platforms' Exclusivity Clauses By Holler, Marit
  5. Can parallel airline alliances be welfare improving? The case of airline-airport vertical agreement. By Adrián, Nerja
  6. Artificial Intelligence and its Effect on Competition and Factor Income Shares By von Maydell, Richard
  7. Farm exits and competition on the land market: Evidence from spatially explicit data By Pennerstorfer, Dieter
  8. Algorithmic and Human Collusion By Werner, Tobias
  9. Information spillovers in experience goods competition By Chen, Zhuoqiong; Stanton, Christopher; Thomas, Catherine
  10. Time Use and the Efficiency of Heterogeneous Markups By Brian C. Albrecht; Tom Phelan; Nick Pretnar
  11. Demand and Supply Side Linkages in Exporting Multiproduct Firms By Carsten Eckel; Lisandra Flach; Ning Meng
  12. “Sherlocking” and Platform Information Policy By Jay Pil Choi; Kyungmin Kim; Arijit Mukherjee
  13. Policy-advising Competition and Endogenous Lobbies By Foerster, Manuel; Habermacher, Daniel
  14. Mergers and Acquisitions in the Service Sector By Ylhäinen, Ilkka; Pajarinen, Mika
  15. Antitrust Fines and Managerial Liability By Jens-Uwe Franck; Till Seyer
  16. Adverse selection in insurance By Dionne, Georges; Fombaron, Nathalie; Mimra, Wanda

  1. By: Mark Armstrong; John Vickers
    Abstract: We study a market in which several firms potentially each supply a number of “brands” of fundamentally the same product. In fashion, for example, a single firm might retail similar items under different labels and different prices. Consumers differ in which products they consider for their purchase, and firms compete using (multi-dimensional) mixed pricing strategies for their brands. Using relative elasticity conditions, we discuss when firms choose to offer uniform pricing across their brands, and when they use segmented pricing so that one “discount” brand is always priced below another. We solve duopoly models in which equilibria can be derived for all parameters. We discuss the impact of introducing a new brand, of imposing a requirement to set uniform prices across a firm’s brands, and of mergers between single-brand firms.
    Date: 2023–11–30
  2. By: Groh, Carl-Christian
    JEL: D43 D83 L13 L15
    Date: 2023
  3. By: Wipusanawan, Chayanin (Tilburg University, School of Economics and Management)
    Date: 2023
  4. By: Holler, Marit
    JEL: D43 D47 D62 L13 L22
    Date: 2023
  5. By: Adrián, Nerja
    Abstract: Parallel airline alliances have negative effects on consumers a priori; however, they can be counteracted if airports may modify the behavior of airlines. In particular, vertical airport–airline agreements allow the airport to influence the competition downstream market, changing the effects of parallel alliances. In this paper, we analyze the effects of parallel alliances in the context of competition between vertical airport–airline pairs competition. We show that under the influence of airports, parallel alliances are welfare improving, and the number of passengers increases, against former studies. These results offer a new brand of analyses to be considered by authorities that evaluate parallel alliances.
    Keywords: Airlines parallel alliances; Concession revenue sharing; Vertical agreements; Airports competition
    JEL: D43 D47 L13 L93 R49
    Date: 2022–11–26
  6. By: von Maydell, Richard
    JEL: L11 L13 L52 O33 D21
    Date: 2023
  7. By: Pennerstorfer, Dieter
    JEL: L13 L25 Q12 R14
    Date: 2023
  8. By: Werner, Tobias
    JEL: C90 D83 L13 L41
    Date: 2023
  9. By: Chen, Zhuoqiong; Stanton, Christopher; Thomas, Catherine
    Abstract: Trialing an experience good allows consumers to learn their value for the sampled good and also informs beliefs about their value for similar products. These demand-side information spillovers across products create a relatively well-informed group of potential future consumers for rival firms. When both switching consumers and repeat buyers are profitable, firms face reduced incentives to set a low initial price to attract inexperienced consumers. Switchers and repeat buyers are more likely to be profitable in new product categories that build on major innovations and when firms can price discriminate based on purchasing history. We suggest that competing products and services arising from new innovations often have demand-side information spillovers from any product trial and are, hence, settings where competing firms can make overall profits even when selling products that consumers perceive to be indistinguishable prior to initial trial.
    Keywords: experience goods; duopoly; behavior based price discrimination; product differentiation; information spillovers; No. 71903046) and the “Shenzhen Peacock Program” (No. GA11409002).
    JEL: J50
    Date: 2023–08–11
  10. By: Brian C. Albrecht; Tom Phelan; Nick Pretnar
    Abstract: What are the welfare implications of markup heterogeneity across firms? In standard monopolistic competition models, such heterogeneity implies inefficiency even in the presence of free entry. We enrich the standard model with heterogeneous firms so that preferences are non-separable in off-market time and market consumption and show that this changes the welfare implications of markup heterogeneity. In this context, homogeneity of markups is neither necessary nor sufficient for efficiency. The marginal cost of the marginal firm is weakly inefficiently high when off-market time and market consumption are complements and inefficiently low when they are substitutes, and the equilibrium allocation devotes weakly too few resources to firm creation. However, when off-market time and market consumption are perfect complements, markups are heterogeneous across firms and yet the equilibrium allocation is efficient.
