nep-com New Economics Papers
on Industrial Competition
Issue of 2024‒02‒05
eighteen papers chosen by
Russell Pittman, United States Department of Justice

  1. How Do Firms Respond to Unions? By Dodini, Samuel; Stansbury, Anna; Willén, Alexander
  2. Multi-unit auctions with uncertain supply and single-unit demand By Anderson, E.; Holmberg, P.
  3. Strategic Use of Product Delays to Shape Word-of-Mouth Communication By Alexei Parahonyak; Nick Vikander
  4. The Growth of Firms, Markets and Rents: Evidence from China By Daniel Berkowitz; Shuichiro Nishioka
  5. Cournot oligopoly: a discrete time sticky-prices paradox By Pierre Bernhard; Marc Deschamps
  6. Measuring the Deviations from Perfect Competition: International Evidence By Razzak, Weshah
  7. Trade Barriers and Market Power: Evidence from Argentina's Discretionary Import Restrictions By David Atkin; Joaquin Blaum; Pablo D. Fajgelbaum; Augusto Ospital
  8. Testing Collusion and Cooperation in Binary Choice Games By Erhao Xie
  9. Patient Costs and Physicians' Information By Michael J. Dickstein; Jihye Jeon; Eduardo Morales
  10. The Granular Origins of Agglomeration By KIKUCHI Shinnosuke; Daniel G. O'CONNOR
  11. Understanding markets with socially responsible consumers By Kaufmann, Marc; Andre, Peter; Kîoszegi, Botond
  12. Bidder-Optimal Information Structures in Auctions By Dirk Bergemann; Tibor Heumann; Stephen Morris
  13. Strategic Responses to Algorithmic Recommendations: Evidence from Hotel Pricing By Daniel Garcia; Juha Tolvanen; Alexander K. Wagner
  14. Valorisation des droits audiovisuels du football et équilibre économique des clubs professionnels : impacts d'une concurrence croissante inter-sports et intra-sport pour la Ligue 1 de football By Frédéric Marty
  15. Serving consumers in an uncertain world: A credence goods experiment By Balafoutas; Helena Fornwagner; Rudolf Kerschbamer; Matthias Sutter; Maryna Tverdostup
  16. Matching of Users and Creators in Two-Sided Markets with Departures By Daniel Huttenlocher; Hannah Li; Liang Lyu; Asuman Ozdaglar; James Siderius
  17. Dynamic investment strategies and leadership in product innovation By Dawid, Herbert; Keoula, Michel Y.; Kopel, Michael; Kort, Peter M.
  18. Disentangling Various Explanations for the Declining Labor Share: Evidence from Millions of Firm Records By Ann Harrison

  1. By: Dodini, Samuel (Dept. of Economics, Norwegian School of Economics and Business Administration); Stansbury, Anna (Institute for Work and Employment Research, Massachusetts Institute of Technology, Sloan School of Management); Willén, Alexander (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper provides a comprehensive assessment of the margins along which firms in Norway respond to increased union density, using legislative changes in the tax deductibility of union dues as a quasi-exogenous shock to firm-level unionization rates. Despite higher personnel costs driven by a union wage premium, the average manufacturing firm increases employment and scales up production, charges higher prices in the product market, enjoys higher nominal value added per worker, and experiences no decrease in profits. We show that this result is a direct implication of the labor- and product-market power that the average manufacturing firm possesses, in combination with a reallocation of inputs and industry revenue shares from smaller and less unionized firms to larger and more unionized firms. Larger firms are, therefore, increasing employment and output at the same time their ability to mark up prices is growing, thereby preventing negative profit effects. For the broader private sector in which firms do not hold much price- or wage-setting power, we observe the opposite result: the average firm reduces employment and profit falls. We synthesize these findings through a partial-equilibrium model of firm decision-making that incorporates union bargaining, product-market price-setting power, and labor market monopsony power.
    Keywords: Unions; Price pass-through; Firms; Market Power; Labor Costs
    JEL: D22 J30 J42 J51
    Date: 2023–12–22
  2. By: Anderson, E.; Holmberg, P.
    Abstract: We study multi-unit auctions where bidders have single-unit demand and asymmetric information. For symmetric equilibria, we identify circumstances where uniform-pricing is better for the auctioneer than pay-as-bid pricing, and where transparency improves the revenue of the auctioneer. An issue with the uniform-price auction is that seemingly collusive equilibria can exist. We show that such outcomes are less likely if the traded volume of the auctioneer is uncertain. But if bidders are asymmetric ex-ante, then both a price floor and a price cap are normally needed to get a unique equilibrium, which is well behaved.
