nep-com New Economics Papers
on Industrial Competition
Issue of 2024‒01‒15
twelve papers chosen by
Russell Pittman, United States Department of Justice

  1. Media Mergers in Nested Markets By Martimort, David; Sand-Zantman, Wilfried
  2. Deciphering Algorithmic Collusion: Insights from Bandit Algorithms and Implications for Antitrust Enforcement By Frédéric Marty; Thierry Warin
  3. On large market asymptotics for spatial price competition models By Otsu, Taisuke; Sunada, Keita
  4. Two is enough: a flip on Bertrand through positive network effects By Renato Soeiro; Alberto Pinto
  5. Price dispersion in Uruguay By Klaczko Iael
  6. Supply Chain Shortages, Large Firms' Market Power, and Inflation By Francesco A. Franzoni; Mariassunta Giannetti; Roberto Tubaldi
  7. Consumer Search: What Can We Learn from Pre-Purchase Data? By Elisabeth Honka; Stephan Seiler; Raluca Ursu
  8. Dynamic Monopsony with Large Firms and Noncompetes By Axel Gottfries; Gregor Jarosch
  9. The Impact of New Free Trade Agreements on Incumbent Firms and Workers By Dale-Olsen, Harald
  10. Competition, Markups, and Inflation: Evidence from Australian Firm-level Data By Monique Champion; Chris Edmond; Jonathan Hambur
  11. Price parity clauses for hotel room booking: empirical evidence from regulatory change By Sean Ennis; Marc Ivaldi; Vicente Lagos
  12. Pricing with Contextual Elasticity and Heteroscedastic Valuation By Jianyu Xu; Yu-Xiang Wang

  1. By: Martimort, David; Sand-Zantman, Wilfried
    Abstract: We analyze the effect of media mergers in a model that stresses, on the one hand, the fact that media are two-sided platforms willing to attract advertisers and viewers and, on the other hand, that strong competitors have emerged to challenge traditional media on both sides. We show that a merger has two conflicting effects on traditional media’s incentives to invest in quality programs and to exploit their market power. When competition is primarily between traditional media, a Business-Stealing Effect dominates, and the merger is detrimental to advertisers and viewers. When the competition is mainly between the traditional media and their new competitors, an Ecosystem Effect dominates, and the merger benefits advertisers and viewers. We extend this setting to discuss the role of financial constraints that might limit investments in the quality of programs and show that the same effects are at play.
    Keywords: Media; competition; merger
    JEL: L82 L22 G34
    Date: 2023–12–05
  2. By: Frédéric Marty; Thierry Warin
    Abstract: This paper examines algorithmic collusion from legal and economic perspectives, highlighting the growing role of algorithms in digital markets and their potential for anti-competitive behavior. Using bandit algorithms as a model, traditionally applied in uncertain decision-making contexts, we illuminate the dynamics of implicit collusion without overt communication. Legally, the challenge is discerning and classifying these algorithmic signals, especially as unilateral communications. Economically, distinguishing between rational pricing and collusive patterns becomes intricate with algorithm-driven decisions. The paper emphasizes the imperative for competition authorities to identify unusual market behaviors, hinting at shifting the burden of proof to firms with algorithmic pricing. Balancing algorithmic transparency and collusion prevention is crucial. While regulations might address these concerns, they could hinder algorithmic development. As this form of collusion becomes central in antitrust, understanding through models like bandit algorithms is vital, since these last ones may converge faster towards an anticompetitive equilibrium. Cet article examine la collusion algorithmique du point de vue juridique et économique, mettant en évidence le rôle croissant des algorithmes dans les marchés numériques et leur potentiel comportement anticoncurrentiel. En utilisant les algorithmes de bandit comme modèle, traditionnellement appliqués dans des contextes de prise de décision incertaine, nous mettons en lumière la dynamique de la collusion implicite sans communication explicite. Sur le plan juridique, le défi réside dans le discernement et la classification de ces signaux algorithmiques, en particulier en tant que communications unilatérales. Sur le plan économique, la distinction entre une tarification rationnelle et des schémas collusifs devient complexe avec les décisions pilotées par des algorithmes. L'article met l'accent sur l'impératif pour les autorités de la concurrence d'identifier les comportements de marché inhabituels, laissant entendre un transfert du fardeau de la preuve aux entreprises pratiquant la tarification algorithmique. Équilibrer la transparence algorithmique et la prévention de la collusion est crucial. Bien que la réglementation puisse traiter ces préoccupations, elle pourrait entraver le développement des algorithmes. À mesure que cette forme de collusion devient centrale dans le domaine de la concurrence, la compréhension à travers des modèles tels que les algorithmes de bandit est essentielle, car ces derniers peuvent converger plus rapidement vers un équilibre anticoncurrentiel.