    Keywords: monopolistic competition; markups; efficiency; time use; home production; elasticity of substitution; selection; heterogeneous firms
    JEL: D1 D4 D6 L1
    Date: 2023–11–16
  11. By: Carsten Eckel (LMU Munich, CESifo, CEPR); Lisandra Flach (LMU Munich, ifo Institute, CESifo, CEPR); Ning Meng (Nanjing University, CESifo)
    Abstract: Products produced by a multiproduct firm can be linked through demand linkages or supply linkages. On the demand side, changes in the price of one product can affect the demand for a firm's other products through shifts in consumer expenditures. This is commonly referred to as the cannibalization effect. On the supply side, joint inputs can create a dependency of one product's marginal costs on the output of other products. The existence of these linkages is important for how firms respond to shocks and has major implications for several performance measures, such as productivity and markups. This paper provides first empirical evidence for the existence of cannibalization linkages in presence of supply linkages, which is implied evidence for market power.
    Keywords: multiproduct firms; cannibalization effect; demand linkages; supply linkages; anti-dumping tariffs; quality; mark-ups;
    JEL: D21 D24 F12 F13 F14 L11 L15 L25
    Date: 2023–11–17
  12. By: Jay Pil Choi; Kyungmin Kim; Arijit Mukherjee
    Abstract: Platform-run marketplaces may exploit third-party sellers’ data to develop competing products, but potential for future competition can deter sellers’ entry. We explore how this trade-off affects the platform’s referral fee and its own entry decision. We first characterize the platform’s optimal referral fee under full commitment on entry decision and study its economic implications. We then analyze the extent to which the platform’s own information sharing policy substitutes for its commitment to entry. We characterize the platform’s optimal information policy and examine how it interacts with the platform’s fee structure. Our findings highlight the importance of considering the platform’s fee structure as a regulatory response in the policy debates on marketplace regulation.
    Keywords: hybrid platforms, referral fee, information design
    JEL: D82 D42 L10
    Date: 2023
  13. By: Foerster, Manuel; Habermacher, Daniel
    JEL: C72 D72 D82 D83
    Date: 2023
  14. By: Ylhäinen, Ilkka; Pajarinen, Mika
    Abstract: Abstract We examined mergers and acquisitions in the service sector and the effects of the transition to foreign ownership. We analyzed firm-level data encompassing 1, 243 service sector acquisitions that occurred from 2009–2018. The most foreign acquisitions occurred in the health and social services, business services, and trade; the largest shares were noted in health and social services, IT services, and communication. Larger firms with lower levels of cash flow and firms characterized by a growth-resource imbalance were most likely to be the targets of foreign acquisitions. After an acquisition, the target company’s equity ratio and profit before taxes decreased; however, effects on growth and employment remained limited.
    Keywords: Mergers and acquisitions, Service sector, Foreign ownership, Foreign company
    JEL: F23 F61 G34 L80
    Date: 2023–11–30
  15. By: Jens-Uwe Franck; Till Seyer
    Abstract: If an antitrust fine has been imposed on a company, the question of managerial recourse liability arises. We present court cases from the Netherlands, the UK, and Germany, in part denying managerial liability and claiming that it would undermine the fines’ deterrent effect. We analyse whether managerial liability should be limited or banned to prevent, on the one hand, the company or its shareholders being under-deterred or, on the other hand, the company’s management being over-deterred. Regarding the former, we argue that a ban of managerial liability – which would have to be accompanied by a ban on any other type of internal financial sanction – would take an indispensable governance instrument out of the hands of shareholders. This holds true despite the availability of D&O insurance. Regarding the latter, we identify risks of over deterrence but also see mitigating mechanisms at work. We conclude that, while a restriction on managerial liability may be regarded a reasonable measure, this should be viewed as lying within the discretion of company law legislation and jurisprudence but not as a mandatory implication of antitrust fining laws.
    Keywords: antitrust law, cartels, antitrust fines, deterrence, managerial liability, antitrust compliance, D&O insurance, EU law, principle of effectiveness
    JEL: K21 K22 K42 L40
    Date: 2023–05
  16. By: Dionne, Georges (HEC Montreal, Canada Research Chair in Risk Management); Fombaron, Nathalie (Université Paris-Nanterre); Mimra, Wanda (ESCP Business Schoo)
    Abstract: In this survey we present some of the more significant results in the literature on adverse selection in insurance markets. Sections 1 and 2 introduce the subject, and Section 3 discusses the monopoly model developed by Stiglitz (1977) for the case of single-period contracts, which has been extended by many authors to the multi-period case. The introduction of multi-period contracts raises issues that are discussed in detail; time horizon, discounting, commitment of the parties, contract renegotiation, and accident underreporting. Section 4 covers the literature on competitive contracts, where the analysis is more complicated because insurance companies must take competitive pressures into account when they set incentive contracts. As pointed out by Rothschild and Stiglitz (1976), there is not necessarily a Nash equilibrium when there is adverse selection. However, market equilibrium can be sustained when principals anticipate competitive reactions to their behavior. Multi-period contracting is discussed. We show that different predictions on the evolution of insurer profits over time can be obtained from different assumptions concerning the sharing of information between insurers about an individual's choice of contracts and accident experience. The roles of commitment and renegotiation between the parties to the contract are important. Section 5 introduces models that consider moral hazard and adverse selection simultaneously, and Section 6 covers adverse selection when people can choose their risk status. Section 7 discusses many extensions to the basic models such as risk categorization, multidimensional adverse selection, symmetric imperfect information, double-sided adverse selection, participating contracts, and nonexclusive contracting.
    Keywords: Adverse selection; insurance markets; monopoly; competitive contracts; self-selection mechanisms; single-period contracts; multi-period contracts; commitment; contract renegotiation; accident underreporting; risk categorization; participating contracts; nonexclusive contracting
    JEL: D80 D81 G22
    Date: 2023–11–30

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