    Keywords: Multi-unit auction, single-unit demand, uniform pricing, pay-as-bid, asymmetric information, publicity effect
    JEL: C72 D44 D82
    Date: 2023–12–29
  3. By: Alexei Parahonyak; Nick Vikander
    Abstract: This paper investigates the advantages a seller can gain by strategically creating product scarcity to manipulate consumer word-of-mouth communication. The seller offers a product of uncertain quality and sets a service speed that determines whether opinion leaders are immediately served or delayed when attempting to purchase the product. Opinion leaders subsequently share their experiences with other consumers, influencing these consumers’ beliefs about product quality and their purchase de cisions. We show that delaying opinion leaders can significantly impact consumer learning by altering both the content and level of word-of-mouth communication. Specifically, the content effect alone can incentivize the seller to delay opinion leaders, except in niche markets where private information is highly accurate. In settings where information about purchased products spreads more easily than information about delays, the level effect limits the potential for suppressing service speed, particularly in markets with high expected product quality and many opinion leaders.
    Date: 2023–01–12
  4. By: Daniel Berkowitz (University of Pittsburgh); Shuichiro Nishioka (West Virginia University)
    Abstract: The evidence for whether China become more competitive following its accession to the World Trade Organization (WTO) is mixed. Using recent methods for estimating markups and profit shares, this paper documents that Chinese manufacturing firms on average collected more rents after the accession because the rate of net entry of firms lagged the rapid growth of the domestic market. While the selection on large productive firms drove the rise in the aggregate markups in the United States (De Loecker et al, 2020), these competitive forces played a secondary role in China.
    Keywords: Markups, Profit shares, Net entry, Market expansion, Trade liberalization in China
    JEL: F13 L11 O19 O53
  5. By: Pierre Bernhard (MACBES Team, INRIA, Université de Côte d'Azur, France); Marc Deschamps (Université de Franche-Comté, CRESE, UR3190, F-25000 Besançon, France)
    Keywords: Sticky price, Cournot oligopoly, Dynamic Game, Discrete time
    JEL: C61 C72
    Date: 2024–01
  6. By: Razzak, Weshah
    Abstract: We use aggregated macroeconomic data for 43 countries to test the microeconomic condition for Perfect Competition, whereby the price level is equal to the marginal cost in the long run. We postulate two forms of Perfect Competition in the macro data: a weaker-form and a stronger-form. The former exists if the price level and the marginal cost share a common long-run trend; i.e., cointegrated. The latter exists if the market price and the marginal cost are equal in the long run.
    Keywords: Perfect Competition, price level, marginal cost, time series, cointgration, nonparametric
    JEL: C12 C13 C22 D01 D41
    Date: 2023–12–29
  7. By: David Atkin; Joaquin Blaum; Pablo D. Fajgelbaum; Augusto Ospital
    Abstract: Countries are increasingly turning to non-tariff barriers that are hard to measure and often illegal under WTO rules. What are the impacts of these policies, and what do they reveal about market power in international trade? We study a comprehensive system of discretionary import licenses imposed by Argentina, where we observe the universe of transaction-level requests and approval decisions between 2013 and 2015. Approvals varied across firms and products in a manner consistent with the government's trade and investment objectives, and over time to safeguard the current account. Interacting these sources of variation to construct an instrument, we estimate that stricter restrictions increased the prices paid by importers, a result that runs counter to competitive price-setting behavior. Informed by a model and a classifier-Lasso, the price and quantity responses identify—for each combination of importer, narrow product, and origin—which side (importer or exporter) holds market power. We find that larger importers are more likely to hold market power, and those trading with richer countries are less likely to. The market-power distribution strongly shapes the effects of quantitative restrictions and the magnitude of optimal tariffs. Import prices rose by 4% as a result of Argentina's import restrictions, but would have risen by 13% (fallen by 8%) had all foreign firms (Argentinian firms) held market power.
    JEL: F12 F13 F14
    Date: 2024–01
  8. By: Erhao Xie
    Abstract: This paper studies the testable implication of players’ collusive or cooperative behaviours in a binary choice game with complete information. In this paper, these behaviours are defined as players coordinating their actions to maximize the weighted sum of their payoffs. I show that this collusive model is observationally equivalent to an equilibrium model that imposes two restrictions. The first restriction is on each player’s strategic effect and the second one requires a particular equilibrium selection mechanism. Under the equilibrium condition, these joint restrictions are simple to test using tools in the literature on empirical games. This test, as suggested by the observational equivalence result, is the same as testing collusive and cooperative behaviours. I illustrate the implementation of this test by revisiting the entry game between Walmart and Kmart studied by Jia (2008). Under the equilibrium condition, Jia’s original estimates are consistent with the first restriction on the strategic effects, serving as a warning sign of potential collusion. This paper tests and rejects the second restriction on the equilibrium selection mechanism. Thus, the empirical evidence suggests that Walmart and Kmart did not collude on their entry decisions.