    Keywords: Algorithmic Collusion, Bandit Algorithms, Antitrust Enforcement, Unilateral Signals, Pricing Strategies, Collusion algorithmique, algorithmes de bandits, Application du droit de la concurrence, signaux unilatéraux, Stratégies de tarification
    JEL: L13 L41 K21
    Date: 2023–12–22
  3. By: Otsu, Taisuke; Sunada, Keita
    Abstract: In spatial price competition models, demand factors have correlation with prices through the markup so that their identification power decreases as the number of product grows. Asymptotic results indicate lack of consistency of the estimator due to weak instruments.
    Keywords: spatial price competition; weak instruments; Elsevier deal
    JEL: C13
    Date: 2024–01–01
  4. By: Renato Soeiro; Alberto Pinto
    Abstract: We discuss price competition when positive network effects are the only other factor in consumption choices. We show that partitioning consumers into two groups creates a rich enough interaction structure to induce negative marginal demand and produce pure price equilibria where both firms profit. The crucial condition is one group has centripetal influence while the other has centrifugal influence. The result is contrary to when positive network effects depend on a single aggregate variable and challenges the prevalent assumption that demand must be micro-founded on a distribution of consumer characteristics with specific properties, highlighting the importance of interaction structures in shaping market outcomes.
    Date: 2023–12
  5. By: Klaczko Iael
    Abstract: Retail prices for a product vary across time and places. The sources that drive price dispersion price dispersion can be grouped into three categories: (i) price differences across markets, (ii) price differences across stores in a market, and (iii) within-store price variation over time. I find there is price dispersion in the retail market in Uruguay. The decomposition shows that 39.16 percent is across-markets, 36.90 percent corresponds to across-store, and 23.94 percent over time. These results highlight the relevance of intertemporal pricing strategies of stores, and how they set prices at the local market to understand price dispersion. Nevertheless, in recent years across-market price dispersion has been increasing, which can imply a structural change of price dispersion sources. The price dispersion phenomenon and its decomposition are heterogeneous. Across products, stores, and over time I find differences in price dispersion as well as differences in the sources behind it.
    JEL: D4
    Date: 2023–11
  6. By: Francesco A. Franzoni (Universita della Svizzera italiana; Swiss Finance Institute; CEPR); Mariassunta Giannetti (Stockholm School of Economics; Swedish House of Finance; CEPR; ECGI); Roberto Tubaldi (BI Norwegian Business School)
    Abstract: We suggest an equilibrium mechanism for the widely debated argument that “greedflation” has fostered widespread price hikes. We construct firm and industry-level measures of supply chain backlogs and delivery delays and provide evidence that supply chain shortages lead to a decrease in competition at the industry level. We show that “star” firms acquire market shares and increase their markups and profitability relative to the smaller firms in the industry. We also show that the large increase in supply chain backlogs during the COVID-19 pandemic can help explain about 19% of the US inflation in industries with more asymmetric firm size distribution, where supply chain shortages are more likely to benefit large firms at the expense of smaller firms. Economic magnitudes are comparable in the international sample.
    Keywords: Supply Chains, Market Power, Inflation, Production Networks
    JEL: D2 E31 L11 G3
    Date: 2023–11
  7. By: Elisabeth Honka; Stephan Seiler; Raluca Ursu
    Abstract: Researchers are increasingly able to observe consumers’ behavior prior to a purchase, such as their navigation through a store or website and the products they consider. Such pre-purchase (or search) data can be valuable to researchers in a variety of ways: as an additional source of information to estimate consumer preferences, to understand how firms can influence the search process through marketing mix variables, and to analyze how limited information about products shapes market outcomes. We provide an overview of these three areas with a particular emphasis on online and offline retailing.