    Keywords: Econometric and statistical methods; Market structure and pricing
    JEL: C57 L13
    Date: 2023–11
  9. By: Michael J. Dickstein; Jihye Jeon; Eduardo Morales
    Abstract: Health insurance plans in the U.S. increasingly use price mechanisms to steer demand for prescription drugs. The effectiveness of these incentives, however, depends both on physicians' price sensitivity and their knowledge of patient prices. We develop a moment inequality model that allows researchers to identify agents' preferences without fully specifying their information. Applying this model to diabetes care, we find that physicians lack detailed price information and are more price-elastic than full-information models imply. We predict that providing physicians detailed information on prices at the point of prescribing can save patients 12-23% of their out-of-pocket costs for diabetes treatment.
    JEL: I11 I13 L0 L15
    Date: 2024–01
  10. By: KIKUCHI Shinnosuke; Daniel G. O'CONNOR
    Abstract: A few large firms dominate many local labor markets. This leaves workers vulnerable to firm-specific shocks. If one firm has a bad productivity shock in a small market, workers will be stuck with that unproductive employer, while in a large labor market, workers can move to another firm. Building on that insight, we present a model of local labor markets with a finite number of firms subject to idiosyncratic shocks. We show that there are increasing returns to scale which disappear as the number of firms goes to infinity. We also show that there can be under-entry of firms, especially in small markets. We then test the main mechanism in Japanese administrative data. We first confirm that payroll is less volatile in larger, less concentrated local labor markets. We also show that establishments with larger payroll shares respond less in adjusting employment to a demand shock. Finally, we propose a quantitative, granular model of economic geography with free entry of firms and costly mobility of workers across sectors and commuting zones that could be used to quantify our mechanisms and do counterfactuals.
    Date: 2024–01
  11. By: Kaufmann, Marc; Andre, Peter; Kîoszegi, Botond
    Abstract: Many consumers care about climate change and other externalities associated with their purchases. We analyze the behavior and market effects of such "socially responsible consumers" in three parts. First, we develop a flexible theoretical framework to study competitive equilibria with rational consequentialist consumers. In violation of price taking, equilibrium feedback nontrivially dampens a consumer's mitigation efforts, undermining responsible behavior. This leads to a new type of market failure, where even consumers who fully "internalize the externality" overconsume externality-generating goods. At the same time, socially responsible consumers change the relative effectiveness of taxes, caps, and other policies in lowering the externality. Second, since consumer beliefs about and preferences over dampening play a crucial role in our framework, we investigate them empirically via a tailored survey. Consistent with our model, consumers are predominantly consequentialist, and on average believe in dampening. Inconsistent with our model, however, many consumers fail to anticipate dampening. Third, therefore, we analyze how such "naive" consumers modify our theoretical conclusions. Naive consumers behave more responsibly than rational consumers in a single-good economy, but may behave less responsibly in a multi-good economy with cross-market spillovers. A mix of naive and rational consumers may yield the worst outcomes.
    Keywords: socially responsible consumers, social preferences, climate change, externalities, competitive equilibrium, regulation, taxes, caps
    JEL: D01 D11 D50 D62 D64 D91
    Date: 2023
  12. By: Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Stephen Morris (Massachusetts Institute of Technology)
    Abstract: We characterize the bidders' surplus maximizing information structure in an optimal auction for a single unit good and related extensions to multi-unit and multi-good problems. The bidders seeks to find a balance between participation (and the avoidance of exclusion) and efficiency. The information structure that maximizes the bidders surplus is given by a generalized Pareto distribution at the center of demand distribution, and displays complete information disclosure at either end of the Pareto distribution.
    Date: 2023–12–22
  13. By: Daniel Garcia; Juha Tolvanen; Alexander K. Wagner
    Abstract: We study the interaction between algorithmic advice and human decisions using high-resolution hotel-room pricing data. We document that price setting frictions, arising from adjustment costs of human decision makers, induce a conflict of interest with the algorithmic advisor. A model of advice with costly price adjustments shows that, in equilibrium, algorithmic price recommendations are strategically biased and lead to suboptimal pricing by human decision makers. We quantify the losses from the strategic bias in recommendations using as structural model and estimate the potential benefits that would result from a shift to fully automated algorithmic pricing.