    Keywords: consumer search, limited information, consideration sets, retailing
    JEL: D43 D83 L13
    Date: 2023
  8. By: Axel Gottfries; Gregor Jarosch
    Abstract: How do noncompete agreements between workers and firms affect wages and employment in equilibrium? We build a tractable framework of wage posting with on-the-job search and large employers that provides a natural laboratory to assess anti-competitive practices in the labor market. We characterize the impact of market structure and show that noncompetes can sharply suppress wages. We validate the quantitative model with empirical evidence on the impact of mergers and noncompetes on employment and wages. Banning noncompetes in the US would raise wages by 4%. Wage gains are large when demand is inelastic, training costs are high, and when noncompetes are widespread.
    JEL: E0 J0
    Date: 2023–12
  9. By: Dale-Olsen, Harald (Institute for Social Research, Oslo)
    Abstract: Trade policies might affect firms' market power and their ability to reap product-market mark-ups. Thus, potentially they influence not only firms' economic performance, but also worker pay. Utilising panel-data on Norwegian Manufacturing exporters from 2005-18 and multi-product production function-estimation techniques and recent development within the literature on dynamic treatment effects in event studies with heterogeneous treatment effects, we show that free-trade agreements increase exports and return-on-assets for Norwegian incumbent exporters, but their mark-ups decline. On average, workers in these established firms benefit from free-trade agreements, but this depends on occupations, union strength and labour market tightness.
    Keywords: free-trade agreements, price-cost markups, profits, wages, multiproduct-function-estimation, dynamic treatment effects
    JEL: D24 F14 L11 J31 J42
    Date: 2023–12
  10. By: Monique Champion; Chris Edmond; Jonathan Hambur
    Abstract: Do variable profit margins play a substantial role in amplifying inflationary dynamics? Using detailed administrative micro data for Australia we find that: (i) there is some evidence that prices tended to increase by more in industries that had increasing markups over the 2004-2017 period, but (ii) passthrough from cost shocks to prices appears to be incomplete with no statistically significant increase in passthrough in the recent period, and (iii) there is evidence that passthrough is lower in less competitive industries. Viewed through the lens of macroeconomic models with variable markups, these facts are inconsistent with substantial inflation amplification. To generate substantial inflation amplification requires both that average passthrough is higher than is observed in Australian data and that passthrough is higher in less competitive industries. We calibrate a model with variable markups to match key facts from the Australian data. For our benchmark parameterization we find that, if anything, variable markups are predicted to dampen inflation.
    Keywords: inflation; markups; microdata; cost shocks; pass-through; industry concentration; competition
    Date: 2023–11
  11. By: Sean Ennis (UEA - University of East Anglia [Norwich]); Marc Ivaldi (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Vicente Lagos (IP Paris - Institut Polytechnique de Paris)
    Abstract: This paper examines the impact of most favored nation (MFN) clauses on retail prices, taking advantage of two natural experiments that changed vertical contracting between hotels and major digital platforms. The broad E.U. intervention narrowed the breadth of "price parity" obligations between hotels and major Online Travel Agencies (OTAs). Direct sales by hotels to customers subsequently became relatively cheaper. Comparisons with hotel pricing outside the E.U. confirm the reduction in prices for mid-level and luxury hotels. France and Germany went further and eliminated all price-parity agreements. This stronger intervention was associated solely with a significant additional price-reducing effect for mid-level hotels in Germany. Overall, wide MFNs are associated with higher retail prices. Regulating MFNs reduced prices with primary effects coming either from the narrow price-parity intervention or, perhaps, from direct sales becoming cheaper than OTAs in both E.U. and non-E.U. countries, and, interestingly, not from complete elimination of MFNs.
    Keywords: Price Parity Clause (PPC), Most favored nation (MFN), Most favored customer (MFC), Hotel Industry, Impact Evaluation, Online Travel Agency (OTA), digital platforms
    Date: 2023–05
  12. By: Jianyu Xu; Yu-Xiang Wang
    Abstract: We study an online contextual dynamic pricing problem, where customers decide whether to purchase a product based on its features and price. We introduce a novel approach to modeling a customer's expected demand by incorporating feature-based price elasticity, which can be equivalently represented as a valuation with heteroscedastic noise. To solve the problem, we propose a computationally efficient algorithm called "Pricing with Perturbation (PwP)", which enjoys an $O(\sqrt{dT\log T})$ regret while allowing arbitrary adversarial input context sequences. We also prove a matching lower bound at $\Omega(\sqrt{dT})$ to show the optimality regarding $d$ and $T$ (up to $\log T$ factors). Our results shed light on the relationship between contextual elasticity and heteroscedastic valuation, providing insights for effective and practical pricing strategies.
    Date: 2023–12

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