    Keywords: advice, algorithmic recommendations, human decisions, adjustment cost, delegation
    JEL: D22 D83 L13
    Date: 2023
  14. By: Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: La valorisation des droits audiovisuels des compétitions sportives est une variable clé de l'équilibre économique des clubs professionnels, notamment du football français. La capacité à dégager un prix satisfaisant des procédures de mise en concurrence pour l'attribution des droits va dépendre de l'intensité de la concurrence pour le marché et de la qualité intrinsèque de ces derniers pour les diffuseurs. Selon que les droits apparaîtront comme des ressources 'essentielles' (en d'autres termes incontournables pour les diffuseurs), premia ou aisément substituables avec d'autres contenus le résultat de l'enchère sera très différent. Il s'agit ici de s'interroger sur une éventuelle érosion de la valeur des droits sur la Ligue 1 française qui procèderait d'une concurrence croissante d'autres sports ou d'autres compétitions footballistiques et sur les conséquences qu'elle pourrait avoir sur la viabilité économique des clubs professionnels.
    Keywords: droits audiovisuels, économie du football, contenus premia
    JEL: L13 L83
    Date: 2024–02
  15. By: Balafoutas (University of Exeter, United Kingdom, University of Innsbruck, Austria); Helena Fornwagner (University of Exeter, Austrian Institute of Economic Research (WIFO)); Rudolf Kerschbamer (University of Innsbruck, Austria); Matthias Sutter (Max Planck Institute for Research on Collective Goods, IZA Bonn, CESifo Munich, University of Cologne); Maryna Tverdostup (Vienna Institute for International Economic Studies, Austria)
    Abstract: Credence goods markets are prone to fraudulent behavior and market inefficiencies due to informational asymmetries between sellers and customers. We examine experimentally the effects of diagnostic uncertainty and insurance coverage on the information acquisition and provision decisions by sellers and the trading decisions by consumers. Our results reveal that diagnostic uncertainty is a major source of inefficiency by decreasing efficient service provision. Insurance coverage has a positive net effect on market efficiency, despite making information acquisition and efficient service provision less likely. We also examine the role of -s and of sellers’ prosociality in shaping service provision and information acquisition.
    Keywords: Credence goods, diagnostic uncertainty, insurance coverage, experiment
    JEL: C91 D82 G22
    Date: 2023–10
  16. By: Daniel Huttenlocher; Hannah Li; Liang Lyu; Asuman Ozdaglar; James Siderius
    Abstract: Many online platforms of today, including social media sites, are two-sided markets bridging content creators and users. Most of the existing literature on platform recommendation algorithms largely focuses on user preferences and decisions, and does not simultaneously address creator incentives. We propose a model of content recommendation that explicitly focuses on the dynamics of user-content matching, with the novel property that both users and creators may leave the platform permanently if they do not experience sufficient engagement. In our model, each player decides to participate at each time step based on utilities derived from the current match: users based on alignment of the recommended content with their preferences, and creators based on their audience size. We show that a user-centric greedy algorithm that does not consider creator departures can result in arbitrarily poor total engagement, relative to an algorithm that maximizes total engagement while accounting for two-sided departures. Moreover, in stark contrast to the case where only users or only creators leave the platform, we prove that with two-sided departures, approximating maximum total engagement within any constant factor is NP-hard. We present two practical algorithms, one with performance guarantees under mild assumptions on user preferences, and another that tends to outperform algorithms that ignore two-sided departures in practice.
    Date: 2023–12
  17. By: Dawid, Herbert; Keoula, Michel Y.; Kopel, Michael; Kort, Peter M. (Tilburg University, School of Economics and Management)
    Date: 2023
  18. By: Ann Harrison
    Abstract: This paper uses millions of records from a cross-country and time series database of both publicly listed and private companies to disentangle the role of technological change, market power, and globalization in driving a fall in the labor share. Labor shares are measured at the enterprise level as the share of total remuneration to workers in value-added. Technological change is measured using research and development expenditures or total factor productivity growth. Market power is measured using four firm and twenty firm concentration ratios and globalization is measured as export shares in total revenues. We also supplement the cross-country evidence with a more in depth look at China using its industrial census. The evidence suggests that between 1995 and 2019 the most important driver of falling labor shares was technological change. Greater market power (measured by firm concentration ratios) also contributed to lower labor shares, but the magnitudes are smaller. Finally, the evidence on globalization is mixed: trade shares are at times negatively associated with the labor share but in the case of China there is a strong positive relationship between exporting and labor shares at the enterprise level.
    JEL: F13 F16 J32
    Date: 2024–01

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